Appendix E: Drug patents, Section 1498, biologics, and public manufacturing

This appendix supports the sections "Drugs already under patent" and "Public manufacturing" in the plan. It explains the legal authority the plan relies on as a last resort against a manufacturer that refuses the public price or cannot supply the country, and the manufacturing capacity that makes the authority real.

Why a last resort is needed

The Health Innovation Prize Fund pays for medicines not yet invented. It does nothing about a drug on the market today whose patent runs another 15 years.

Most such drugs will get cheaper on their own once a single public payer sets prices. A manufacturer that refuses the national price is refusing the entire American market, the largest and most profitable pharmaceutical market in the world, and almost none will.

The exception is a drug with no substitute, where the manufacturer can hold out because the payer has nowhere else to turn and the patient cannot wait. Two recent cases show the pattern. When Gilead launched its hepatitis C cure in 2013 at $84,000 a course, state Medicaid programs rationed it to the sickest patients because they could not afford to treat everyone, and Gilead came to the table on price only after Louisiana's health secretary began publicly exploring having the drug made by someone else under federal authority. Vertex, which makes the only medicines that treat cystic fibrosis at its source, has held its price above $300,000 a year against every payer in the world, and several countries went years without the drug.

The other failure is the shortage, and no price fixes it. In 2023 a single plant in India that supplied about half of the American market for cisplatin failed an FDA inspection and stopped shipping. Cisplatin and carboplatin, the two platinum chemotherapies most cancer regimens are built around, are generic, cheap, and decades off patent. No patent stood in the way of making more. What was missing was a factory, and oncologists spent months rationing chemotherapy.

A price dispute is answered by the legal authority described here. A shortage is answered by public manufacturing. The plan needs both.

The authority that already exists: Section 1498

Section 1498 of Title 28 of the United States Code has let the federal government use any patented invention since 1910, without the patent holder's permission. The patent holder's only remedy is a suit for reasonable compensation in the Court of Federal Claims. The holder cannot get an injunction, cannot stop the use, and cannot sue the contractor doing the work; the 1918 amendment extended the government's immunity to anyone manufacturing "for the United States" with its authorization and consent.

It is not a confiscation. The patent holder keeps the right to be paid and loses only the right to say no, which is the ordinary bargain of eminent domain applied to a patent instead of to land. The provision was written for military procurement, so that no patent could hold up the supply of a weapon in wartime, and it has been used for everything from aircraft to night-vision equipment ever since.

It was once used for drugs, routinely. Through the late 1950s and 1960s the Defense Department's Military Medical Supply Agency bought some 50 drugs, including tetracycline and other antibiotics, from foreign producers in countries where the American patents did not run, at a fraction of the domestic price, and paid the patent holders under Section 1498 when they sued. The practice faded in the 1970s as a matter of policy, not law, and the authority was never repealed.

It was last raised in 2001. During the anthrax attacks that followed September 11, the government needed a large supply of ciprofloxacin, and Bayer held the patent. The Secretary of Health and Human Services publicly floated buying generic ciprofloxacin under the government's authority. Within days Bayer cut the government's price from $1.77 a tablet to $0.95. The authority has been threatened against a drug twice in the modern era and never actually used, and the price fell both times.

Why international law does not forbid it

The World Trade Organization's agreement on intellectual property, TRIPS, which binds the United States, expressly permits a member state to authorize the use of a patent without the holder's consent, subject to conditions: the use must be considered case by case, the patent holder must be paid adequate remuneration, and the holder must ordinarily have been asked for a voluntary license first. That last requirement is waived for public non-commercial use by or for the government, which is exactly what Section 1498 covers. American law is in fact the stricter of the two, because it guarantees compensation set by a court.

The gap: "by or for the United States"

The problem is scope. Section 1498 covers use "by or for the United States," and the courts have read paying for someone else's medical care as outside that phrase.

• In 1992 the Court of Federal Claims dismissed a claim by the holder of a patent on a medical device that Medicare and Medicaid had been reimbursing, holding that the government reimbursing a private purchase is not the government using the invention.
• In February 2026 a court held that the government's $8.2 billion purchase of COVID vaccines was not use for the United States either, reasoning that medical care benefits the patient, not the government. The decision is on appeal.
• Where the authority clearly works today is where the government itself buys and dispenses the drug: the Veterans Health Administration, the Defense Department, the Indian Health Service, and the Bureau of Prisons.
• Where it does not is Medicare and Medicaid, which reimburse a private sale at a pharmacy counter.

The bill closes that gap by drafting, and the drafting choice is decisive.

• Write the drug benefit as a procurement, not a reimbursement. The national payer takes title to what it buys, or contracts for manufacture directly. That alone decides whether the authority exists, because a government that owns the drug is unambiguously using it.
• Declare that acquisition by the national payer is use for the United States, and grant express authorization and consent to any manufacturer producing under government authorization. Without that clause the contract manufacturer carries the infringement risk and nobody takes the work.
• Say when the authority is used and who decides. A published standard, a finding by the Secretary, notice to the patent holder, and a compensation claim on the ordinary court schedule. A rule nobody can predict is a rule nobody prices against, and the point of the authority is that manufacturers price against it.

Biologics: the second lock

Biologics are the large-molecule drugs grown in living cells rather than synthesized chemically: the monoclonal antibodies, the insulins, the gene therapies. They are most of the newest and costliest medicines, and they carry a protection that has nothing to do with patents.

Under the 2010 law that created a pathway for biosimilars, the FDA may not approve a competing version of a biologic for 12 years after the original is licensed. That bar is a regulatory exclusivity, not a patent. It survives whatever happens to the patent, and Section 1498, which reaches only patents, does nothing against it. For 12 years a public payer can authorize anyone it likes to make the drug, and the FDA still cannot approve the result.

The term has to be shortened by statute directly. Nothing in the trade agreements prevents that. The United States–Mexico–Canada Agreement as first negotiated would have locked in 10 years of biologic exclusivity, and that provision was struck from the agreement before Congress ratified it in 2019. The cut does have to be made on its own terms, as a change to the exclusivity period, rather than justified by reference to patent expiry, which the trade agreements do restrict.

What it costs to use

Using a patent under Section 1498 is not free. The patent holder is owed reasonable compensation, which the courts have generally measured as a reasonable royalty on the government's use, plus interest for the years it takes to pay. The royalty is what a willing licensor and licensee would have agreed, set by the court against what the invention is worth.

Every drug case from the 1960s settled before judgment, so no court has ever fixed a royalty on a drug patent used this way, and the first company to face one will litigate for years with every reason to spend. This sits alongside the other unpriced liability in Appendix J, the contract damages the government owes when a statute breaks its own agreements. Both run through the Court of Federal Claims and neither has a number against it yet.

It is still the cheaper outcome. A royalty is paid on the government's own use, once, and set by a court. A monopoly price is paid on every prescription, for the life of the patent, and set by the company.

Public manufacturing

Authorizing production presumes a factory. The United States, unlike Cuba, China, Brazil, Thailand, Indonesia, and Bangladesh, has no state-owned drug manufacturer and no public vaccine plant. That was not always so. The Michigan Department of Public Health made vaccines, including the anthrax vaccine, until the state sold the operation to a private company in 1998. Massachusetts still makes a handful of biologics through a laboratory at its state medical school. Everywhere else, public production ended or was privatized.

The closest thing the federal government now has is BARDA, the Biomedical Advanced Research and Development Authority, created by Congress in 2006 in the wave of legislation that followed the anthrax attacks, to prepare the country for pandemics and bioterrorism. BARDA funds companies to develop vaccines and treatments, buys the results for the national stockpile, and did much of the contracting behind Operation Warp Speed. It owns no factories and depends entirely on contracts with private manufacturers, which is why the cisplatin shortage found the government with no way to make cisplatin.

There are recent American precedents for doing it differently. In 2018 a group of hospital systems founded Civica Rx, a non-profit manufacturer, to make the generic injectables their hospitals kept running out of, and it now supplies a large share of American hospitals with dozens of drugs at fixed transparent prices. In 2023 California contracted with Civica to produce insulin under a state label at $30 a vial, the first state-branded drug in the country. Neither is a government factory, but both are proof that non-commercial manufacturing of the drugs the market neglects is workable at scale and cheap.

The plan expands BARDA's funding and mandate to build and operate its own plants, making the cheap everyday drugs that hospitals run out of, along with the medicines the public paid to develop and any drug produced under the Section 1498 authority. Public manufacturing is what makes the rest of the drug program enforceable. Setting a public price only works if the government can walk away from a manufacturer who refuses it, and authorizing production only helps if somebody can produce the drug afterward.