“Skeptics mistakenly believe – on purpose – that Bayh-Dole should be used as part of a price control regime to lower drug prices…. No one likes to pay high prices, of course. So, why not just have the federal government mandate price controls? They seem to think innovation will continue to happen even though profit is removed.”
On January 12, the National Institute of Standards and Technology (NIST) published a request for comments on proposed changes to regulations that support the University and Small Business Patent Procedures Act of 1980, which is more commonly known as the Bayh-Dole Act. At the time, NIST explained that this important update to Bayh-Dole represents a key element of the Return on Investment Initiative, which seeks to maximize American innovation arising from the federal government’s more than $150 billion annual investment in research and development.
“The Bayh-Dole Act is a foundational pillar of U.S. innovation, technology transfer and entrepreneurship,” said then Under Secretary of Commerce for Standards and Technology and NIST Director Walter G. Copan. “This proposed modernization of Bayh-Dole for the 21st century is the culmination of an extensive nationwide stakeholder engagement process and also represents a consensus of federal government interagency experts. We at NIST look forward to receiving feedback on these proposed updates, in support of America’s enduring role as the world’s innovation leader.”
The revisions proposed by NIST remove language and reorganize a number of sections for clarity purposes. The revisions also:
- Clarify definitions and applicability of Bayh-Dole to large businesses;
- Provide clarification for processes for march-in, assigning rights to employee inventors, small business considerations, and filing provisional patent applications;
- Create a new requirement for agencies to annually report statistics about the implementation of Bayh-Dole;
- Provide additional information about the purpose and use of royalties collected by federal agencies for licensed inventions; and
- Align exclusive licensing processes with statutory requirements and update appeals processes for licensing activities.
March-in rights are always a thorny issue, and one of the proposed changes—to add language indicating that “march-in rights shall not be exercised by an agency exclusively on the basis of business decisions of a contractor regarding the pricing of commercial goods and services arising from the practical application of the invention”—has caused concern from industry.
March-in rights exist as a part of Bayh-Dole to allow rights licensed to be clawed back in the event that the licensee is not using the underlying patent to put products into the stream of commerce. This makes sense because the entire purpose of Bayh-Dole was to address the very real, legacy problem associated with university- developed technology stagnating and never reaching the marketplace and thereby never providing any benefit to the public. Unfortunately, skeptics have continuously attempted to mischaracterize the nature and purpose of march-in rights as a vehicle for the federal government to control prices.
Skeptics mistakenly believe – on purpose – that Bayh-Dole should be used as part of a price control regime to lower drug prices. What they say sounds good because it tugs at the heart, and at the purse. No one likes to pay high prices, of course. So, why not just have the federal government mandate price controls? They seem to think innovation will continue to happen even though profit is removed.
The thought process, erroneous as it is, goes like this: The federal government paid for the research that led to the particular pharmaceutical in question, therefore, the drug should be priced controlled, or free. The argument is simple, easy to understand, and hopelessly flawed. The federal government provides seed money only, in order to pay for early-stage scientific research that would otherwise be too speculative for a for-profit company to underwrite. But after an initial promising discovery there is still a decade or more of hard work, research, development and many hundreds of millions of dollars, and sometimes multiple billions of dollars, of follow-on spending that must take place before any pharmaceutical actually receives market approvals. So, the federal grants provided by the federal government to start the processes, although critical, are a very small percentage of the overall spend. Thus, the simple fact is the federal government did not pay for the pharmaceutical, and any statement to the contrary is either intentionally misleading or made without knowledge of the real truth.
Nevertheless, and despite the overwhelming success of Bayh-Dole over the past 40 years, opponents of the Act and of the U.S. patent system use every effort to challenge the fabric and foundation of this seminal legislation.
Monday, April 5, was the deadline to submit comments to NIST on the proposed rule revisions. Below are a handful of excerpts to comments submitted, together with links to the full text of the comments.
Chief Executive Officer
Wisconsin Alumni Research Foundation
Excerpt of comments submitted by WARF to NIST:
Price should not be a factor in considering the exercise of march-in rights under the Bayh-Dole Act. The original authors and sponsors of the legislation added a march-in provision to the act to ensure the successful licensing of an invention. The language has no bearing on the consumer market for that invention. This was true of the original intent of Congress and has continued to be true over more than forty years of widespread practice between technology transfer professionals and federal funding agencies.
We therefore appreciate the rulemaking clarification “that march-in rights shall not be exercised” on the basis of “the pricing of commercial goods and services arising from the practical application of the invention.” However, we also agree with AUTM and Joe Allen that removing the words “exclusively” and “of the contractor” would further clarify that price controls have no bearing on march-in rights.
Senior Vice President
U.S. Chamber of Commerce, Global Innovation Policy Center
The Chamber is also concerned that if the Bayh-Dole Act march-in provision is used to control drug prices, it may also lead to proposals to control prices of other products developed through federal government research. Such policies would potentially impact not only the pharmaceutical sector, but also life sciences, environmental sciences, computer sciences, engineering, automotive, and an almost endless array of inventions that could significantly benefit those, and other, industry sectors. Clearly, this could have a chilling impact on American innovation, the exact opposite of the Bayh-Dole Act’s intended purpose.
Deputy General Counsel, Vice President for Intellectual Property
Biotechnology Innovation Organization
Excerpt of comments submitted by BIO to NIST:
BIO supports the proposed revisions to CFR §401.6. and in particular agrees that new subsection (e) should clearly reaffirm that an agency shall not exercise march-in rights on the basis of business decisions of a contractor regarding the pricing of commercial goods arising from the practical application of the invention.
We believe this to be no more than an affirmation of current and longstanding policy that has been adopted consistently by agencies throughout the federal government for the past 40 years. BIO would, however, recommend several clarifications to be included in the proposed new CFR §401.6.
Stephen J. Susalka, PhD, CLP, RTTP
Chief Executive Officer
Association of University Technology Managers
Excerpt of comments submitted by AUTM to NIST:
The march-in provision controversy is a complex matter that has arisen from a mischaracterization that the government’s interest in using the Bayh-Dole Act to spur innovation and facilitate the transfer of technology is somehow coupled to the government’s interest in containing health care costs through drug pricing. The two interests are not coupled, and the Bayh-Dole Act was never intended to provide such a coupling. Attempting to create such a coupling would be contrary to the very goals that the Bayh-Dole Act has proven to successfully achieve. Some consumer advocates have argued that the march-in clause was intended to protect the public’s investment in products which arise from federal funding. They further argue that the public is left in a position in which it might be forced to pay inappropriately high prices for drugs whose research and development they have financed as taxpayers. Private sector entities, on the other hand, view this misreading of the march-in clause as threatening their intellectual property and the substantial investments they have made to bring their products to a highly competitive marketplace.
University technology transfer offices are then placed in the difficult position of asking their licensees to accept the march-in provision without being able to fully reassure licensees that the government will not be permitted to march-in based on price when it is time to market a product. The position increases the likelihood that an agreement will not be reached and runs counter to the mission as university technology transfer offices are keenly aware that fewer licenses will result in
The Alliance for U.S. Startups and Inventors for Jobs
Excerpt of comments submitted by USIJ to NIST:
Much of criticism of the current treatment of these “march in” rights comes from or on behalf of persons that would prefer to pay less the for the drugs made available by licensees of inventions that were initiated or contributed to by federal funding to university and/or nonprofit organizations. Of course, people would like to pay less for life enhancing drugs (as well as most of the other products they purchase), but the utilization history of government funded scientific research before and after the 1980 passage of the Bayh-Dole Act provides a powerful demonstration of the hard reality – allowing a government agency to control the price of a new drug or a new device after a private company has invested millions of dollars and years of human effort would be the death knell of our pharmaceutical and medical device industries as we have come to know them.