Three Letters Summarize the March-In/ Compulsory Licensing Debate

“What this all boils down to is short term political expediency versus upholding the law that makes possible the public/ private sector partnerships that the National Institutes of Health (and our nation) depend on to turn government funded inventions into useful products.”

march-in - and Human Services (HHS) Secretary Xavier Becerra may consider himself a lucky man (which would probably sound ironic to him at the moment). He just received three letters which aptly summarize the fork in the road he faces in deciding which way to turn in a critical policy decision.

On June 23, Senator Elizabeth Warren (D-MA) and Rep. Lloyd Doggett (D-TX), joined by 98 of their Democratic Congressional colleagues, sent him the latest in their series of letters urging him to use alleged existing authorities so that copycats can make expensive drugs to lower health care costs. That triggered an immediate rebuttal from six associations representing research universities and hospitals (including the Bayh-Dole Coalition, which I lead) and another from the Licensing Executives Society, USA & Canada, Inc. (LES), representing the licensing profession.

It seems appropriate to let the letters speak for themselves, so let’s start with the Congressional letter, urging the Secretary to use tools they allege he already has to cut the Gordian Knot to lower drug costs.

We write to you today to urge you to utilize administrative authorities, including government patent use compulsory licensing under 28 U.S.C. 1498 and march-in and royalty-free rights under the Bayh-Dole Act, to lower prescription drug prices…

Exercising these authorities would be extraordinarily popular – about 80 percent of voters favor breaking patent monopolies to reduce drug prices. Moreover, using executive tools to lower drug prices while also supporting robust drug pricing legislation is the policy of the administration as expressed by President Biden in the executive order he signed last summer, Promoting Competition in the American Economy. The order directs the Department of Health and Human Services to ensure that the patent system does not “unjustifiably delay generic drug and biosimilar competition,” while also expressing support for “aggressive” legislative reforms. It also directs the National Institute of Standards and Technology to consider not finalizing a Trump-era regulation that would prevent the government from exercising certain rights under the Bayh-Dole Act to lower drug prices on medicines invented with taxpayer funds.

Utilizing patent licensing authorities under these statutes could introduce generic or biosimilar competition and dramatic price relief in a matter of months. In your report released in September 2021, you recognized that the federal government holds government use patent licensing rights under 28 U.S.C. 1498 and march-in rights under the Bayh-Dole Act. The report concludes that legislative and administrative actions presented in its pages “…will protect American patients and improve their access and adherence to medications by lowering drug prices through increased competition throughout the health care system.”

You personally understand the value that these authorities can provide to American patients. We appreciate that as California’s attorney general, you led a bipartisan initiative of state attorneys general in urging the prior administration to use its licensing authorities to ensure access to and secure a fair price for the drug remdesivir. As a member of Congress, you also called on the Obama administration to use competitive licensing to lower drug prices

Now, you have the power to take on the monopoly abuses of the pharmaceutical industry and the responsibility to ensure Americans have affordable access to the medicines they need.

Sounds pretty good from a progressive perspective.  All we need to do is take products away from those who created them so copycats can make them cheaper—what could possibly go wrong with that? However, as the LES and university association letters point out, that’s not how the current laws work.

Here’s LES’ rebuttal:

The authors of the Congressional letter misconstrue the language, legislative history, and intent of both the Bayh-Dole Act of 1980, and 28 U.S.C. Section 1498. They urge you to overturn decades of executive branch interpretation and judicial precedent in pursuit of goals that are shortsighted at best, but which, in the long term, would be disastrous to American innovation. Their proposal would undermine the creation of public – private partnerships such as those that, under existing interpretation, have produced thousands of lifesaving and life-changing products…

Under Bayh-Dole, the government retains certain rights. In carefully defined, limited, and exceptional circumstances, the government may “march-in” on a license agreement. If, for example, a company were to license federally funded technology from an academic institution, but then failed to make a good faith effort to develop it into a product, the government could “march-in,” requiring the academic institution to license it to others who would make that effort, or to do so itself if the academic institution refused. This was intended to remedy a situation where the public would otherwise be completely deprived of the benefits of the invention.

The letter also misconstrues 28 U.S.C. Section 1498(a), which grants patent owners a remedy against the federal government when the government is found to have committed patent infringement. Contrary to the characterization of the letter, this is not a compulsory license giving the federal government a “right” to infringe or to relicense the patent. It is instead a waiver of sovereign immunity to ensure that the patent owner can be made whole even when the infringer is the sovereign.

Neither Bayh-Dole’s march-in provision nor Section 1498(a) create a mechanism for the government to impose price controls; nor have they ever been construed to provide such authority. The authors of the letter are urging you to relicense patents on drugs that have been successfully developed, and are, in fact, commercially available. Presumably, they would have you relicense to those who would sell those drugs at a cost they find more acceptable. This would be an unprecedented move founded on flawed legal theories, and would undoubtedly be struck down by the courts.

It would also be ineffective. Section 1498(a) provides that the patent owner shall have a remedy “against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture….” Even if the government were to relicense a patent for purposes of price controls, it would nonetheless be obligated to pay the patent owner what it otherwise would have made on those sales in the U.S. market – in the absence of infringement. Thus, the government would incur substantial liability for infringement, and the so-called price controls would have none of the intended effect…

The letter proposes that the government deliberately usurp intellectual property rights whenever a patented product is deemed unduly expensive. Though the target here is biopharmaceuticals, the logic of the argument extends to all patented products that, by chance, receive any amount of federal funding. Such a widespread taking of private rights would bring a swift halt to private sector development of federally funded basic research, and would kill the virtuous cycle that produces many valuable products and alternative sources of funding for America’s universities. As a result, the pace of innovation will slacken, and patients awaiting new therapies will be denied.

We are also deeply concerned about U.S. support for global initiatives weakening intellectual property protection and undermining innovation. In June, the World Trade Organization, with support from the U.S., implemented a waiver of patent-related obligations under TRIPS for COVID-19 vaccines. While perhaps well intentioned, this waiver will do nothing to arrest the pandemic, but it will discourage investment in future innovation. In combination with the flawed interpretation proposed for Bayh-Dole and Section 1498(a), it is an assault on innovation and intellectual property rights, and needlessly raises the risk on investment in much needed improvements in healthcare. We urge you to reject such approaches, and instead, to use your voice within the Biden-Harris Administration to support pro-innovation policies that will produce more and better vaccines and therapies, and improve quality of life for all.

And here’s the viewpoint expressed in the letter signed by the Association of American Universities, the Association of Public & Land Grant Universities, COGR, the Association of University Medical Colleges, the Bayh-Dole Coalition and AUTM:

If the Department of Health and Human Services grants these lawmakers’ request to invoke the government use license and/or march-in rights provided under the Bayh-Dole Act (35 USC 202 and 203), private-sector firms will be less willing to license universities’ intellectual property. Introducing the possibility of retroactive revocation of exclusive rights and compulsory licensing by government decree could shake investor confidence, drying up critical venture funding needed to commercialize new technologies and bring them to market. The inevitable result would be that some valuable and potentially lifesaving research outputs would not move beyond the lab…

Some have argued that HHS has the authority to invoke the Bayh-Dole Act’s march-in rights to intervene and grant a new license to patents that arise from federally funded research when the list price of a marketed product is above some undefined threshold. This is a misinterpretation of the law’s plain language, intent, and forty-two-year history. March-in rights are intended to assure the commercialization of government-funded inventions. The Bayh-Dole Act never mentions or suggests that pricing is a consideration or criterion as to whether a product is reasonably available to the public, nor has “government use” ever been accepted to cover such a broad claim of authority under the government use license.

Ultimately, while our organizations believe that actions need to be taken to control drug pricing, the use of the march-in for this purpose represents a misuse of this government authority. As former Senators Birch Bayh and Bob Dole confirmed in 2002, they never intended for the government to use the march-in provision of their eponymous legislation as a price control mechanism. The statute deliberately omits any mention of “reasonable price.” For this reason, the National Institutes of Health has declined all previous petitions to use march-in rights to lower drug prices…

In addition to being an ineffective mechanism to reduce drug prices, such an action would significantly undermine university innovation and the benefits it delivers to the American people and indeed, as in the case of COVID-19 vaccines, the entire global community. If the government can order compulsory relicensing of patents, private investment will go elsewhere, and promising innovations will once again waste away as was the case prior to the passage of the Bayh-Dole Act.

The Bayh-Dole Act plays a pivotal role in fostering scientific innovation and economic growth. We support you as you carry out your obligation to uphold the intent of the law and the beneficial legal framework it creates.

HHS has been dithering about which way to turn for many months. In these three letters, Secretary Becerra now has all of the positions clearly laid out, and the choice (and repercussions) of which path he should take are pretty clear. What this all boils down to is short term political expediency versus upholding the law that makes possible the public/ private sector partnerships that the National Institutes of Health (and our nation) depend on to turn government funded inventions into useful products.

This is a momentous decision. The Biden Administration recently supported the TRIPS waiver allowing “developing countries” to ignore patent rights so they can copy COVID-19 vaccines. No one is trying to copy Chinese or Russian vaccines, only ours. Those breakthroughs were made because our public and private sectors worked together to produce desperately needed vaccines in record time.

The companies that trusted the U.S. government to be a reliable partner are already reeling from this decision. Now, the UN Secretary General is saying that critical energy technologies “should be treated as essential and freely-available global public goods.” Once again, the target is U.S. innovation.

Pulling the rug out from under our system of public and private sector R&D partnerships by misusing the Bayh-Dole Act so that it becomes another avenue for giving away critical technologies will be a devastating blow to an economy teetering on the brink.

Secretary Becerra better get this one right.

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  • [Avatar for Anon]
    August 1, 2022 05:49 pm

    B-b-b-ut “Equity.”