Does the Defense Production Act Shield Manufacturers from Patent Infringement Risk?March 23, 2020 – Alerts
An Executive Order from President Trump that referred to the Defense Production Act has some manufacturers asking: are we now shielded from patent infringement liability if we produce otherwise-patented protective equipment and medical devices such as face masks and ventilators to help healthcare workers respond to the COVID-19 crisis?
In most situations, the answer is no. However, there are actions that manufacturers can take to mitigate this risk.
As background, on March 18, 2020, President Trump issued an Executive Order which stated that it was being issued under the authority of the Defense Production Act of 1950, as amended (50 U.S.C. § 4501 et seq.) (the Act). The Executive Order stated: “I find that health and medical resources needed to respond to the spread of COVID-19, including personal protective equipment and ventilators, meet the criteria specified in section 101(b) of the Act (50 U.S.C. § 4511(b)). Under the delegation of authority provided in this order, the Secretary of Health and Human Services may identify additional specific health and medical resources that meet the criteria of section 101(b).”
The Order also stated: “The Secretary of Health and Human Services shall issue such orders and adopt and revise appropriate rules and regulations as may be necessary to implement this order.”
Does the Executive Order (or the Act) allow manufacturers to supply hospitals with personal protective equipment and ventilators in this time of COVID-19 response without risk of patent infringement?
At this point, the answer is no, unless the manufacturer is making the goods under a federal government contract. In the situation of a government contract, when a contractor performs duties "for the Government and with authorization or consent of the Government," 28 U.S.C. § 1498 makes the federal government responsible for paying reasonable fees to the patent holder. Section 1498 therefore generally protects the government contractor from infringement liability for the contractor’s performance under the government contract, although the contractor should ensure that the “authorization and consent” clause is included in any such contract to confirm its immunity from direct lawsuits for its actions while engaging in the contracted for activity. However, if a manufacturer acts outside of a government contract, simply to help supply the needs of the community or customers, the manufacturer still risks liability for patent infringement.
What can a U.S. manufacturer do to help avoid patent infringement liability in the situation of a private contract? Options include:
- If the manufacturer is aware of a particular patent that could be a problem, consider reaching out to the patent holder to try to negotiate a temporary license. This may require paying a fee to the patent holder. However, at this time of crisis patent holders may be more amenable to short-term relief in the form of reduced royalties.
- Assess whether there is a way to design around the patent. Patents are limited to the claimed invention. In many situations, a design change can help mitigate the risk of liability.
Although not recommended, some manufacturers may want to proceed anyway, assume the risk and hope that courts, juries, and public opinion will favor the manufacturer in this extreme situation. This could result in significant risk for the manufacturer, especially if the patent holder is able to supply public needs (and thus the manufacturer is taking away from the patent holder’s market share), or if the manufacturer will profit from the sale.
In any of the situations, the manufacturer should take care to restrict any communications about a potential problem patent. This is because damages can be tripled in the case of willful patent infringement, and documents (such as intra-company emails) that refer to a patent can be used against the manufacturer to show that infringement was willful. Instead, the manufacturer should first contact patent counsel for guidance. All communications relating to the patent should be limited to those directed to the manufacturer’s attorney for the purpose of legal advice.