Innovation and Intellectual Property Issues in Homeland Security

Congressional research reportJan 17, 2008

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Innovation and Intellectual Property Issues in

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January 17, 2008

Congressional Research Service

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RL32051

CRS Report for Congress

Prepared for Members and Committees of Congress

Innovation and Intellectual Property Issues in Homeland Security

Summary

The U.S. government and private firms alike seek high technology solutions to detect and prevent

future terrorist attacks, as well as to respond to any future attacks that do occur. Some concerns

exist, however, that patents, trade secrets or other intellectual rights may impede the prompt,

widespread and cost-effective distribution of innovations that promote homeland security. In

2001, these concerns arose with respect to pharmaceutical CIPRO, an antibiotic that treats

inhalation anthrax. Some commentators called for the U.S. government to “override” a privately

owned patent in order to distribute CIPRO to persons who were potential anthrax victims.

Although the patent holder ultimately chose to increase production of CIPRO and lower costs,

this scenario remains a possibility for other technologies that bear upon homeland security.

Perhaps not fully appreciated during the CIPRO incident was the fact that existing laws provide

mechanisms for addressing potential conflicts between intellectual property rights and homeland

security needs. The principal statute concerning U.S. government use of intellectual property is

28 U.S.C. § 1498. This statute allows the federal government to exercise eminent domain

authority against private intellectual property rights. As a result, the federal government may use

patented inventions without the prior consent of the patent owner, subject to an obligation to

compensate the rights holder on a monetary basis. The federal government may not be enjoined

from infringement of an intellectual property right. Intellectual property owners may enforce this

government compensation obligation by bringing suit in the U.S. Court of Federal Claims.

A number of more specialized statutes, such as the Atomic Energy Act, also allow federal

government officials to declare a compulsory license with respect to a particular patent.

Reportedly these provisions have been used infrequently. Legislative initiatives have proposed

that U.S. law provide for other kinds of compulsory licenses, including a compulsory license that

the government could invoke during a public health emergency. Existing legislation and proposed

reforms should be evaluated in view of the Agreement on Trade-Related Aspects of Intellectual

Property Rights. This “TRIPS Agreement” places some limits on the ability of WTO member

states to award compulsory licenses for the use of a private person’s patented invention.

If an invention was developed using federal government funding, the government may possess

certain rights in that invention even though the government contractor obtained a patent. Many

entities of the federal government enjoy the statutory authority to purchase a patent or other

intellectual property right.

Several other statutes and legislative proposals also concern issues at the intersection of homeland

security and intellectual property. The Invention Secrecy Act controls the disclosure of inventions

that raise national security concerns. Legislative proposals would also call for patent term

extensions to award technological progress in anti-terrorism technologies.

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Contents

Fundamentals of Intellectual Property .........................................................................................2

Patent Policy.........................................................................................................................3

Patent Acquisition and Enforcement ......................................................................................4

Government Use of Privately Owned Intellectual Property ..........................................................5

Eminent Domain ...................................................................................................................6

Government Contractors .......................................................................................................8

Other Compulsory Licenses ..................................................................................................9

The Implications of the TRIPS Agreement .......................................................................... 10

Government-Sponsored Research........................................................................................ 11

Other Issues at the Interface Between Intellectual Property and Homeland Security................... 14

Government Purchase of Intellectual Property..................................................................... 14

The Invention Secrecy Act .................................................................................................. 15

Incentives for Bioterrorism Countermeasure Development .................................................. 15

Concluding Observations .......................................................................................................... 16

Contacts

Author Contact Information ...................................................................................................... 16

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errorist attacks on the World Trade Center and the Pentagon on September 11, 2001,

resulted in significant endeavors to combat terrorism and ensure homeland security.

Among other efforts, the U.S. government and private firms are seeking high technology

solutions to detect and prevent such attacks, as well as to respond to any future attacks that do

occur.1 Biometrics, digital surveillance and vaccines are among the anti-terrorism technologies

subject to current research. 2

The intellectual property laws have a role to play in the research and development of antiterrorism technologies. The patent system has long been viewed as a promoter of technological

development, including inventions that may aid homeland security efforts.3 On the other hand,

some commentators have expressed concern that the existence of intellectual property rights may

impede homeland security needs. 4 One possibility is that an individual or firm might own a patent

that covers an anti-terrorism technology. In such circumstances, the exclusive patent right may be

perceived as conflicting with the rapid and widespread deployment of that technology for

purposes of homeland security. 5 Intellectual property rights might also increase the market price

of the patented technology and limit the ability of others to further develop it.6 If the patent is

owned by a foreign individual or enterprise, then additional security complications may

potentially arise.

U.S. government demand for the antibiotic Cipro in late 2001 provides a past example of this

potential conflict. In October 2001, an unknown person or persons sent a refined form of the

bacteria Bacillus anthracis, commonly known as anthrax, through the U.S. mail to members of

Congress and members of the media. 7 The U.S. government responded by administering

treatment of a pharmaceutical compound known as “ciprofloxacin hydrochloride” to affected

individuals.8 Ciprofloxacin is sold under the trademark Cipro by the German firm Bayer AG.9

Although widely prescribed for several medical indications, Cipro was at that time the only

antibiotic approved by the U.S. Food and Drug Administration (FDA) for inhalation anthrax.10

As the incident proceeded, attention focused on the availability of large quantities of

ciprofloxacin hydrochloride for public use. Some observers noted that Bayer owned the pertinent

U.S. patents on ciprofloxacin hydrochloride and therefore possessed the ability to exclude other

See CRS Report RL31914, Research and Development in the Department of Homeland Security, by (name redacted).

CRS Report RL31669, Terrorism: Background on Chemical, Biological, and Toxin Weapons and Options for

Lessening Their Impact, by (name redacted),

Using Technology to Detect and Prevent Terrorism, Progressive Policy

Institute Policy Brief (January 2002).

Roger E. Schechter & (name redacted), Intellectual Property: The Law of Copyrights, Patents and Trademarks

(Thomson-West Group, St. Paul, Minnesota 2003).

See Matt Fleischer-Black, “The Cipro Dilemma,”34 The American Lawyer no. 1 (January 2002), 53.

See CRS Report RS21367, Emergency Preparedness and Response Directorate of the Department of Homeland

Security, by (name redacted).

See Grace K. Avedissian, “Global Implications of a Potential U.S. Policy Shift Towards Compulsory Licensing of

Medical Inventions in a New Era of ‘Super-Terrorism’,” 18 American University International Law Review (2002),

237.

See Stephen Engelberg & Judith Miller, “Sign of Escalating Threat,” New York Times (October 17, 2001), A1.

Kathleen Pender, “Cipro Had Big Boost From U.S.,” San Francisco Chronicle (October 25, 2001), D1.

Ibid.

See U.S. Food and Drug Administration, Approval Letter (August 30, 2000) (available at http://www.fda.gov/cder/

foi/nda/2000/19-537S038_Cipro_approv.pdf).

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pharmaceutical companies from selling generic versions of the drug in the United States.11

Additional commentators encouraged the U.S. government to purchase ciprofloxacin

hydrochloride from generic manufacturers, who had been producing and selling the drug in

foreign countries where Bayer did not possess patent rights.12 These commentators observed that

generic versions of ciprofloxacin hydrochloride were available for much lower prices than Bayer

was charging in the United States.13 Others went even further, calling for the U.S. government to

“override” Bayer’s patent and purchase ciprofloxacin hydrochloride from other suppliers.14

Subsequent events ultimately diffused public concern over the availability of Cipro. Bayer agreed

to reduce the prices it charged the U.S. government and to increase production.15 Also, the FDA

quickly approved alternative antibiotics for the treatment of certain strains of anthrax, including

the one used in the attacks.16 Nonetheless, this scenario remains a possibility for other

technologies that bear upon homeland security.

Perhaps not fully appreciated during the Cipro incident was the fact that existing laws provide

mechanisms for addressing potential conflicts between intellectual property rights and homeland

security needs.17 These mechanisms include a government taking of the intellectual property,

subject to reasonable compensation owed to the patent owner, as well as government purchase of

patents. Legislation introduced in the 107th Congress would have called for the award of a

compulsory patent license in the event of a public health emergency. Other current or proposed

legislation also relates to the intersection between intellectual property and homeland security,

including the Invention Secrecy Act and a proposed patent extension for firms that develop antiterrorism technologies. This report addresses each of these issues in turn.

Fundamentals of Intellectual Property

The term “intellectual property” identifies a number of legal instruments, including copyrights,

patents and trade secrets, that provide innovators with proprietary interests in their intangible

creations.18 Copyright provides authors with exclusive rights in their writings, visual works and

other works of authorship; patents relate to products, processes and other useful inventions; while

trade secret law concerns secret information that is of commercial value. 19 Discussion concerning

the intersection of homeland security issues and the intellectual property law has principally

See, e.g., U.S. Patent No. 4,670,444.

See Letter from Ralph Nader and James Love to Department of Health & Human Services Secretary Tommy

Thompson (October 18, 2001) (available at http://www.cptech.org/ip/health /cl/cipro/nadethom10182001.html).

Ibid.

See Press Release from U.S. Senator Charles E. Schumer, “Schumer: New Cipro Source Could Dramatically

Increase Supply,” available at http://www.senate.gov/schumer/state-101601_cipro.htm (October 16, 2001).

Keith Bradsher, “Bayer Agrees to Charge Government a Lower Price for Anthrax Medicine,” New York Times

(October 25, 2001), B8.

See U.S. Food and Drug Administration, Cipro (Ciprofloxacin Hydrochloride) for Inhalation Anthrax: Information

on Cipro for Consumers: Questions and Answers (November 14, 2001) (available at http://www.fda.gov/cder/drug/

infopage/cipro/cipro_faq.htm).

See Fleischer-Black, supra footnote 4.

Schechter & Thomas, supra footnote 3, at 1-2.

Gordon U. Sanford, III, “An Intellectual Property Roadmap: The Business Lawyer’s Role in the Realm of

Intellectual Property,” 19 Mississippi College Law Review (1998), 177.

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concerned patents. As a result, this report will focus upon the patent law, although its broader

discussion of the relationship between homeland security and intellectual property is applicable to

trade secrets, copyrights and other similar proprietary interests.

Patent Policy

By providing individuals with exclusive rights to their inventive products and processes, the

patent law allows innovators to secure the economic benefits of their discoveries. Absent a patent

system, competitors might readily be able to appropriate the benefits of an innovator’s research

and development efforts. Aware of these potential “free riders,” firms might devote few, if any

resources towards innovation. The patent law solves this market failure problem by providing

economic incentives for individuals and institutions to engage in research and development.20

The patent system is also said to encourage the disclosure of new technologies. 21 Each issued

patent must include a description sufficient to enable skilled artisans to practice the patented

invention. 22 Issued patents may also encourage others to “invent around” the patentee’s

proprietary interest. Others can build upon the patentee’s disclosure to produce their own

technologies that fall outside the exclusive rights associated with the patent. 23

Patent rights may also facilitate technology transfer.24 Absent patent rights, an inventor may have

no tangible asset to sell or license. In addition, an inventor might otherwise be unable to police

the conduct of a contracting party. Any technology or know-how that has been disclosed to a

prospective buyer might be appropriated without compensation to the inventor. The availability of

patent protection decreases the ability of contracting parties to engage in opportunistic behavior.

By lowering such transaction costs, the patent system may make technology-based transactions

more feasible. 25

The patent system 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. 26 Taking the steps necessary to maintain secrecy, such as implementing physical

security measures, imposes costs that may ultimately be unproductive for society.27 Also, while

the patent law obliges inventors to disclose their inventions to the public, 28 trade secret protection

Simone Rose, “Patent ‘Monopolyphobia’: A Means of Extinguishing the Fountainhead?,” 49 Case Western Reserve

Law Review 509 (1999).

Keith E. Maskus, “The Role of Intellectual Property Rights in Encouraging Foreign Direct Investment and

Technology Transfer,” 9 Duke Journal of Comparative and International Law (1998), 10.

35 U.S.C. § 112 (2006).

Rebecca S. Eisenberg, “Patents and the Progress of Science: Exclusive Rights and Experimental Use,” 56 University

of Chicago Law Review (1989), 1017.

Jonathan Eaton & Samuel J. Kortum, “Trade in Ideas: Patenting and Productivity in the OECD,” 40 Journal of

International Economics (1996), 251.

Robert P. Merges, “Intellectual Property and the Costs of Commercial Exchange: A Review Essay,” 93 Michigan

Law Review (1995), 1570.

American Law Institute, Restatement of Unfair Competition Third § 39 (1995).

David D. Friedman et al., “Some Economics of Trade Secret Law,” 5 Journal of Economic Perspectives (1991), 61.

35 U.S.C. § 112 (2006).

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requires firms to hold their protections in secret. The disclosure obligations of the patent system

may better serve the goals of encouraging the diffusion of advanced technological knowledge.

The patent system has long been subject to criticism, however. Some observers believe that the

patent system encourages industry concentration and presents a barrier to entry in some

markets. 29 Others believe that the patent system too frequently attracts speculators who prefer to

acquire and enforce patents rather than engage in socially productive activity.30 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 technical progress.31

When analyzing these contending views, it is important to note the lack of rigorous analytical

methods available for analyzing the effect of the patent law upon the U.S. economy as a whole.

The relationship between innovation and patent rights remains poorly understood. Concerned

observers simply do not know what market impacts would result from changing the patent term

from its current twenty-year period, for example.32 Consequently, current economic and policy

tools do not allow us to calibrate the patent system precisely in order to produce an optimal level

of investment in innovation.

Patent Acquisition and Enforcement

Patent rights do not arise automatically. Inventors must prepare and submit applications to the

U.S. Patent and Trademark Office (“USPTO”) if they wish to obtain patent protection. 33 USPTO

officials known as examiners then assess whether the application merits the award of a patent.34

In deciding whether to approve a patent application, a USPTO examiner will consider whether

the submitted application fully discloses and distinctly claims the invention.35 In addition, the

application must disclose the “best mode,” or preferred way, that the applicant knows to practice

the invention.36 The examiner will also determine whether the invention itself fulfills certain

substantive standards set by the patent statute. To be patentable, an invention must be useful,

novel and nonobvious. The requirement of usefulness, or utility, is satisfied if the invention is

operable and provides a tangible benefit. 37 To be judged novel, the invention must not be fully

anticipated by a prior patent, publication or other knowledge within the public domain.38 A

(name redacted), “Collusion and Collective Action in the Patent System: A Proposal for Patent Bounties,” University

of Illinois Law Review (2001), 305.

Ibid.

See Robert P. Merges & Richard R. Nelson, “On the Complex Economics of Patent Scope,” 90 Columbia Law

Review (1990), 839.

See F. Scott Kieff, “Property Rights and Property Rules for Commercializing Inventions,” 85 Minnesota Law Review

(2001), 697.

35 U.S.C. § 111 (2006).

35 U.S.C. § 131 (2006).

35 U.S.C. § 112 (2006).

Ibid.

35 U.S.C. § 101. (2006).

35 U.S.C. § 102 (2006).

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nonobvious invention must not have been readily within the ordinary skills of a competent artisan

at the time the invention was made. 39

The USPTO publishes most pending patent applications approximately 18 months after they are

filed.40 For example, if an inventor filed a patent application on August 1, 2006, then the USPTO

will make that application available to the public on or after February 1, 2008. Pre-grant

publication of patent applications potentially alerts interested parties of the possibility that a

patent might later be issued.41 However, if the inventor has abandoned the application, or has

certified that no patent applications on the same technology will be sought outside the United

States, then the USPTO will not publish the pending application. 42

If the USPTO allows the patent to be issued, the patent proprietor obtains the right to exclude

others from making, using, selling, offering to sell or importing into the United States the

patented invention.43 The maximum term of patent protection is ordinarily set at 20 years from

the date the application is filed. 44 The patent applicant gains no enforceable rights until such time

as the application is approved for issuance as a granted patent, however. Once the patent expires,

others may employ the patented invention without compensation to the patentee.

Patent rights do not enforce themselves. A patentee bears responsibility for monitoring its

competitors to determine whether they are using the patented invention or not. Patent proprietors

who wish to compel others to observe their intellectual property rights must usually commence

litigation in the federal district courts. The U.S. Court of Appeals for the Federal Circuit (“Federal

Circuit”) possesses exclusive national jurisdiction over all patent appeals from the district

courts.45 In turn, the U.S. Supreme Court possesses discretionary authority to review cases

decided by the Federal Circuit.46

Government Use of Privately Owned Intellectual

Property

Episodes such as the Cipro incident have raised the possibility that intellectual property rights

may clash with homeland security needs.47 If a firm owns a patent that covers an anti-terrorism

technology, the exclusive patent right may be perceived as impeding the rapid and widespread

deployment of that technology for purposes of homeland security. Current laws provide several

35 U.S.C. § 103 (2006).

35 U.S.C. § 122(b) (2006).

See Joseph M. Barich, “Pre-Issuance Publication of Pending Patent Applications: Not So Secret Any More,” Journal

of Law, Technology and Policy (Fall 2001), 415.

35 U.S.C. § 122(b) (2006).

35 U.S.C. § 271(a) (2006).

35 U.S.C. § 154(a)(2) (2006). Although patent term is based upon the filing date, the patentee gains no enforceable

legal rights until the USPTO allows the application to issue as a granted patent. A number of Patent Act provisions may

modify the basic 20-year term, considering examination delays at the USPTO and delays in obtaining marketing

approval for the patented invention from other federal agencies.

28 U.S.C. § 1295(a)(1) (2006).

28 U.S.C. §1254(1) (2006).

See supra notes 7-16 and accompanying text.

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possibilities for addressing this conflict, however. One option is a U.S. government taking of the

intellectual property, subject to reasonable compensation owed to the patent owner. Another is

that the federal government purchase any applicable patents from their owners. Legislative

proposals submitted before Congress have suggested additional mechanisms for resolving issues

at the interface between homeland security and intellectual property.

Eminent Domain

The U.S. government possesses the power to take private property for public use. For example,

the government may condemn a parcel of land in order to build a highway. This authority is

ordinarily termed “eminent domain.” This government right is not unlimited, however. In

particular, in some circumstances the government must compensate the property owner for use of

the property.48

These general principles are most frequently applied to real estate, but they generally apply to

intellectual property as well. 49 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 suit by private patent

owners in order to obtain compensation for government uses.50 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 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.51

Section 1498 potentially applies to the use of any patented invention by the federal government,

not necessarily those directly related to homeland security. To the extent the U.S. government

engages in such activities as filling abandoned mines52 or constructing highways, 53 it may be

subject to a suit under § 1498(a) if it uses a patented invention without authorization. Certainly a

number of these cases have concerned uses by the military, however.54 At least one § 1498 suit

CRS Report 97-122, Takings Decisions of the U.S. Supreme Court: A Chronology, by (name redacted).

Thomas F. Cotter, “Do Federal Uses of Intellectual Property Implicate the Fifth Amendment?,” 50 Florida Law

Review (1998), 529.

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.

28 U.S.C. § 1498 (2006).

Dow Chemical Co. v. United States, 226 F.3d 1334 (Fed. Cir. 2000).

Levine v. United States, 76 F. Supp. 716 (Ct. Cl. 1948).

E.g., Brunswick Corp. v. United States, 152 F.3d 946 (Fed. Cir. 1998) (camouflage screens designed to be draped

over military hardware); McCreary v. United States, 114 F.3d 1206 (Fed. Cir. 1997) (patented hovercraft invention

allegedly used in a U.S. Navy Amphibious Assault Landing Craft); Gargoyles, Inc. v. United States, 113 F.3d 1572

(Fed. Cir. 1997) (patented ballistic/laser protective eyewear alleged used by U.S. Army).

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involved the federal government use of the patented pharmaceutical meprobamate, an antianxiety agent.55

Under § 1498(a), all patent suits against the U.S. government are litigated in the U.S. Court of

Federal Claims. From 1855 through 1982, this tribunal was known as the U.S. Court of Claims,

and from 1982-1992 it was named the U.S. Claims Court.56 The Court of Federal Claims also

possesses jurisdiction over a number of other causes of action against the U.S. government,

including certain tax and government contract cases.57 The President appoints sixteen judges to

the Court of Federal Claims for fifteen-year terms.58 The Court of Federal Claims has national

jurisdiction, allowing the court to subpoena witnesses and documents anywhere in the United

States or its possessions.59

Court proceedings against the government under § 1498(a) 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.60 Unlike private patent suits, however, there are no jury trials in § 1498 cases.61

Appeals from the United States Court of Claims proceed to the U.S. Court of Appeals for the

Federal Circuit.62

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.63 The adjudicated infringer may also have to compensate the patent owner for

profits lost due to the infringement.64 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. 65

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.”66 A “reasonable royalty” for purposes of patent

See Carter-Wallace, Inc. v. United States, 496 F.2d 535 (Ct. Cl. 1974).

Peter Verchinski, “Are District Courts Still a Viable Forum for Bid Protests?,” 32 Public Contract Law Journal

(2003), 393.

28 U.S.C. § 1346 (2006); 41 U.S.C. § 609 (2006).

28 U.S.C. § 171 (2006).

28 U.S.C. § 2521 (2006).

28 U.S.C. § 516 (2006).

28 U.S.C. § 2402 (2006).

28 U.S.C. § 1295(a)(3) (2006).

28 U.S.C. § 283 (2006).

See Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978).

35 U.S.C. § 284 (2006).

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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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

use the patented article, in the market at a reasonable profit.”67 Finally, tripled damages for willful

infringement are not available against the government.68

The number of § 1498 suits has been relatively modest over the years. One commentator reports

that since 1949, the Court of Federal Claims and its predecessor courts have decided an average

of 5.5 cases per year.69 In the twelve-month period ending September 30, 2002, a total of 6 suits

under § 1498(a) were filed in the Court of Federal Claims. 70 This number compares with a total of

2,520 patent infringement suits filed against private defendants in the U.S. federal district courts

during the same period. 71

Government Contractors

Often the federal government purchases goods and services from private contractors. In the event

that a private contractor infringes a patent while performing obligations under a federal

government contract, § 1498 ordinarily applies. As a result, the patent proprietor’s infringement

remedy consists of an action in the Court of Federal Claims against the U.S. government. In such

cases the private contractor may not be enjoined from infringing the patent while performing a

government contract.

In the event the Court of Federal Claims decides that a patent infringement has occurred,

ordinarily the U.S. government pays any resulting monetary judgment. 72 If the contract between

the private contractor and federal government includes a so-called “patent indemnity” clause,

however, the private contractor may have to reimburse the federal government for any damages

owed for patent infringement. The Federal Acquisition Regulations (FAR) include a complex set

of rules that require a patent indemnity clause for certain government contracts, prohibit it for

others, and render the clause optional for still others. For example, the FAR requires that a

government contract for any kind of performance that normally appears for sale on the open

market include a patent indemnity clause.73 However, government contracts for small purchases,

or for performance that occurs outside the United States, may not contain a patent indemnity

clause. 74

Wright v. United States, 53 Fed. Cl. 466 (2002).

DeGraffenried v. United States, 228 Ct. Cl. 780 (1981).

Lavenue, supra footnote 50.

Administrative Office of the U.S. Courts, Judicial Business of the United States Courts 2002, U.S. Court of Federal

Claims—Cases Filed, Terminated and Pending for the 12-Month Period Ending September 30, 2002 (available at

http://www.uscourts.gov/judbus2002/appendices/g2asep02.pdf).

Administrative Office of the U.S. Courts, Judicial Business of the United States Courts 2002, U.S. District Courts—

Civil Cases Commenced, by Basis of Jurisdiction and Nature of Suit, During the 12-Month Period Ending September

30, 2002 (available at http://www.uscourts.gov/judbus2002/appendices/c02sep02.pdf).

Lavenue, supra footnote 50.

48 C.F.R. § 27.203-1(a).

48 C.F.R. § 27.203-1(b)(3), (4).

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Other Compulsory Licenses

As noted previously, 28 U.S.C. § 1498 provides a compulsory license in favor of the U.S.

government for the use of patented inventions. A modest number of additional compulsory

licenses exist within the U.S. patent system, each pertaining to specialized subject matter.75 For

example, the Atomic Energy Act allows for compulsory licenses “if the invention or discovery

covered by the patent is of primary importance in the production or utilization of special nuclear

material or atomic energy.”76 The Clean Air Act contains a similar provision relating to devices

for reducing air pollution.77 Finally, the Plant Variety Protection Act provides for the compulsory

licensing of seed-bearing plants that are protected by plant variety certificates, a patent-like

instrument granted by the Department of Agriculture. 78

Legal research completed in connection with this report has failed to discover even a single

instance where any of these compulsory licenses has actually been invoked. Plainly, none of these

provisions has been frequently employed in the past.79 Some commentators speculate that the

threat of a compulsory license usually induces the grant of contractual licenses on reasonable

terms. As a result, there is no need for the government to invoke a compulsory license formally.80

Legislation introduced in the 109th Congress would have created an additional compulsory license

in the patent law. H.R. 4131, the Public Health Emergency Medicines Act, would have allowed

the government to use the patented invention without the patent owner’s permission if the

Secretary of Health and Human Services determined that the invention is needed to address a

public health emergency. Under the bill, the Secretary of Health and Human Services would have

determined compensation for government use of the patented invention. The bill provided in part:

In determining the reasonableness of remuneration for use of a patent, the Secretary of

Health and Human Services may consider—

(1) evidence of the risks and costs associated with the invention claimed in the

patent and the commercial development of products that use the invention;

(2) evidence of the efficacy and innovative nature and importance to the public

health of the invention or products using that invention;

(3) the degree to which the invention benefitted from publicly funded research;

(4) the need for adequate incentives for the creation and commercialization of

new inventions;

(5) the interests of the public as patients and payers for health care services;

Dawson Chemical Co. v. Rohm and Haas Co., 448 U.S. 176 n.21 (1980).

42 U.S.C. § 2183 (2006).

42 U.S.C. § 7608 (2006).

7 U.S.C. § 2404 (2006).

See Kenneth J. Nunnenkamp, “Compulsory Licensing of Critical Patents Under CERCLA?,” 9 Journal of Natural

Resources and Environmental Law (1993-94), 397, 406 (noting that “there seems to have been no attempts to actually

use the compulsory licensing provision” of the Clean Air Act).

Stephen Pericles Ladas, Patents,Trademarks and Related Rights: National and International Protection (Cambridge,

Mass., Harvard University Press 1975), 427.

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(6) the public health benefits of expanded access to the invention;

(7) the benefits of making the invention available to working families and retired

persons;

(8) the need to correct anti-competitive practices; and

(9) other public interest considerations.81

The Implications of the TRIPS Agreement

A leading international agreement on intellectual property bears upon the availability of

compulsory licenses under U.S. law.82 The TRIPS Agreement, or Agreement on Trade-Related

Aspects of Intellectual Property Rights, forms one component of the treaties comprising the

World Trade Organization (WTO).83 The TRIPS Agreement addresses a number of intellectual

property laws, including patents, copyrights, trademarks and trade secrets. In part this agreement

requires WTO signatory states, including the United States, to ensure that their intellectual

property laws comply with specified standards.

Part III of the TRIPS Agreement addresses compulsory licenses. As noted above, compulsory

licensing refers to the grant of a license by a government to a third party to use a patent without

the authorization of the patent holder.84 The TRIPS Agreement places some limits upon the ability

of WTO member states to award compulsory licenses for the use of a private person’s patented

invention. Among the most detailed provisions of the TRIPS Agreement, Article 31 imposes in

part the following restrictions upon the issuance of compulsory licenses:

•

Each application for a compulsory license must be considered on its individual

merits.

•

The proposed user must have made efforts to obtain authorization from the patent

owner on reasonable commercial terms and conditions and must demonstrate that

such efforts have not been successful within a reasonable period of time.

However, this requirement may be waived in the case of a national emergency or

other circumstances of extreme urgency.

•

Any such use shall be authorized predominantly for the supply of the domestic

market of the member authorizing such use.

•

The compulsory license must be revocable if and when its motivating

circumstances cease to exist and are unlikely to recur.

•

The patent owner must be paid adequate remuneration in the circumstances of

each case, taking into account the economic value of the authorization.

H.R. 4131, Section 2 (proposing to add a new § 158 to the Patent Act). The bill had been previously introduced in the

109th Congress as H.R. 4102.

See CRS Report RL31132, Multinational Patent Acquisition and Enforcement: Public Policy Challenges and

Opportunities for Innovative Firms, by (name redacted).

See Agreement on Trade-Related Aspects of Intellectual Property Rights, April 15, 1994, Annex 1C, 33 I.L.M. 1197

(1994) [hereinafter “TRIPS Agreement”].

See supra notes 49-50 and accompanying text.

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•

The legal validity of any decision relating to the authorization of such use shall

be subject to judicial or other independent review.

In light of this obligation, any proposed compulsory licensing provision may need to be examined

for its compliance with the TRIPS Agreement. It should be noted that in the 109th Congress, the

proposed Public Health Emergency Medicines Act, H.R. 4131, included the following provision:

CONSISTENCY WITH TRIPS- The Secretary of Health and Human Services may adopt

regulations to implement the purposes of this section, consistent with the Agreement on

Trade-Related Aspects of Intellectual Property Rights referred to in section 101(d)(15) of the

Uruguay Round Agreements Act.

In the event that a U.S. law did not comply with the TRIPS Agreement standard, the possibility

exists that the United States could be called before the WTO Dispute Settlement Body (DSB).85

Under the WTO agreements, if one WTO member state believes that another member state is in

violation of the TRIPS Agreement, the member states may enter into consultation through the

DSB. If the member states cannot resolve their dispute, then the DSB will convene a panel to hear

and resolve the dispute. Panel decisions are subject to review by the DSB Appellate Body. The

WTO Agreement calls for compensatory trade measures in circumstances where the DSB finds a

member state to be in violation of the TRIPS Agreement, yet that member does not amend its

laws.86

In addition to the possibility of trade sanctions under the TRIPS Agreement, policy makers at the

intellectual property-homeland security interface should be aware of recent U.S. foreign policy

that has supported the creation of strong patent rights overseas. Many commentators credit the

United States with incorporating minimum standards for patent protection within the framework

of the WTO.87 Since the TRIPS Agreement came into effect, the United States has continued to

encourage other countries to limit the issuance of compulsory licenses. 88 Some commentators

believe that calls from certain U.S. government officials to “override” Bayer’s Cipro patent have

made it difficult to defend the U.S. view that developing countries should avoid issuing

compulsory patent licenses to address their own domestic health needs.89 As a result, if future

discussion occurs over potential reforms to the patent system in view of homeland security needs,

it may be advisable to account for possible U.S. foreign policy implications.

Government-Sponsored Research

Some patented inventions of interest to homeland security may have resulted from government

funding of research and development that was performed by the private sector.90 Current laws set

Understanding on Rules and Procedures Governing the Settlement of Disputes, 15 April 1994, WTO Agreement,

Annex 2, Legal Instruments—Results of the Uruguay Round vol. 31, 33 International Legal Materials (1994), 1226.

Mark Clough, “The WTO Dispute Settlement System—A Practitioner’s Perspective,” 24 Fordham International

Law Journal (2000), 252.

E.g., Susan K. Sell, “Industry Strategies for Intellectual Property and Trade: The Quest for TRIPS, and Post-TRIPS

Strategies,” 10 Cardozo Journal of Comparative and International Law (2002), 79.

See Ellen ‘t Hoen, “TRIPS, Pharmaceutical Patents, and Access to Essential Medicines: A Long Way from Seattle to

Doha,” 3 Chicago Journal of International Law (2002), 27.

Divya Murthy, “The Future of Compulsory Licensing: Deciphering the Doha Declaration on the TRIPS Agreement

and Public Health,” 17 American University International Law Review (2002), 1299.

See CRS Report RS21542, Department of Homeland Security: Issues Concerning the Establishment of Federally

(continued...)

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the balance of rights and responsibilities between the federal government and private researchers

concerning patented inventions. As the federal government has increased funding for research and

development of anti-terrorism technologies,91 public-private intellectual property ownership

issues may be increasingly important in the field of homeland security.

The Bayh-Dole Act governs the ownership of patent rights in inventions resulting from research

and development supported by federal government funding. 92 The Bayh-Dole Act is the popular

name for P.L. 96-517, which is codified in sections 200-212 of Title 35 of the U.S. Code.93 The

Bayh-Dole Act establishes a presumption that ownership of all patent rights in governmentfunded research will vest in any contractor who is a nonprofit research institution or small

business. 94 A 1987 presidential memorandum instructed federal agencies to apply some BayhDole rights to all contractors, regardless of their size.95

The purpose of the Bayh-Dole Act was to encourage companies to undertake the additional

efforts necessary to bring government-funded inventions to the marketplace. Experience showed

that without title to an invention, firms were less likely to commit resources to commercialize

inventions. By providing universities, nonprofit institutions and small businesses with intellectual

property rights, Congress intended both to promote collaboration between commercial concerns

and nonprofit organizations, as well as to promote the commercialization and public availability

of inventions.96

The Bayh-Dole Act describes in some detail the license given to the federal government on any

subject invention made under a government contract. The contractor may elect to retain title to

the invention unless the U.S. government determines that it is in the nation’s best interest to take

title to the invention. 97 If the U.S. government makes this determination, the U.S. government

must pursue a lengthy process of justifications and approvals before it can take title under the

statute. If the contractor is allowed to retain title, the federal government receives “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.”98 This license is not

negotiable and is the minimum that the government receives under a procurement contract, grant,

or cooperative agreement. This minimum license allows the government to use the intellectual

property for its own purposes and to give such intellectual property to any other entity, including

another commercial entity, to build or to use on the government’s behalf.99

(...continued)

Funded Research and Development Centers (FFRDCs), by (name redacted).

See Morgan, supra footnote 1.

35 U.S.C. § 210 (2006).

See Diane M. Sidebottom, “Updating the Bayh-Dole Act: Keeping the Federal Government on the Cutting Edge,” 30

Public Contract Law Journal (2001), 225.

35 U.S.C. § 202 (2006).

See Exec. Order No. 12,591, 3 C.F.R. 220 (1988).

See CRS Report RL30320, Patent Ownership and Federal Research and Development (R&D): A Discussion on the

Bayh-Dole Act and the Stevenson-Wydler Act, by (name redacted).

35 U.S.C. § 202(a) (2006).

35 U.S.C. § 202(c)(4) (2006).

Sidebottom, supra footnote 93.

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The Bayh-Dole Act also provides for so-called “march-in rights.” The U.S. government can

require the contractor to grant reasonable licenses to third parties under a specific set of

circumstances. For example, if a patentee fails to take effective steps in a reasonable amount of

time to achieve practical application of the invention, or the action is necessary for public health

and safety reasons, or is required by public use regulations, the federal government can require a

contractor to grant a license or can even grant a license itself.100

The federal government has also established “data rights regulations” that operate independently

of the Bayh-Dole Act. These regulations apply both to “technical data” and computer software

produced during the performance of government contracts.101 The term “technical data” includes

research and development data, engineering drawings, manuals and any other recorded

information of a scientific or technical nature that is proprietary to the government contractor.102

The data rights regulations provide the federal government with the right to access and utilize

computer software and technical data that belongs to government contractors. The regulations

also establish conditions under which contractors can maintain rights in their software and data

against the government.103

The data rights regulations have been described as “some of the most complicated regulations in

the government procurement system.”104 In brief, however, when technical data and computer

software are developed by a contractor exclusively with federal funds, the United States enjoys

“unlimited rights” to use the information and freely disclose it to others.105 In other

circumstances, however, the government obtains more restrictive rights to use contractor

technical data and software. For example, if the government has funded only part of the costs of

developing technical data, and the contractor indicates that the data is confidential, then in some

circumstances the government has a reduced ability to share the data with others and must

maintain the data as confidential.106

Opinions vary on whether the Bayh-Dole Act and data rights regulations have been fair and

effective. Some commentators believe that these rules are inflexible and overly favor the

government’s position vis-a-vis contractors. For example, Richard N. Kuyath, an attorney in the

Office of General Counsel of Minnesota Mining and Manufacturing Company (3M), contends

that unless the laws are reformed to improve the intellectual position of government contractors,

“many commercial laboratories will continue to refuse government-sponsored R&D.”107 Attorney

Diane Sidebottom has argued in accord, contending that current government contracting rules are

too rigid and lead to “one size fits all” thinking. In her view, the governing laws and regulations

should be changed to “encourage flexibility in the negotiation of intellectual property rights in

100

35 U.S.C. § 203 (2006). See Tamsen Valoir, “Government Funded Inventions: The Bayh-Dole Act and the Hopkins

v. Cellpro March-In Rights Controversy,” 8 Texas Intellectual Property Law Journal (2000), 211.

101

See Lionel M. Lavenue, “Technical Data Rights in Government Procurement: Intellectual Property Rights in

Computer Software and the Indicia of Information Systems and Information Technology,” 32 University of San

Francisco Law Review (1997), 1.

102

48 C.F.R. § 27.401 (2002).

103

See generally Leonard Rawicz & Ralph C. Nash, Jr., Intellectual Property in Government Contracts: Technical

Data Rights (Commerce Clearing House 2001).

104

Lavenue, supra footnote 101, at 31.

105

10 U.S.C. § 2320(a)(2)(A) (2006).

106

Lavenue, supra footnote 101, at 58-64.

107

Richard N. Kuyath, “Barriers to Federal Procurement: Patent Rights,” 36 Procurement Law (Fall 2000), 1.

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Innovation and Intellectual Property Issues in Homeland Security

government contractual arrangements.”108 On the other hand, controversy continues over the

ability of government contractors to obtain valuable proprietary interests in the fruits of research

that was financed by taxpayer dollars.109

Other Issues at the Interface Between Intellectual

Property and Homeland Security

Alongside the various laws pertaining to U.S. government use of subject matter protected by an

intellectual property right, other legislation relates to the issues at the intersection of homeland

security and intellectual property. This report next considers the more significant of these statutes.

Government Purchase of Intellectual Property

In addition to invoking a compulsory license of a proprietary right, another government option is

to seek a voluntary license, or simply purchase outright, an intellectual property right that pertains

to homeland security. Congress has already authorized the Armed Forces to license, or purchase

outright, patents and other proprietary rights:

Funds appropriated for a military department available for making or procuring supplies may

be used to acquire any of the following if the acquisition relates to supplies or processes

produced or used by or for, or useful to, that department:

(1) Copyrights, patents, and applications for patents.

(2) Licenses under copyrights, patents, and applications for patents.

(3) Design and process data, technical data, and computer software.

(4) Releases for past infringement of patents or copyrights or for unauthorized

use of technical data or computer software.110

This legislation provides for a voluntary negotiation between the Armed Forces and the

intellectual property rights holder. The extent to which the Armed Forces, or any other federal

government entity, has in fact licensed or purchased an intellectual property right from a private

party is unclear. Notably, if a U.S. government entity in fact uses the patented invention without

authorization, the maximum extent of its liability is “reasonable and entire compensation” to the

patent owner within the meaning of 28 U.S.C. § 1498. This amount is ordinarily set to the value

of a voluntarily negotiated license, an amount presumably less than the total worth of the

intellectual property right.111 Given the availability of 28 U.S.C. § 1498, the ability to license or

purchase an intellectual property may be of comparatively limited value to the government.

108

Sidebottom, supra footnote 93, at 241.

E.g., Brett Frischmann, “Innovation and Institutions: Rethinking the Economics of U.S. Science and Technology

Policy,” 24 Vermont Law Review (2000), 347.

110

10 U.S.C. § 2386 (2006).

111

See supra notes 66-68 and accompanying text.

109

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The Invention Secrecy Act

Although technological innovations may contribute to the solution of national security problems,

in some circumstances the disclosure of new technologies may itself lead to possible homeland

security issues.112 Recognizing this potential, Congress enacted the Invention Secrecy Act of 1951

in order to control the disclosure of certain inventions based upon concerns of national security. 113

Under the act, the Director of the USPTO possesses the power to withhold from issuance patent

applications due to national security concerns. If the Director believes that the disclosure of a

particular invention may be detrimental to national security, he makes the patent application

available to the head of the appropriate defense agency.114 If that individual agrees with the

Director’s assessment, the Director may issue a secrecy order on that patent application. This

order obliges the applicant not to disclose the invention to others for the duration of the order.115

Failure to comply results in the rejection of the patent application and possibly a fine and

imprisonment.116

Secrecy orders are announced for one-year periods.117 They may be renewed on an annual basis

upon a showing by the appropriate agency head that the national interest continues to support the

secrecy order. Secrecy orders can be terminated prematurely if these national security interests

cease to exist.118

Inventors whose applications are subject to a secrecy order are entitled to certain relief. First,

applicants may file a petition to have the secrecy order withdrawn.119 Applicants whose patents

have been withheld due to a secrecy order have a right to compensation.120 If a patent does

ultimately issue from an application that was subject to a secrecy order, the patent is entitled to

term extension on a day-per-day basis for the length of the secrecy order. Because the 20-year

patent term is ordinarily based upon the filing date, this provision ensures that the inventor

receives the same term that he would have had the patent been issued without a secrecy order. 121

Incentives for Bioterrorism Countermeasure Development

During the 109th Congress, several bills were introduced (although not enacted), including S. 3,

the Protecting America in the War on Terror Act, S. 975, the Project Bioshield II Act, and S. 1873,

the Biodefense and Pandemic Vaccine and Drug Development Act, that would have generated

112

See CRS Report RL31845, "Sensitive But Unclassified" and Other Federal Security Controls on Scientific and

Technical Information: Background on the Controversy, by (name redacted).

113

Invention Secrecy Act of 1951, ch. 4, 66 Stat. 3 (1952). See Sabing H. Lee, “Protecting the Private Inventor Under

the Peacetime Provisions of the Invention Secrecy Act,” 12 Berkeley Technology Law Journal (1997), 345.

114

35 U.S.C. § 181 (2006).

115

35 U.S.C. § 181 (2006).

116

35 U.S.C. § 186 (2006).

117

35 U.S.C. § 181 (2006).

118

Ibid.

119

37 C.F.R. § 5.4 (2006).

120

35 U.S.C. § 183 (2006).

121

See James W. Parrett, Jr., “A Proactive Solution to the Inherent Dangers of Biotechnology: Using the Invention

Secrecy Act to Restrict Disclosure of Threatening Biotechnology Patents,” 26 William & Mary Environmental Law &

Policy Review (2001), 145.

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additional incentives for the creation of new technologies to counteract potential biological

threats. S. 3 and S. 975 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. The proposed legislation

also would have provided for additional FDA-administered marketing exclusivities for eligible

and designated countermeasures. S. 1873 would have permitted a countermeasure product to

qualify as an orphan drug and thereby obtain a ten-year period of marketing exclusivity. These

unenacted legislative proposals are addressed in greater detail in a separate report.122

Concluding Observations

Intellectual property is an important consideration for the federal government as it shapes

homeland security policy. Policy makers should be aware that there is a long history of using

patents in order to encourage innovation, accompanied by legislative safeguards that protect

government interests. In particular, existing law allows intellectual property owners to obtain

compensation should the government use privately owned intellectual property to protect public

health and safety without prior authorization. This and other laws attempt to achieve the goals of

the prompt, widespread use of critical anti-terrorism technologies, along with the continued

encouragement of firms to use their research and development capabilities to help the government

fight terrorism in the future.

Author Contact Information

(name redacted)

122

See CRS Report RL32917, Bioterrorism Countermeasure Development: Issues in Patents and Homeland Security,

by (name redacted) and (name redacted).

Congressional Research Service

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