World War II-Style Mobilization Order May Carry Risks

(Bloomberg) -- Automaker General Motors Co. and Elon Musk, the CEO of Tesla Inc. and SpaceX, have offered to make hospital ventilators, and other manufacturers are being called upon by the Trump administration to quickly make 500 million N95 air-filtering respirator masks.

But as companies help government fight the coronavirus pandemic in a potential World War II-style mobilization, they are venturing into a legal minefield over patents.

“I don’t want to be the jerk saying people shouldn’t do things to save people’s lives,” but potential contractors “should have eyes wide open,” said Ranga Sudarshan of Covington & Burling, a Washington lawyer, who represents government contractors in intellectual property disputes at the U.S. Court of Federal Claims.

There are hundreds of patents on things related to N95 respirators, the gold standard used to protect health-care workers from transmission, according to data compiled by Bloomberg. Among the owners are the U.S. government, 3M Co., paper and health-care companies, individuals and universities.

Yet public pushback against lawsuits in a time of crisis can be swift.

Earlier this month, Labrador Diagnostic LLC, a patent-licensing firm owned by SoftBank Group Corp.’s Fortress Investment Group, filed a patent-infringement suit against bioMerieux SA, a French company developing coronavirus tests. Even though Labrador later said the suit wasn’t over Covid-19 tests but infectious disease diagnostic tests that predate discovery of the virus, it was blasted in news articles and on Twitter as being “pure evil” and as “greed in the apocalypse.”

Labrador later announced it would offer its patents royalty-free for any company developing a coronavirus test. Gordon Runte, managing director of Fortress, said in an interview that he took 50 threatening calls.

“I don’t know what else to do here to prove we weren’t aware of the Covid-19 testing plans,” he said. “We’re not Satan. We’re good human beings here, and still we’re being thrown under a freight train.”

Patent wars have been waged in nearly every industry yet there are questions about whether litigators will take a break as coronavirus ravages Americans and the economy.

President Donald Trump signed an executive order Wednesday that cites the Defense Production Act, which can force companies to break or delay other contracts to satisfy the prioritized orders, said Christoph Mlinarchik, a government contracts expert.

Trump, in a tweet after signing the order, said he would invoke the act only as a “worst case scenario in the future,” but some Democrats are calling on him to invoke it now, saying time was lost while Trump downplayed the threat of the virus in January and February.

Such orders, Mlinarchik said, “may cause short-term havoc for business relationships,” but “what company would be foolish enough to stain themselves with the long-term stigma of refusing to prioritize or allocate medical supplies during a national emergency and pandemic?”

Concerns that patent-infringement claims would deter contractors in a time of national emergency goes back more than a century. In April 1918, Acting Secretary of the Navy Franklin D. Roosevelt warned that the exposure of patent suits made manufacturers “reluctant to take contracts that may bring such severe consequences.”

As a result, federal law ensures that patent owners can’t block the use of any patented invention for something made on behalf of the government.

But it doesn’t stop them from pursuing royalty payments in lawsuits against the government at the U.S. Court of Federal Claims in Washington. In some instances, the contractors have to indemnify the government, which puts the contractors on the hook for any royalty demands.

Many companies have social responsibility policies that would limit suits but companies that lose out on government contracts may be tempted to seek compensation for their intellectual property, especially when the emergency slows, Sudarshan said.

Pandemic Profits?

A recent trial in Delaware revealed how even tangential connections to the pandemic can roil legal teams. Pacific Biosciences of California Inc. contends a federal jury in Delaware invalidated its patents for a hand-held DNA sequencer because the defendant falsely claimed tests to learn how coronavirus works would be unavailable if the patent owner won. In a statement, PacBio accused its rival of trying “to profit from the current coronavirus pandemic.”

The dire health situation can lead to an “act now, worry later” attitude. An Italian company used its 3-D printer to make copies of a needed valve for ventilators that was patented by another company. The original designer refused to release design files, so they had to be reverse-engineered, the Verge reported.

For some of those stepping up, what’s more important is making sure their products are safe. Fashion designers like “Project Runway” star Christian Siriano have worked with state and local governments to pivot their operations into making non-medical masks and hospital gowns, the New York Times reported.

Citizen groups have been vocal in demanding that patents not get in the way of a vaccine or treatment being widely -- and cheaply -- available.

“We need to set aside outdated ideas about monopolies and exclusivities and focus on sharing knowledge and solidarity,” Robert Weissman, president of the nonprofit group Public Citizen, wrote Monday.

Drugmakers are aware of the public relations issues. AbbVie said it wouldn’t stand in the way of others making generic versions of its patent-protected drug Kaletra as an experimental treatment for coronavirus.

There are already hints that there may be patent fights over future drug treatments. Gilead Sciences Inc., which has been criticized for the high price of its HIV drugs, is developing an experimental drug called remdesivir and the Chinese government has said it’s seeking a patent on the treatment.

©2020 Bloomberg L.P.

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