The Biden administration has recently released a draft of its plan to restructure its march-in authority under the Bayh-Dole Act, a law that allows the federal government to take over patents for drugs and other products that were developed with public funding. The administration claims that this move is intended to lower drug prices and increase access to health care for the American public. However, this plan could have serious negative consequences for the innovation ecosystem, the use of taxpayer resources for research, and the availability of cures for patients that eventually reduce more expensive treatments in government healthcare programs.
The Bayh-Dole Act was enacted in 1980 to address the problem of underutilization of inventions that resulted from federally funded research and development (R&D). Before the Bayh-Dole Act, the federal government owned the patents for most of these inventions, but rarely licensed them to the private sector for commercialization due to a myriad of different agencies’ processes (i.e., red tape). As a result, many potentially valuable technologies languished in the government’s hands, without benefiting the public or the economy.
The Bayh-Dole Act changed this situation by allowing universities, small businesses, and nonprofits that receive federal funding to retain ownership and seek patents for their inventions. The act also encouraged them to license their inventions to the private sector for further development and commercialization. The act aimed to stimulate innovation, promote collaboration between the public and private sectors, and enhance the public’s return on investment in R&D. Prior to this enactment, tens of thousands of patents were going unused, symbolizing significant waste of taxpayer funds.
However, the Bayh-Dole Act also gave the federal government certain rights and obligations in relation to the inventions it funded. One of these rights is the so-called march-in authority. This provision allows the government, in limited, specified circumstances, to require the patent owner or its licensee to grant a license to a third party, or to grant the license itself, if the patent owner or its licensee fails to take effective steps to achieve practical application of the invention. Practical application is defined as the use of the invention with benefits available to the public on reasonable terms.
The Bayh-Dole Act specifies four situations in which the government can exercise its march-in authority:
When the patent owner or its licensee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the invention.
When the patent owner or its licensee has not taken action to alleviate health or safety needs that are not reasonably satisfied by the patent owner or its licensee.
When the patent owner or its licensee has not met the requirements for the preference for US industry or the manufacture in the U.S.
When the action is necessary to meet the requirements of federal regulations issued after the date of the patent.
The Bayh-Dole Act also requires the government to follow due process before exercising its march-in authority, including notifying the patent owner or its licensee, giving them an opportunity to respond, holding a public hearing, and considering various factors such as the impact on the public interest, the availability of alternatives, and the efforts of the patent owner or its licensee. There have been no uses of Bayh-Dole march-in authority thus far, Xtandi (2016) and CellPro (1997) being well-known examples of attempts to convey patent rights to third parties.
On March 21, 2023, the U.S. Department of Health and Human Services (HHS) and the Department of Commerce announced a plan to pursue a whole-of-government approach to review its march-in authority under the Bayh-Dole Act. The plan established an Interagency Working Group for Bayh-Dole, which developed a framework for implementation of the march-in provision that will change processes for making determinations where different factors, including price, may be a consideration in agencies’ assessments.
This December, the draft framework was released by the Biden administration for public comment, raising serious concerns about the future of Bayh-Dole and the delicate balance it promotes in innovation.
The plan to review and potentially use the march-in authority to seize drug patents is problematic for several reasons. First, it is based on a misinterpretation and misuse of the Bayh-Dole Act, which was not intended to regulate drug prices or to allow the government to interfere with the market. The act was designed to foster innovation and commercialization of federally funded inventions, not to undermine the patent system and the incentives it provides for private investment and risk-taking. The act’s legislative history, as well as the decades-long consistent interpretation and practice of federal agencies, confirm that the march-in authority is a narrow and extraordinary remedy that should be used only in exceptional cases where the public interest is not served by the patent owner or its licensee. The act does not authorize the government to use the march-in authority based on the price of a drug, or to impose price controls or compulsory licensing on patent owners. Indeed, several past attempts to use march-in authority asserted price as a major factor, and all were denied.
In 2004 proceedings for Norvir, the National Institute of Health (NIH) succinctly stated:
“In addition, because the market dynamics for all products developed pursuant to licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by NIH, the NIH agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices. The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively.”
Second, the plan could have serious negative consequences for the innovation ecosystem, the use of taxpayer resources for research, and the availability of cures for patients. From when Bayh-Dole was implemented to 2012, there were around 4,000 companies started as a result of this bipartisan legislation, with billions of economic outputs to show as well. AUTM, an association of university-based and other research entities, attributes an even bigger impact. According to AUTM’s estimates, between 1996 and 2020, academic technology transfers mainly facilitated via Bayh-Dole led to over 17,000 startups, and contributed $1.9 trillion to U.S. gross industrial output. This economic activity likely would have filled government coffers with tens, if not hundreds, of billions in tax revenues.
The plan could also harm patients and taxpayers, by reducing the availability and quality of drugs, and by creating uncertainty and confusion in the regulatory and legal environment for drug development and approval. In 2019, the Information Technology and Innovation Foundation (ITIF) traced the history of how the United States went from being a laggard in drug development to the undisputed leader. ITIF noted that “[i]n the latter half of the 1970s, European-headquartered enterprises introduced more than twice as many new drugs to the world as did those in the United States,” but thanks to a series of policy decisions, “by the 2010s, more than 60 percent of new drugs were first introduced in the United States.” ITIF noted that one key element of this success was Bayh-Dole, which “has played a key enabling role.”
U.S.-based drug development is saving taxpayers many billions of dollars in long-term health care costs in programs like Medicare and Medicaid, which would otherwise be paying for costlier treatments like surgeries and hospital stays.
There are other drawbacks to the plan that could affect taxpayers, such as:
Discouraging private sector partners from collaborating with federal agencies and researchers, or from licensing and developing federally funded inventions, if they fear that their patents could be seized by the government at any time;
Reducing the revenues and royalties that universities, small businesses, and nonprofits receive from their patents, which they use to support further research and education (and for businesses, continuing to pay taxes;
Undermining U.S. leadership and competitiveness in the global innovation economy, and invite retaliation from other countries that could seize U.S. patents or violate U.S. intellectual property rights (which could incite tariff wars), and the private sector to again shun using taxpayer-funded research, thereby slowing progress on cures like the COVID vaccines or forcing duplication of effort and wasting federal R&D funds.
The Biden administration’s plan to review and potentially use its march-in authority under the Bayh-Dole Act to seize drug patents is a misguided and dangerous proposal that could backfire on its own goals of increasing access to health care and lowering costs. The plan is based on a misinterpretation and misuse of the Bayh-Dole Act, which was not meant to regulate drug prices or to allow the government to interfere with the market. The plan could also have serious negative consequences for future cures and the use of billions in taxpayer R&D. The administration should abandon this plan and instead pursue other, more effective and less harmful ways to address the issue of drug pricing and affordability, such as enhancing competition, transparency, and negotiation in the market, and supporting innovation and R&D in the public and private sectors with broad-based tax incentives like in the 2017 Tax Cuts and Jobs Act.