March-In Rights: Targeting Pharma or Universities?
March-in Rights under the Bayh-Dole Act are intended to attack pharma, but they could end up hurting universities instead
Patents are at the root of a lot of debate on drug pricing. Critics allege that pharmaceutical companies use patent techniques, like patent thickets, to fleece consumers by unduly extending patent terms for prescription drugs. One option that has attracted increasing attention in the last few years to address this is a “march-in right,” a complex area of the law. Because so much of research today happens at universities and startups with federal funding, which then feeds into larger companies, this is a potentially powerful tool to change the calculus of pharmaceutical prices. The Biden Administration has even directed the Departments of Health and Human Services and Commerce to begin the process of creating a draft interagency guidance framework.
However, Bayh-Dole did much more than just allow Big Pharma to get access to more patents. It is also an implicit attempt to incentivize the movement of research to smaller, more nimble organizations. Pharmaceutical companies like Astra Zeneca have been able to improve their financial performance without investing in R&D, while many others like Pfizer now partner with startups and universities through the “external innovation” model. Those very entities would likely be the ones most hurt by a change to march-in rights, and along with that, potentially the innovation that has led to advances like mRNA vaccines and new cancer treatments.
Marching In, But Not Saints
First, let’s review where march-in rights come from: Bayh-Dole Act of 1980. Bayh-Dole is codified in 35 U.S.C. § 200–212 and implemented in 37 C.F.R. §§ 401, 404. It was controversial, and had died in committee several times. The main issue was that, for 35 years, businesses that participated in federally funded research were not able to own and exploit the results of that work. But in the 1970s, the United States was visibly falling behind European and Japanese in industrial innovation, so Bayh-Dole was created in response. The government was conducting breakthrough research but only sometimes licensed it out to companies. A GAO report found that of the 28,000 patents the government had accumulated post-World War II, less than 5% had found a commercial use compared to the 20-30% that had been licensed out to a private company. Importantly, these rights can only accrue to a nonprofit organization or a small business.
And it worked. The Economist called it “Possibly the most inspired piece of legislation to be enacted in America over the past half-century.” The United States went from less than 10% of all new compounds to over 50%. According to the Association of University Technology Managers, or AUTM, over 126,000 patents have been issued and over 17,000 startups were formed since Bayh-Dole. BIO, one of the largest biotech groups in the world, estimated the value of Bayh-Dole was worth hundreds of billions of dollars per year. Universities are required to reinvest their Bayh-Dole revenues into R&D, so the result has been further investment by universities into research, sometimes to the tune of billions of dollars per year. This has been particularly true for biotech, according to the Information Technology and Innovation Foundation. The OECD has found that this is also true in the private sector, where pharmaceutical R&D is directly tied to sales numbers. Even critics have acknowledged that Bayh-Dole has led to more disclosure of science.
However, given how much of the benefit of Bayh-Dole has gone to pharmaceuticals, the built-in remedy of march in rights have attracted increased attention. The typical critique of Bayh-Dole is that the taxpayer pays twice: once for taxes and second for increased, patent-protected prices (the obvious problem, of course, being that without Bayh-Dole many inventions weren’t commercialized). For that, there are march-in rights under 35 U.S.C. § 203.
March-in rights allow the government to force patent holders or licensees to license a patent under “reasonable” terms. However, this right can only be triggered under a specific set of circumstances. Specifically, the assignee must take steps to achieve a “practical application” of the field in such use, among 3 other criteria. What a “practical application” means is vague, which has led to calls for more clarity. This criterion 1 is the subject of the draft regulatory framework and proposed changes to the Federal Register that President Biden has requested. The most important change would be that the government would be able to consider whether the price or “other terms” are “not reasonable” in determining whether a practical application has been found if the price leads to “unreasonably limit availability.” Pressure undoubtedly has increased on President Biden since the government chose not to exercise its march-in rights with pricy prostate cancer drug Xtandi.
The draft proposal mentions the need to balance incentivizing research and decreasing prices, but the challenge is that, as the National Academies of Sciences, Engineering, and Medicine put it, Bayh-Dole is “unquestionably more effective” than the past in “making research advances available to the public.” It is unclear whether this solution would be better. Ironically, one of the factors leaning against march-in rights is the existence of other blocking patents, meaning that march-in rights would likely lead to an increase in patent thickets. But perhaps more troublingly, it is not at all clear that march-in rights would achieve their intended goal. After all, especially for complex biologics, a patent may not be the only form of defense. Humira has seen pricing pressures and lost contracts, but so far it has still been able to sell Humira and maintain surprisingly strong market share. And besides, there is a major patent cliff coming in 2028.
Perhaps the biggest issue would be that march-in rights would most hit not the big companies but universities and startups. IP can boost a startup’s chances of success. They can also generate billions of dollars per year for universities. That is enough to not only invest in more research but also in improving education for the next generation of researchers. Bayh-Dole specifically requires that the only eligible entities that can own the patents are universities and small businesses, which means startups. Therefore, the entities that would lose out wouldn’t be the big companies who already have a drug pipeline, manufacturing, and marketing lined up. It will be the universities who will lose the power to spin up startups or license out their technology to companies that can utilize those technologies and fail to attract private research sponsorship when there is no longer trust that the sponsor can commercialize that research without the government stepping in.
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Of course, looming in the background is the potential assault of the Chevron defense in Loper Bright Enterprises and Relentless, both of which are coming up to the Supreme Court this year. Nowhere does price (or even availability) appear in Bayh-Dole. Separate from the major questions doctrine, an unfavorable ruling here could jettison this effort by the Biden Administration before it begins.
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Gogo can continue offering in-flight services as a denial for preliminary injunction was upheld on appeal (Federal Circuit)
At the PTAB Masters 2024 conference, speakers including Former Commissioner Iancu offered predictions and proposals for the PTAB (IP Watchdog)
Senator Amy Klobuchar called for the removal of dozens of patents from the orange book (Stat News)
The EU put out draft guidance to clarify SEPs (Center for Strategic and International Studies)
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