Federal Government Releases Proposed Guidance for Exercising “March-In” Rights Under the Bayh-Dole Act: Implications for Pharmaceutical and Medical Technology Companies | Goodwin
On December 8, 2023, the National Institute of Standards and Technology (NIST) published a draft guidance document regarding the government’s exercise of “march-in” rights under the Bayh-Dole Act. The Bayh-Dole march-in rights apply solely to patents and patent applications supported with federal funding, and not to products themselves. Given that products covered by patents and patent applications subject to Bayh-Dole often are also covered by patents and patent applications not subject to Bayh-Dole (i.e., covering inventions developed without the use of federal monies), the new proposal is unlikely to have significant practical effect.
As described below, NIST is seeking public comments on the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights (the Draft Framework). March-in rights, as described in greater detail below, essentially permit a federal agency to “march in” and force a recipient of federal research funding to grant a license to a third party to an invention that benefited from that federal funding. NIST, along with the Interagency Working Group for Bayh-Dole, will use the public comments to develop a final framework document for federal agencies. The goal of a finalized framework document is to provide funding agencies with clear guidance on when to use march-in rights such that their decisions align with the objectives of Bayh-Dole, to encourage consistent and predictable application of march-in rights, and to balance investment in and public use of technology. Comments are due to NIST by February 6, 2024.
Alongside the NIST Draft Framework, the Biden administration issued a fact sheet on December 7 that included the noteworthy statement that the use of march-in rights will be part of the government’s effort to reduce prescription drug costs — on top of the Inflation Reduction Act’s “negotiated” drug price caps, inflation rebate requirements, lowering out-of-pocket expenditures for Medicare enrollees, and placing a $35 cap on insulin pricing. According to the White House fact sheet, the government plans to consider the exercise of march-in rights as a valid strategy to lower costs of drugs and other technology that have been developed with federal research funding. As we highlight below, this includes assessing whether a drug’s price is so high that it “unreasonably limits availability” of the product, which can form the basis of the government’s decision to exercise march-in rights.
Background
The Bayh-Dole Act
The Patent and Trademark Law Amendments Act of 1980, better known as the Bayh-Dole Act (the Act or Bayh-Dole), is intended to facilitate the commercialization of federally funded research and development by businesses and nonprofit organizations such as universities. It does so by permitting recipients of federal government funding to retain ownership of patent rights in inventions developed using federal dollars, and to thereby commercialize the inventions.
Bayh-Dole applies to an invention conceived or first actually “reduced to practice” in the performance of work under a funding agreement with the federal government (a subject invention). Traditional research grants provided in academic settings are typically governed by the Act. Bayh-Dole also applies if a company utilizes Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs to fund their research and development activities. For example, Bayh-Dole will apply where a contractor first actually reduces the invention to practice using federal funding, even if the contractor conceived of an invention, and filed a patent application on that invention, without the use of any federal funding. In other words, using federal dollars to generate data in support of a patent application an entity previously filed will subject the invention to Bayh-Dole.
March-In Rights
March-in rights are a vehicle for a federal agency to require the recipient of federal funding (the contractor) to grant a license to the technology. If the contractor refuses, the federal agency itself may grant a license to the technology.1
Under the Bayh-Dole Act, march-in rights can be exercised:
(1) When there is a failure to take, within a reasonable time, effective steps to achieve practical application of the subject invention
(2) In order to alleviate health or safety needs that are not reasonably satisfied
(3) In order to meet requirements for public use specified by federal regulations, and such requirements are not reasonably satisfied
(4) In the event of a failure to substantially manufacture in the United States any products embodying the subject invention that are intended for US commerce, unless this requirement has been waived
March-In Rights and the Pharmaceutical Industry
Since the enactment of the Bayh-Dole Act, there has been considerable debate surrounding the interpretation and perceived lack of assertion of march-in rights, including as they relate to the pharmaceutical industry.
To date, not once have march-in rights been exercised by a federal agency. However, activist groups and state attorneys general continue to petition federal agencies2 to use march-in rights to force federally funded drug developers to provide their drugs at reasonable prices. At least eight petitions have been filed by third parties encouraging the National Institutes of Health (NIH) to use its march-in rights.3,4
At the end of the Trump administration, NIST published a notice of proposed rulemaking proposing to clarify that march-in rights “shall not be exercised exclusively based on the business decisions of the contractor regarding the pricing of commercial goods and services arising from the practical application of the invention.” NIST refused to finalize this provision but emphasized that it would continue to develop the interagency framework. In March 2023, the Department of Commerce and the Department of Health and Human Services announced an initiative to pursue a ”whole of government” approach to review march-in authority under Bayh-Dole, including to address drug pricing.
Despite the fact that no federal agency has ever exercised march-in rights, the Biden administration has made clear that (a) it views march-in rights as a legitimate means for the government to address rising pharmaceutical costs, and (b) the government may contemplate a drug’s or other product’s price as a basis for asserting march-in rights.
NIST Draft Guidance: Implications for Pharmaceutical and Medical Technology Companies
The NIST Draft Framework is intended to serve as a guide for federal government agencies to follow when determining whether to exercise march-in rights. The Draft Framework is not intended to be a mandate or series of requirements. Rather, NIST makes clear that a federal agency’s march-in decisions are fact dependent and must be made based on the totality of the circumstances. The Draft Framework includes suggestions and recommendations for what to consider when an agency is evaluating whether to exercise march-in rights. The Draft Framework also emphasizes a handful of areas of concern that should be particularly important for pharmaceutical and medical technology companies, which we highlight below.
The NIST Draft Framework consists of a series of three overarching questions:
First, does Bayh-Dole Apply?
Second, if so, is one of the four statutory criteria met?
Third, if so, would exercising march-in rights support the policy and objectives of Bayh-Dole?
Does Bayh-Dole Apply?
As a threshold consideration, federal agencies are directed to determine whether a march-in assessment relates to a subject invention — i.e., an invention funded by the federal government. Determining whether an invention is a subject invention can be complicated and fact intensive, and the Draft Framework offers agencies a series of questions to consider in conducting their review.
Is one of the four statutory criteria met?
The NIST Draft Framework emphasizes that agencies need to determine that at least one of the four statutory criteria are met. The Draft Framework provides a series of questions for each criterion. It is in this section that NIST clarifies its proposal to instruct agencies to look at price as a factor in determining whether exercise of march-in rights may be justified in a given circumstance.
- Criterion 1 — March-in action is necessary because the contractor has not taken or is not expected to take effective steps to achieve practical application of the subject invention in the field of use within a reasonable time. The NIST draft guidelines instruct a federal agency to look at whether product development has been stalled; the steps contractors are taking to commercialize a subject invention; pricing and other terms of the product; patent status; whether there are any licenses or offers for licenses; whether regulatory approval is pending; manufacturing status; whether there are valid technical or legal reasons for stopping development or commercialization efforts; and whether there are concerns about a contractor shelving the subject invention without justification.
Importantly, and in sync with the December 7 White House fact sheet, NIST clarifies that a federal agency may also assess the price and terms of sale of a product in the United States. Agencies may look at whether the contractor has “made the product available only to a narrow set of consumers or customers because of high pricing or other extenuating factors,” and whether there is a justification for the price. - Criterion 2 — March-in action is required to alleviate health or safety needs that are not reasonably satisfied by the contractor. The NIST draft guidelines direct federal agencies to assess whether there is a health or safety need that is not being satisfied by the contractor. As part of this assessment, the funding agency should assess how much exercising march-in rights would actually address the issue. Of specific note, the draft guidelines specifically flag assessing whether the contractor is “exploiting a health or safety need in order to set a product price that is extreme and unjustified given the totality of the circumstances.” Notably, NIST clarifies that an agency “is not limited to reviewing price increases” and that the agency is also justified in considering the “initial price . . . if it appears that the price is extreme, unjustified, and exploitative of a health or safety need.” (Emphasis added.)
- Criterion 3 — March-in action is necessary to meet requirements for public use specified by federal regulation (and the contractor is not meeting these requirements).
- Criterion 4 — March-in action is necessary because products embodying subject inventions for use or sale in the United States must be manufactured substantially in the United States by an exclusive licensee, and this requirement has been breached.
Would exercising march-in rights support the policy and objectives of Bayh-Dole?
If Bayh-Dole applies, and if one of the four statutory criteria is met, a federal agency determining whether to exercise march-in rights under the NIST Draft Framework would next ask whether marching in would achieve the policy and objectives of Bayh-Dole. The Draft Framework includes three key questions:
- Would marching in result in practical application, alleviate health or safety needs, meet public use requirements, or meet manufacturing requirements? Here a federal agency is directed to ask what would happen if a license to the subject invention was granted. Factors to be assessed include the likelihood that a licensee would practice the subject invention in sufficient time to address any concerns and whether there are other willing contractors who could put the invention into practice. NIST notes that a complicated IP landscape (e.g., the presence of relevant patents not governed by the Act) and continuing Food and Drug Administration regulatory exclusivities might weigh against a federal agency’s ability to exercise march-in rights, which are other factors to consider.
Notably, the Draft Framework emphasizes that “the situation and pertinent facts may evolve with time,” and that agencies can revisit these questions at any time and defer a determination. - Are there other alternatives that can be pursued, and can they be pursued instead of or in parallel with marching in?
- What are the wider implications of the use of march-in rights? The Draft Framework specifically instructs agencies to consider both the practical impact and the potential impact on the broader R&D ecosystem. Here the Draft Framework acknowledges concerns that use of march-in rights could have “broad and unintended consequences on U.S. competitiveness and innovation” and “decrease … the number of applicants for federal funding” and that “prospective licensees [may] avoid future collaborations with federally funded research institutions, organizations, small businesses, and investigators.” Weighing in favor of exercising march-in rights is “whether march-in would increase public availability of federally funded inventions and foster support for the federal research enterprise.”
Example Scenarios
The Draft Framework includes eight sample scenarios covering multiple technologies. Four of these eight scenarios involve the pharmaceutical or medical technology industries. With each scenario, NIST highlights the relevant statutory criteria and how an agency would assess the policy and objectives of Bayh-Dole, including emphasizing how changes in different factors would potentially result in a different outcome.
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[1] 35 U.S.C. § 203 (“March-In Rights”) states that “the Federal agency under whose funding agreement the subject invention was made shall have the right … to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances . . . . ”
[2] In addition to the director of the NIH, the secretary of the US Department of Health and Human Services and the commissioner of the US Food and Drug Administration are recipients of some such petitions.
[3] https://www.jdsupra.com/legalnews/what-could-a-dhhs-secretary-becerra-18334/.
[4] Recently, 34 state attorneys general requested that the NIH exercise march-in rights on Gilead’s remdesivir, a promising treatment for COVID-19. See
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