The March-In Drug Price Control Narrative Crumbles While Its Damage to American Innovation Grows

It was little more than a month ago when the Biden Administration unleashed its draft guidelines for applying the march-in provisions of the Bayh-Dole Act. For more than 43 years, the law was implemented as written. Every Administration—including the Biden Administration—rejected repeated attempts to misuse the law so the government could license copiers when critics felt that a product based on a federally-funded invention was too expensive. This was mainly sought under the guise of lowering drug prices.

Even though the Administration issued a stinging denial of the most recent attempt last March, in December it reversed course. Although Congress hadn’t amended Bayh-Dole, the guidelines say agencies can use march in rights to impose “reasonable pricing” on federally funded inventions.

But a funny thing happened (if you can consider a disastrous policy choice humorous). Now, even those who most loudly called for turning the law on its head are conceding that it won’t lower drug prices after all. And those who predicted this action will release the furies on the entrepreneurial small companies which drive American innovation are being proven correct.

Let’s hope that Administration realizes that it’s been led into a swamp and reverses course.

Bayh-Dole/ C4IP Briefing

Three recent events brought the debate into sharp focus. One was a standing room only briefing on Capitol Hill by the Bayh-Dole Coalition (which I lead) and the Council for Innovation Promotion, organized by former Directors of the U.S. Patent and Trademark Office Andrei Iancu and David Kappos.

We began by discussing the purpose of Bayh-Dole and march-in rights. The law allows universities and small companies to own and develop federally funded inventions because previously they were lying fallow when the government took them away from their creators.

March-in rights are to ensure that good faither efforts are being made towards commercialization, that universities are monitoring and enforcing their licenses—and are not including unreasonable terms that undermine development—and that sufficient quantities can be made to meet public health and safety needs. They can also be used if the licensee reneged on their pledge to make the product in the U.S.

In such cases, a federal agency can “march in,” requiring the university to license others or do so itself if the university refuses. There’s nothing in the law about the government imposing price controls.

Several other key points were raised:

• Misusing march in rights to control drug prices won’t work for a simple reason. Drugs have many patents around them and at most one or two are Bayh-Dole inventions. The vast majority are made by private companies and are not subject to march in rights.
• Bayh-Dole applies to all agencies, not just the National Institutes of Health. Environmental, clean energy, materials, sensor, agricultural companies spinning off campus are likely to have their key patents covered by Bayh-Dole.
• The Administration’s proposal opens the door for large competitors, the unscrupulous, or our foreign adversaries to file march in petitions claiming they can make products cheaper than the entrepreneurial companies which drive American innovation.
• The guidelines are retroactive. Those who commercialized Bayh-Dole inventions now find the system turned on its head.
• The guidelines are a clear case of the Executive branch trying to change the law without the consent of Congress.

Unfortunately, the damage is already becoming evident. David Kappos described a conversation he just had with both a major corporation and venture capitalist. Both are holding back on commercializing federally funded inventions because the pending guidelines “have made federally funded inventions toxic.”

Kate Hudson with the Association of American Universities called the guidelines “a breath taking policy pivot” which threatens to “dry up academic technology transfer.”

Andrei Iancu added that the guidelines sweep in federally funded R&D across the board, including the newly passed CHIPS Act, the Cancer Moonshot and mainstays like the Small Business Innovation Research program (SBIR) and the Small Business Tech Transfer program (STTR) which the Small Business Administration touts as “America’s venture capital fund.”

Charles Crain with the National Association of Manufacturers built on that theme by wondering how many entrepreneurial companies will avoid taking government R&D contracts as they did before Bayh-Dole. Because most NAM members are small companies, the new guidelines are sounding alarm bells in his organization.

Venture Capitalists Weigh In

In case anyone thinks these fears are overblown, another wake up call was sounded in a remarkable letter  to President Biden and Secretary of Commerce Gina Raimondo by the National Venture Capital Association. Its subheadings say it all:

• March-in will Destroy the Remaining VC Trust in the Patent System
• March-in will make Public Funding Toxic for VCs – Nullifying the Administration’s Previous Efforts
• March-in Harms Small Businesses Competitiveness
• March-in will Hurt Development of Critical Industries

And to leave no doubt about their feelings, here’s how the letter winds up:

“We disagree with the administration’s inclusion of pricing as a consideration in deciding whether the federal government can use its march-in authority. Nothing in the original Bayh-Dole Act  includes price as a factor when invoking march-in rights. This interpretation of the legislation misrepresents its original intent and will effectively curb investment in critical sectors like healthcare. The ambiguity of the draft framework, which also does not include a definition of what would constitute unreasonable prices, will lead to investors derisking their portfolios and limiting the development of vital cures and technologies.

We urge you to immediately withdraw the NIST march-in framework and abandon your administration’s broader march-in strategy.”

Even Patent Opponents Know March-In Isn’t the Answer

Finally, even those who’ve long advocated the misuse of march in right for controlling drug prices admit it alone is not enough. James Love of Knowledge Ecology International said in a recent opinion piece:

“Knowledgeable critics and supporters of march-in rights agree they are relevant to relatively few products. They only apply when the federal government funding is related to an invention but do not apply to other research subsidies. A review of patents for new small-molecule drugs shows only a handful with any government rights and even fewer cases where all the listed patents disclose federal funding. Furthermore, even when the federal government has rights in some patent on a product, companies may claim others. Additional barriers may also exist, particularly those relating to the regulatory pathway or access to know-how or proprietary cell lines.”

Their solution: the government must confiscate privately made patents and know-how. They’re pointing the Administration right into a swamp that will swallow up the system that made America the innovation wonder of the world.

Perhaps the White House should consider this verse from a Pete Seeger song before they plunge in any further:

“Waist deep in the Big Muddy
And the big fool says to push on.”

Before they lead the entire nation into the murk, a wiser course is to get back on solid ground while they still can. But the waters are rapidly rising.

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