Bipartisan Focus on Drug Prices Continues with Proposed Expansion of Federal Authority Over Patent Rights | Morgan Lewis – As Prescribed
Pharmaceutical drug pricing and reimbursement remains a bipartisan focus as we draw closer to the November presidential elections, with politicians remaining steadfast in their efforts to turn up the heat on pharmaceutical manufacturers. Politicians and other groups from across the political spectrum have coalesced around a 40-year-old statute known as the Bayh-Dole Act—intended to facilitate the public’s beneficial use of patented inventions by securing intellectual property (IP) rights for inventors—and are seeking to transform the statute’s never-before-used “march-in” rights to influence the price of drug products.
Background
As we previously covered in a LawFlash, the Bayh-Dole Act applies when businesses and other organizations (inventors) conduct research and develop an invention that is either conceived or first actually reduced to practice under a federally funded agreement. One of the key policy objectives of the Bayh-Dole Act is to encourage inventors to use or commercialize the invention so that the public can benefit from the US government’s financial support for such innovation. To achieve this goal, the Bayh-Dole Act enables inventors to retain ownership of the patent rights, but the US government simultaneously holds a government purpose license and march-in rights to the patented invention that may be exercised if the titleholder does not achieve practical application or one of the three other statutorily defined criteria apply.
Despite the government’s right to march in, it has not exercised this right once since the Bayh-Dole Act’s passage. Where the invention relates to expensive drug products, price control advocates have argued that the US government’s license and march-in rights should be exercised to create lower prices and increase public access to such drug products. To date, federal agencies have resisted that pressure, but the framework and incentives for determining how and when the US government can act may be changing.
In December 2023, the Biden administration, through the National Institute of Standards and Technology (NIST), released draft guidance for changing the framework related to when the US government can exercise march-in rights under the Bayh-Dole Act. These changes would for the first time explicitly permit the US government to begin considering a drug product’s price as a basis to “march-in” on the patent rights. By marching in, the US government would grant a license to a patent covered by the Bayh-Dole Act to a third party to manufacture the drug without the patent owner’s consent if officials concluded that the product is not available to the public at “a reasonable price.”
The comment period for this draft guidance has closed, and we do not yet know the number of comments NIST received. However, using history as a guide, the number of public comments is likely to be significant—NIST received more than 81,000 comments in response to Bayh-Dole Act rulemaking in January 2021. Although the range of public comments is also not evident, the reactions of two government bodies to this draft guidance are noteworthy.
Politician and Public Reaction to the Draft Guidance
First, the Federal Trade Commission (FTC) expressed support for NIST’s draft guidance in its comments, stating that it “supports the exercise of march-in rights where prices unreasonably limit the public’s access to drugs protected by federally funded patents.” The FTC’s comments, however, do not grapple with the fact that the Bayh-Dole Act typically attaches to inventions at an early stage, well before downstream private investment and development efforts generate a commercial product.
The reality is that at this early stage, the invention is conceived or first actually reduced to practice using a relatively small amount of federal funding, and it is only through relatively substantial continued investment (usually from private, non-government sources) that these inventions are finally commercialized and made available to the public. It remains to be seen whether the substantial downstream investment of private funds will continue if NIST’s draft guidance is adopted, and the US government can more easily justify marching in on patent rights to control the price of such drug products.
Second, a bipartisan coalition in US Congress also recognized and appeared to support the use of drug pricing as a factor in NIST’s draft guidance. Specifically, 75 members wrote to express support of NIST’s draft guidance, explaining that “prescription drug prices is one of the most pressing challenges facing the United States” and urging the administration “to protect the public’s health and safety by ensuring reasonable prices on taxpayer-funded inventions.” Interestingly, the lawmakers recognize that the draft guidance introduces price as a factor in march-in “for the first time.”
The question remains, is the proposed expansion of march-in rights merely political saber rattling or will it result in reduced drug prices in the United States? Despite advocates’ battle cries suggesting the latter, an assessment of the relevant statistics appears to support the former. Roughly 90% of approved drugs are not subject to government march-in rights because the patents covering these drugs are not subject to the Bayh-Dole Act.
Further, of the approximate 10% of approved drugs that are covered by patents subject to the Bayh-Dole Act, many of these drugs incorporate multiple patents such that the government’s exercise of march-in rights for Bayh-Dole Act-covered patents would not give a third party sufficient rights to manufacture the drug product because they would lack rights in the other patents not covered by the Bayh-Dole Act, as well as any trade secrets or know-how necessary to manufacture the drug.
Although we cannot be certain, the Biden administration may yet adjust NIST’s draft guidance in response to public comments or otherwise temper its approach, given the potential impact that the use of march-in rights could have on the delicate innovative ecosystem that the Bayh-Dole Act created. In the meantime, businesses and other organizations would be well advised to assess whether anything in their patent portfolio may be implicated and, if so, consider how their business is using or otherwise providing public access to the patented innovations at a “reasonable price.”
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