Dormant For a Reason: A Look at March-In Rights

Photograph of the U.S. Capital Building [1]

On December 8th of 2023, controversy struck when the National Institute of Standards and Technology (“NIST”) opened a request for public comment concerning its Draft Interagency Guidance Framework for Considering the Exercise of March-in Rights (the “Draft Framework”).[2]  The Draft Framework describes new justifications a federal agency may consider when applying the march-in clause under the Bayh-Dole Act (“BDA”).[3]  But first, what is the BDA? What is the march-in clause?  

The federal government funds research conducted by universities, small businesses, and non-profit organizations through federal agencies.[4]  Without government intervention, much of the research would go unfunded.[5]  Before the BDA, the government exercised ownership over the federally funded inventions, disincentivizing research by limiting the profit incentive from inventors and their associated institutions.[6]  After the BDA, this research was funded but it also allowed these entities to patent their inventions and profit from them through the free market.[7]  This act alone has brought almost two trillion dollars to the growth of the American economy, supported over six million jobs, and introduced thousands of products to the free market.[8]  To prevent misuse, the government imposed certain restrictions and qualifications that these inventors must follow.[9]

The most controversial of those restrictions is the march-in clause, which gives the government the right to “march-in” on patents that violate certain qualifications.[10]  Birch Bayh, the United States Senator who introduced the bill that would become the BDA, explained that march-in rights would defend against corporations that want to attain patents only to suppress them.[11] This was in response to Congress’s concern that corporations would license technology only to leave them dormant because they could threaten existing products.[12]  March-in rights ensure that patent owners commercialize their innovations, and promote competition.[13]  Since the BDA was enacted in 1980, eight petitions have been filed to exercise march-in rights—all of which were to the National Institute of Health (NIH), and all of which were denied.[14]

Recent controversy surrounding the Bayh-Dole Act concerns the justification of the use of march-in rights.[15]  Specifically, 35 U.S.C. § 203 provides that a federal agency that is funding a qualifying invention can march in on a patent and “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 . . . .”[16]  March-in rights may only be exercised if the federal agency that is funding the research determines such measures are necessary to accomplish one of several aims, including “to achieve practical application of the subject invention,” “to alleviate health or safety needs,” or otherwise satisfy statutory or regulatory requirements.[17]

The NIST’s Draft Framework, supported by the Biden Administration, proposes a controversial interpretation of these statutory criteria.[18]  Specifically, the Draft Framework describes questions to consider when contemplating the use of march-in rights, most notably a question that justifies the usage based on price alone.[19]  The relevant question to determine if march-in rights are appropriate discusses only price increases specifically, but clarifying commentary is provided “in reviewing this question, the agency is not limited to reviewing price increases; the initial price may also be considered . . . .”[20]  The justification for this statement is that if the price is too extreme, it endangers health and safety needs, thus fulfilling 35 USC § 203(a)(2).[21]

However, historical agency practice suggests that regulating the cost of an invention was never the intent of the BDA.[22]  For example, the NIH has repeatedly pushed back on petitions to exercise their march-in rights based on price alone.[23]  In 2023, the NIH denied a march-in petition for a drug Xtandi (enzalutamide) based on pricing.[24]  Dr. Lawrence A. Tabak, Director of the NIH, stated:[25]

This decision is consistent with the NIH’s determination in 2016, in which [the same parties] requested NIH and the Department of Defense march-in based on the price of Xtandi but each declined. In responding to the march-in request for Xtandi in 2016, NIH explained that, consistent with march-in determinations for Cell Pro (1997), Norvir (2004, 2013) and Xalatan (2004), a practical application is evidenced by the “manufacture, practice and operation” of the invention and the invention’s “availability to and use by the public . . . .”

Opponents of march-in rights argue that once these rights are expanded, they can be applied to any federally funded invention in any industry, thus curtailing public-private collaboration.[26]  While the current administration’s aim is on pharmaceutical companies now, other industries may begin to wonder if they are next and think twice about collaborating with the government.[27]  Limiting returns for private companies increases their risk and lowers their incentive.[28]  Expanding march-in rights may also negatively impact cutting-edge technologies such as AI and semiconductor production, as well as eliminate government collaboration with Fortune 500 companies such as Microsoft and NVIDIA.[29]

The Biden Administration’s aim is admittedly noble; they simply want to crack down on the high costs of prescription drugs.[30]  However, expanding march-in rights likely puts innovation at risk and cuts against the substantial benefits of promoting future invention.[31]  The incentive to innovate will diminish if the government gives out licenses to these patented inventions, destroying the advantage the BDA explicitly intended to create.[32]  Reducing drug costs is an issue that needs to be addressed, but as opponents of the Draft Framework point out, allowing the exercise of march-in rights based on cost alone is a price too high given the potential downsides: the end does not justify the means.[33]

References:

[1] Carol M. Highsmith, U.S. Capitol dome, Washington, D.C. (photograph), in Photographs in the Carol M. Highsmith Archive, Library of Congress (between 1980 and 2006), https://www.loc.gov/resource/highsm.12503/?r=0.094,-0.035,1.111,0.901,0.

[2] See Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights, 88 Fed. Reg. 85593, 85593 (Dec. 8, 2023).

[3] See Stephen D. Sencer et al., Biden Administration’s Proposal Under Bayh-Dole Act Signals Enhanced Focus on Use of March-In Rights and Lower Drug Pricing, Ropes & Gray (Dec. 13, 2023), https://www.ropesgray.com/en/insights/alerts/2023/12/biden-administrations-proposal-under-bayh-dole-act-signals-enhanced-focus-on-use-of-march-in-rights (providing background to Biden Administration proposal). 

[4] See, e.g., 35 U.S.C. § 201 (defining “funding agreement” between federal agencies and contractors as “performance of experimental, developmental, or research work funded in whole or in part by the Federal Government”).

[5] See Alexander Kersten & Gabriella Athanasia, March-In Rights and U.S. Global Competitiveness, Ctr. for Strategic and Int’l Stud. (Mar. 24, 2022), https://www.csis.org/analysis/march-rights-and-us-global-competitiveness (“The Bayh-Dole Act . . . allows universities and businesses to capitalize on federally funded research . . . that would otherwise lie dormant.”).

[6] See Letter from Ann M. Mueting, President, Am. Intell. Prop. L. Ass’n, to Mojdeh Bahar, Assoc. Dir. for Innovation and Indus. Servs., Nat’l Inst. of Standards and Tech., at 2 (Feb. 5, 2024), https://www.aipla.org/docs/default-source/advocacy/aipla-comments-to-nist-on-march-in-rights-guidance.pdf?sfvrsn=7a3154dc_1.

[7] See id.

[8] See Bayh-Dole Coalition Statement on Biden Administration’s Proposed March-In Framework, Bayh-Dole Coal. (Dec. 7, 2023), https://bayhdolecoalition.org/bayh-dole-coalition-statement-on-biden-administrations-proposed-march-in-framework/#:%7E:text=In%20response%2C%20Joseph%20P.,uncertainty%20over%20America%27s%20innovation%20system. (providing data on Bayh-Dole Act benefits).

[9] See Kersten & Athanasia, supra note 5.

[10]  See id.

[11] See Letter from Ann M. Mueting, supra note 6, at 4.

[12] See id.

[13] See id.

[14] See Kersten & Athanasia, supra note 4.

[15] FACT SHEET: Biden-Harris Administration Announces New Actions to Lower Health Care and Prescription Drug Costs by Promoting Competition, The White House (Dec. 7, 2023) [hereinafter Fact Sheet], https://www.whitehouse.gov/briefing-room/statements-releases/2023/12/07/fact-sheet-biden-harris-administration-announces-new-actions-to-lower-health-care-and-prescription-drug-costs-by-promoting-competition/.

[16] See 35 U.S.C. § 203(a).

[17] See id.

[18] Fact Sheet, supra note 15.

[19] Sencer et al., supra note 3.

[20] Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights, 88 Fed. Reg. at 85599.

[21] See id.

[22] Letter from Ann M. Mueting, supra note 6, at 2-5.

[23] See id. at 8-9.

[24] See id.

[25] Letter from Lawrence A. Tabak, Performing the Duties of the NIH Director, Dep’t of Health and Hum. Servs., to Robert Sachs & Clara Love, at 2 (Mar. 21, 2023) (emphasis added) (footnotes omitted),  https://www.keionline.org/wp-content/uploads/NIH-rejection-Xtandi-marchin-12march2023.pdf.

[26] See Jeffrey Westling, Biden Administration’s Plan to Expand March-in Rights Could Harm All Sectors of the Economy, American Action Forum (Feb. 8, 2024), https://www.americanactionforum.org/insight/biden-administrations-plan-to-expand-march-in-rights-could-harm-all-sectors-of-the-economy/ (contemplating negative effects of march-in rights usage).

[27] See id.

[28] See id.

[29] See id.

[30]Fact Sheet, supra note 15.

[31] Kersten & Athanasia, supra note 5.

[32] See id.

[33]See id.