The Bayh-Dole Act of 1980 provides certain rights in favor of the U.S. government in order to ensure that products arising from federally funded research are made available to the public. These so-called “march-in rights” enable the federal government to require a party to license its invention to a third party if that invention was conceived or reduced to practice using federal funds, and the funding agency finds that the invention has not been “made available to the public on reasonable terms.” (For more background on the “march-in” right, read our prior blog post here.)
On Thursday, December 7th, 2023, the National Institute for Standards and Technology (NIST), the agency responsible for implementing Bayh-Dole, issued for public comment a Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights (the Draft Guidance).[1] The guidance was produced in response to increasing political pressure to lower drug prices. Since its publication last week, the Draft Guidance has sparked questions across the life sciences industry, with numerous commentators describing the Draft Guidance as the Biden administration’s move to “seize” or “override” patents.[2] We do not view the Draft Guidance as likely to be as impactful as the headlines would suggest.
Although federal agencies have possessed march-in rights for over 40 years, no agency has ever exercised such authority. On the contrary—the National Institutes of Health (NIH) have historically declined to use march-in authority to lower drug prices, expressly taking the position that major policy decisions should be made by elected officials rather than by federal administrators.[3]
In a response to increasing political interest around the issue, however, NIST has put forth multiple proposals over the last few years attempting to address by executive action whether march-in can be used as a government lever to lower drug prices. In 2021, the Trump Administration proposed a change to the implementing regulations that would have “clarif[ied] … that march-in rights shall not be exercised by an agency exclusively on the basis of business decisions of a [funding recipient] regarding the pricing of commercial goods and services arising from the practical application of the invention.”[4] In the public discourse, this proposal was viewed as an effort to dissuade funding agencies (particularly NIH) from considering price as a relevant factor.[5]
Last week’s Draft Guidance instead highlights that review of a march-in petition “may include consideration of factors that unreasonably limit availability of the invention to the public, including the reasonableness of the price and other terms at which the product is made available to end-users.”[6] As noted above, this has resulted in a perception that the U.S. government now has the right to “seize” patents. But under both formulations, the actual effect of the language likely would have been the same: funding agencies may consider the price of a federally-funded invention as a factor in evaluating a march-in petition, but it is not expected to be the sole basis for a march-in decision.[7]
Furthermore, the statutory limitations inherent in the use of the march-in right remain in effect as they have since 1980. The statute itself does not take the patent from the owner, or otherwise preclude the owner from practicing its patent; it merely permits the agency to require the patent owner to grant a non-exclusive license under the patent to a third party. And, the agency can only exercise this right following a formal march-in proceeding, which requires the agency to conduct a full investigation of the relevant facts, including document review, witness testimony, and written findings of fact.[8] Nothing in the Draft Guidance changes—or could change—this aspect of the statute.
Additionally, the Bayh-Dole Act only allows federal agencies to require out-licensing of “subject inventions”—i.e., the specific patents that were developed with federal funding. While the fundamental research that leads to new drug products is often conducted with the use of federal funds at universities or federal labs, the full suite of patents that protect a product in the marketplace (e.g., composition of matter, formulation, method of use, methods of manufacturing), are often developed by biopharma companies without using federal funds. The Bayh-Dole Act does not give the initial funding agency the right to march-in with respect to any of these patents covering inventions discovered solely at private expense. Nothing about the Draft Guidance changes this either—in fact, the Draft Guidance expressly recognizes the inherent limitations of the statute: “For example, if only one of several patents necessary to produce a product is subject to march-in, that likely weighs against march-in, since other licensees would need separate permission to use several other patents before they could make the product.”[9]
The vast majority of drugs are developed, at least in part, with U.S. federal government funding, so widespread use of march-in rights could theoretically have a significant impact on the life sciences industry.[10] However, in our view, the discourse overstates the actual impact of the Draft Guidance and we do not think there will be a dramatic shift in the agencies’ approach to the exercise of march-in. Freshfields will continue to closely monitor the status of drug pricing measures, given the potential impact on the life sciences industry as a whole.
…
[1] Federal Register: Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights (federalregister.gov)
[2] See, e.g., Biden administration threatens seizure of US-funded drug patents if prices too high | The Hill (thehill.com), Biden wants NIH to have ‘march-in’ power to override patent rights for high-priced drugs | Science | AAAS (science.org), US sets policy to seize patents of government-funded drugs if price deemed too high | Reuters (reuters.com)
[3] NIH-rejection-Xtandi-marchin-12march2023.pdf (keionline.org)
[4] Federal Register: Rights to Federally Funded Inventions and Licensing of Government Owned Inventions (federalregister.gov) (emphasis added).
[5] See, e.g., KEI Overview of NIST Proposals (keionline.org), NIST on Track to Clarify Bayh-Dole to Ensure High Prices Cannot Be Used as Grounds for Exercising March-in Rights – Or Is It? | Government Contracts Law (governmentcontractslaw.com)
[6] Page 18, Draft Guidance (emphasis added).
[7] See, e.g., id. (“If the contractor or licensee has commercialized the product, but the price or other terms at which the product is currently offered to the public are not reasonable, agencies may need to further assess whether march-in is warranted.” Draft Guidance (emphasis added)
[8] 37 CFR §401.6.
[9] Draft Guidance, page 26.
[10] Comparison of Research Spending on New Drug Approvals by the National Institutes of Health vs the Pharmaceutical Industry, 2010-2019 | Health Policy | JAMA Health Forum | JAMA Network (jamanetwork.com)
