On February 6, 2024, the Federal Trade Commission (FTC) issued a comment (the FTC Comment) responding to the National Institute of Standards and Technology’s (NIST) request for public comment on its Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights (the Draft Guidance) under the Bayh-Dole Act. (Background on the Draft Guidance and the “march-in” right is detailed in our prior analysis.)
Noting the government has never exercised its march-in rights, the FTC in its press release regarding the comment “applauded” NIST and the Interagency Working Group for Bayh-Dole for their efforts to “reactivate march-in rights as an important check on companies charging Americans inflated prices for drugs developed with taxpayer-funded research.” The FTC Comment argues that price is an appropriate consideration for the exercise of march-in rights and can be a “critical determinant” of a drug’s availability to patients. Despite acknowledging that the inquiry is fact-intensive, the FTC ultimately supported NIST’s view that prices can be a sufficient basis to justify the government’s exercise of march-in rights, because high prices can “unreasonably limit” the public’s access to drugs.
1. NIST, the Bayh-Dole Act, and March-In Rights
In December 2023, NIST – the agency responsible for executing the Bayh-Dole Act – issued the Draft Guidance for public comment. The Bayh-Dole Act (35 U.S.C. § 203) governs inventions made with federal assistance, providing the U.S. government rights to “march in” on patents for inventions created using taxpayer funds to ensure that products arising from federally funded research are made publicly available. By marching-in, the government can require the patent holder to license the federally funded patent to other applicants. March-in rights theoretically apply to the vast majority of drugs, which often are supported during the earliest stages of research with some U.S. government funding (e.g., grants from the National Institutes of Health).
For the government to march in on a patent, the Bayh-Dole Act requires the funding agency to show that (i) federal funds have been used to develop the patented product, and (ii) the invention has not been made available to the public on reasonable terms. Specifically, the Act provides march-in rights to the government if one of the following criteria are met:
- the patent developer “has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention;”
- “health or safety needs . . . are not reasonably satisfied by the contractor, assignee, or their licensees;”
- “requirements for public use specified by Federal regulations . . . are not reasonably satisfied by the contractor;” or
- the patented product is not “manufactured substantially in the United States.” (35 U.S.C. § 203(a).)
The Bayh-Dole Act requires a party to license only “subject inventions,” that is, the patent covering the exact invention developed with federal funds. It does not allow march-in rights on the full suite of patents connected to a subject invention if those were developed at private expense. For example, in the pharmaceutical context, if the composition of matter is developed with federal funds, but the formulation, delivery mechanism and method of manufacturing were all developed at private expense, the government could only authorize march-in in respect of the patent covering the composition of matter – but not the patents covering the formulation, delivery mechanism or method of manufacturing. The U.S. government has never exercised march-in rights, and NIST issued its Draft Guidance to “fulfill the purpose of march-in rights and uphold the policy and objectives of the Bayh-Dole Act.”
2. FTC Comment – Supporting March-In Rights for High Prices Alone
The FTC supports the “expansive and flexible” Draft Guidance, commending NIST and the Interagency Working Group for Bayh-Dole “on their new efforts to reactivate an important check on companies charging Americans high prices for drugs that taxpayers funded.” The FTC considers the Draft Guidance “important guidance as to agency decision making in exercising march-in rights” that provides “a pathway to further promote competition in drug markets and lower drug prices.” Under the FTC’s interpretation, the Draft Guidance permits the government’s exercise of march-in rights on the basis of price alone.
While advocating that high prices by themselves can support the exercise of march-in rights, the FTC acknowledged that privately funded patents (including those part of large patent portfolios described by the FTC as “patent thickets”) may weaken the utility of march-in rights. As noted, individual drugs may be protected by a number of patents, including both privately and publicly funded patents, and the federal government cannot exercise its march-in rights under the Bayh-Dole Act for products protected by privately funded patents. (For more detail on USPTO and FDA initiatives to address such alleged “patent thickets,” read our prior analysis.)
Nonetheless, the FTC Comment reinforces that perceived unfair or excessive pricing can prompt increased scrutiny. Perceived high drug prices – including for generics – have prompted recent FTC and DOJ antitrust attention, including regarding generic drug price fixing, Orange Book patent listings, bundling and bundled discount practices, and the impact of pharmacy benefit managers on accessibility and affordability of prescriptions drugs.
3. Key Takeaways
The FTC’s position on march-in rights is consistent with President Biden’s July 2021 executive order, “Promoting Competition in the American Economy,” which advocates a “whole-of-government” approach to decreasing drug prices.
However, the FTC Comment is at odds with many other public comments (including those from former high-level government officials) and recent practice with regard to exercise of march-in rights. For example, on February 5, 2024 – only one day before the FTC Comment – the Secretary of the United States Department of Health and Human Services yet again denied an appeal of the National Institutes of Health’s decision not to exercise march-in authority with respect to the prostate drug Xtandi®. In the last eight years, various parties have asked HHS three times to exercise its march-in rights with respect to Xtandi®, arguing that Xtandi’s high prices mean it is not reasonably available under the Bayh-Dole Act. Each time, HHS has denied these petitions, historically on the basis that march-in rights were not a mechanism to control drug pricing, and most recently partly on the basis that Xtandi® is widely available, regardless of price. This most recent denial—while consistent with HHS precedent—is in tension with the FTC’s position (although the HHS, referencing the Draft Guidance, does note the need to further evaluate the intersection of pricing and march-in rights).
With these divergent approaches, despite the FTC Comment, it is unlikely that, in the short term, other government agencies will materially change their approach to the exercise of march-in rights or that such march-in rights will have a significant and short-term impact on the life sciences industry. Nevertheless, the period for public comment on the Draft Guidance closed on February 6, 2024, and the industry now awaits NIST’s decision. Freshfields will continue to closely monitor the status of this issue and other drug pricing measures.