Treating the Legal Side Effects of Cipro(R): A Reevaluation of Compensation Rules for Government Takings of Patent Rights
Daniel R. Cahoy
Pennsylvania State University - Mary Jean and Frank P. Smeal College of Business Administration
American Business Law Journal, Vol. 40, pp. 125-175, Fall 2002
The U.S. government's threat to side-step Bayer, A.G.'s Cipro(R) patent in order to deal with the anthrax crisis in the fall of 2001 uncovered several important issues related to government appropriations of private patent rights. These issues, which include discerning the proper basis of the government's power and the appropriate measure of compensation as well as the need for legislative change, have heretofore received only indirect scholarly treatment. The analysis of these issues is important because of their probable impact on U.S. foreign policy regarding the protection and enforcement of intellectual property interests and the U.S. government's domestic preparedness to respond to future terrorist attacks.
This important topic is addressed in detail in the paper. The author finds that, under the current statutory scheme, unauthorized government appropriations of private patent rights should be treated as eminent domain takings, compensable at the level required by the Fifth Amendment to the U.S. Constitution. Moreover, the author determines that Fifth Amendment compensation for patent takings is properly calculated by the same rules employed to assess non-punitive, actual damages in private infringement actions. Such rules best adhere to the eminent domain underpinnings of the government's right to appropriate patents. Additionally, private infringement damages rules preserve the innovation incentives that the Patent Act is intended to foster. The author implores courts addressing claims against the government for patent appropriation to immediately dispose of rules creating a preference for more limited damages in the form of a reasonable royalty and adopt the private infringement model of assessing a compensation remedy. In briefly discussing proposed legislation meant to alter this system and further limit the compensation due an aggrieved patent owner, the author concludes that such legislation is unnecessary at this time and potentially harmful in the long term.
JEL Classification: 034, 038Accepted Paper Series
Date posted: April 7, 2003
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