The federal government has proved to be ineffective at bringing publically funded discoveries to the public The Bayh-Dole Act of the 1980’s was intended to maximize the public’s return on federally funded research by getting inventions into the hands of companies to bring them to the market (for a general introduction). The goal was to maximize the public’s return on our investments by placing IP rights in the hands of Research institutions, who have a stronger incentive to bring discoveries to market through licensing or private marketing. By shifting the power to their hands, the Bayh-Dole Act capitalized on those incentives. However, concern that the new licensing scheme could lead to misuse or non-use of inventions led Congress to include a provision retaining certain rights for the government. Most notoriously, the Bayh-Dole Act includes a “March-in Rights” provision codified at 35 U.S.C. §203.
Simplifying considerably, the provision allows a federal agency that funded research resulting in a patent to require the patent’s owner to grant a license to that invention whenever, inter alia, the invention has not been made “available to the public on reasonable terms.” That is, all patents that result from federally funded research are essentially subject to compulsory licensing when the patented invention is not available to the public on reasonable terms. A plain reading of §203’s language includes the situation in which the patented invention is only available at extremely high prices – especially in light of the concern above. What is of particular importance is that private companies or interest groups can petition agencies to utilize their march-in rights. Thus, for example, a generic pharmaceutical manufacturer could petition National Institutes of Health (NIH) to exercise their march-in rights when a brand manufacturer is charging extreme prices for a patented drug.
However, to the best knowledge of the author at the time of writing, no federal agency has ever made use of the march-in rights. Rather, in a series of petitions starting in 1997, agencies like the NIH have expressly refused to exercise march-in rights when the patented invention is available to any section of the market. That is, even if costs are prohibitive to the vast majority of consumers, agencies will deem the product available to the public and deny the petition. Agencies have reasoned that “drug pricing has global implications” and therefore “is appropriately left for Congress to address[.]” The same reasoning has been used to dismiss later petitions to the NIH. Some commentators worry that the drafters’ concern about unreasonable prices is being realized in today’s market. In light of the recent string of markups on pharmaceutical drugs, perhaps it is time to reconsider the agencies’ justification for abstaining.
First, there is an inherent tension between the agencies’ reasoning for abstaining and the plain language of the Bayh-Dole Act. In their determination on the Norvir® petition, the agency suggested that “reasonably available” is defined exclusively by whether an invention is available on the market or coming to the market. This determination runs counter to §200’s policy statement that the Government’s rights are “to protect the public against nonuse or unreasonable use” (emphasis added). Therefore, the textual canon against surplusage implies that these phrases each be given meaning, and a legal standard beyond market availability should be considered. Basic statutory construction principles suggest that “reasonably available” should have a more stringent standard beyond “market availability.”
Further, the practical effect of price increases is to reduce production and cut off availability. They are even treated as equivalents in other areas of law. (For example, according to the FTC “An agreement to restrict production, sales, or output is just as illegal as direct price fixing, because reducing the supply of a product or service drives up its price.”). Therefore, prohibitively high costs are the practical equivalent of market unavailability and should be considered, even under the current agency framework.
Finally, and perhaps of most import, the Senate expressly directed the Department of Defense to exercise their rights under §203, and consider price when doing so:
“The committee directs the Department of Defense (DOD) to exercise its rights under sections 209(d)(1) or 203…to authorize third parties to use inventions that benefited from DOD funding whenever the price of a drug, vaccine, or other medical technology is higher in the United States than the median price charged in the seven largest economies that have a per capita income at least half the per capita income of the United States.” (emphasis added)
Insofar as the agencies were correctly abstaining because price was a consideration better left for Congress, the Senate’s directive provides a framework to analyze drug prices under. Moreover, the directive shows that the Senate expressly considers drug prices to be both a basis for exercising the march-in rights under §203 and an important enough consideration for the DOD. Of note, the price consideration scheme the Senate directive endorses is the exact kind the NIH believed beyond their consideration in the past. Considering this directive, the agency should be petitioned to reconsider its position.
The Bayh-Dole Act was intended to maximize the public’s return on federally funded research by getting inventions into the hands of companies to bring them to the market. This goal was to maximize the public’s return on our investments in research. Accordingly, the Act contains a public protection provision allowing federal agencies to step in when licenses are being abused. While the Act has been largely successful in bringing Federally funded inventions to the market, it has failed to protect the public from then being charged exorbitant prices for the same inventions. The recent string of price markups on pharmaceutical drugs, irrespective of prices world-wide, is partially due to federal agencies’ failure to march-in at appropriate times. Considering the tension with the Act’s original intentions and the Senate’s recent directive, agencies should reconsider their position.
Philip Simon is a J.D. candidate, 2019, at NYU School of Law.