On December 7, 2023, the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) issued a notice-and-comment period for their new draft guidance for exercising the government’s “March-In” rights of the Bayh-Dole Act. Far from a run-of-the-mill notice and comment, the guidance is part of the White House’s effort to lower pharmaceutical prices - and has received heated comments from multiple industry and political players.
The Dormant “March-In” Rights of the Bayh-Dole Act
Part of the scrutiny on “March-In” rights is because of the novelty; it’s a government statutory right that has never been exercised. The Bayh-Dole Act of 1980 allowed private companies and contractors to exercise patent rights arising from federal government-funded research - setting the stage for the massive public investment in pharmaceutical development, a testament to the public-private partnership. However, these rights are not unqualified. As part of the bargain, the government reserves the right to grant compulsory licenses of an invention developed with federal funds if it determines that certain conditions are met.[1] Curiously, these rights have never been exercised and rarely even discussed - until now.
Particularly of importance is the guidance’s new framework that includes price as a factor of whether March-In rights should be used. The inclusion of price directly signals the Biden Administration’s intended use of March-In rights - using consumer-focused economic regulation to achieve a policy goal of lowering drug prices and expanding access to healthcare. Industry players are clearly upset at the potential disruption of the public-private partnership established by the Bayh-Dole Act; perhaps due to the now increasingly precarious assumption that the government was never interested in regulating pricing within pharmaceuticals. Indeed, for the longest time, the National Institute of Health (NIH) has rejected calls to March-In on patents for expensive HIV/AIDS drugs, stating that pricing concerns alone are insufficient to justify the compulsory licensing of March-In rights.
Patents, Innovation, and Public Health
The revival of March-In rights as an avenue of almost purely economic regulation brings new questions for the underlying justifications of intellectual property. From a zoomed-out view, it’s easy to simply fault a specific industry for relying on the assumption that dormant rights would stay dormant, but the practical concerns behind such a public-private partnership reveal the overarching principle: the incentives for innovation. Disregarding the case of unintentional discovery and research, it is a simple economic reality that the incentives for pharmaceutical development will be reduced if march-in rights will be utilized to push prices down, leading to less overall investment. A pharmaceutical industry group described the pre-Bayh-Dole Act landscape as where “promising new technologies sat on the shelf,” referencing the economic prosperity and efficiency from the Bayh-Dole Act (minus March-In). This mirrors the traditional patent-innovation balance - where inventors should be protected from misappropriation or theft of their ideas as to encourage their work, yet not empowered to a point where others cannot build upon or explore their ideas further.
The case of march-in rights in the pharmaceutical context now adds the value of public health to the balance. The long-term “health” of the intellectual property system now must contend with the real and immediate concerns of public health, and public sentiment appears to favor the common American over the innovation of a profit-seeking industry. We are not strangers to dueling over the value of intangible societal goods. Sports stadiums, funded primarily with taxpayer dollars, are often a pseudo-private-public good in which the proceeds are effectively given to a (beloved) private institution; the local sports team(s). The benefits to the public are, at best, a bustling public facility that fosters strong community bonds and profitable revenue sharing, to, at worst, a waste of taxpayer dollars resulting in overpriced tickets, concessions, and a source of public despair and shame. Pharmaceutical patents, perhaps not as much of a hot-button issue for voters as stadiums, nevertheless mirror the public-private partnership investment structure that sometimes will reveal competing incentives, especially when the effectiveness of the scheme is called into question. “March-In”, therefore, stands in the crossfire as a relatively simple statutory and property right by the government that must contend with the realities of public health, economic, and intellectual property regulation.
Conclusion
The NIST has yet to issue final guidance on March-In frameworks, and it is unclear exactly which types of drugs, pricing practices, or industries funded by government research will be impacted by executive action. Perhaps the current comments and controversies are evidence of preemptive regulation already - a fear that will quell some profiteering pricing practices by private companies fearing retribution. Either way, the regulatory and government action highlights the lines between public and private goods, the balance of incentives for innovation, and the ever-complicated task of quantifying the value of abstract societal policy goals.
[1] 35 U.S.C. § 203(a)