Key Takeaways:

• The draft framework represents the most significant formal step taken by any Administration toward the exercise of march-in rights over patents of inventions made with federally funded research since the enactment of the Bayh-Dole Act in 1980.
• The framework makes multiple extended references to ways in which high prices or price increases may be considered to justify march-in, but emphasizes that Bayh-Dole’s purpose also requires considering potential impact of march-in on the broader innovation ecosystem.
• Earlier this year, the National Institutes of Health (NIH) denied the most recent petition for march-in rights for the cancer drug Xtandi, which had received funding from the NIH.

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Executive Summary
On December 7, the White House announced “New Actions to Lower Health Care and Prescription Drug Costs by Promoting Competition,” which included “a proposed framework for agencies on the exercise of march-in rights on taxpayer-funded drugs and other inventions, which specifies that price can be a factor in considering whether a drug is accessible to the public.”
 
As part of this announcement, the National Institute of Standards and Technology (NIST) released for public comment a draft framework for agencies considering the use of march-in rights for products derived from federally funded research under the University and Small Business Patent Procedures Act of 1980 (known as “Bayh-Dole”). The draft framework comes after NIST finalized a Bayh-Dole rule in March 2023, removing provisions of a January 2021 draft rule from the previous administration that would have prohibited agencies from considering product prices in determining whether to exercise march-in rights in response to a petition. 

The December 7 draft framework describes a variety of ways in which agencies may consider price of products in determining whether march-in may be justified, although the examples of hypothetical march-in analyses in the framework do not include an instance of a patented pharmaceutical product being considered for march-in solely based on its price. NIST solicits comments on the draft framework, due in February, which will then be considered by the agency and an Interagency Working Group for Bayh-Dole created in March 2023.

The announcement of the draft framework comes after the new director of the National Institutes of Health, Monica Bertagnolli, came under significant pressure during her Senate confirmation from Senator Bernie Sanders (I-VT) to consider ways the agency could address drug prices. The consideration of exercising march-in-rights to address drug prices represents a significant and far-reaching departure from prior agency policies. Most recently, former NIH Director Francis Collins stated that NIH does not have the authority to use its march-in rights as a tool to lower drug prices and that the law only applies “where a drug is simply not available to the public under any circumstance.”

Background on the Bayh-Dole Act
The Bayh-Dole Act, enacted in 1980, reformed the way intellectual property resulting from federally funded research is treated, both allowing small businesses, non-profit organizations, and academic institutions to own any patents resulting from those rights and to license those patents, exclusively or nonexclusively, to private firms for commercial use. The Act also provided certain rights for the federal government with respect to federally funded inventions.

Bayh-Dole provides that an agency that provided funding support for the research reserves the right to “march-in” under certain circumstances to require the contractor/licensee to grant a license for a “subject invention” in any field of use to a responsible applicant “upon terms that are reasonable under the circumstances,” or, if the contractor/licensee refuses to do so, itself grant such a license. “Subject inventions” are “any invention of [a] contractor conceived or first actually reduced to practice in the performance of work under a funding agreement” with a federal agency.

The agency that entered into the funding agreement may exercise this march-in authority if it determines that one of the following four specific circumstances exists:

1. action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;
2. action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;
3. action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or
4. action is necessary because the agreement required by section 204 [generally requiring manufacturing in the United States] has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.

Recent Developments on March-in-Rights and Drug Pricing
Since its passage, Bayh-Dole has attracted significant attention from parties who argue it could be used to “march in” on patents for pharmaceutical products developed with federally funded research as a means to increase competition or lower prices for these products. To date, no federal agency has ever exercised march-in rights for this purpose.

In January 2021, the Trump Administration proposed a rule that would have updated the framework under which agencies could exercise Bayh-Dol march-in rights, including a prohibition on exercising such authority solely on the basis of a drug’s price. In July 2021, President Biden issued Executive Order 14036, on Promoting Competition in the American Economy, which directed NIST not to finalize the prohibition on considering price. Following this EO, the U.S. Department of Health and Human Services (HHS) and U.S. Department of Commerce (Commerce) issued a press release in March 2023 finalizing elements of the rule and announcing that they would review their march-in authority, including through an Interagency Working Group for Bayh-Dole that would develop a framework for implementing the march-in provision. 

The most recent petition for Bayh-Dole march-in rights in the pharmaceutical context came in 2021, part of a series of petitions beginning in 2016, requesting that NIH exercise its march-in authority over the cancer drug Xtandi and arguing that its pricing in the United States is “demonstrably unreasonable.” Notably, Bayh-Dole contemplates that any exercise of march-in rights would be in response to the petition of a “responsible applicant.” Yet all but one of the previous NIH march-in requests, including the Xtandi petition, have been sponsored by non-profits and patient advocacy groups, not potential manufacturers or licensees.

NIH most recently declined the Xtandi petition in March 2023, noting that that the drug is widely available on the market given that it has been used to treat more than 200,000 patients, although an appeal has been filed to HHS. In June 2023, Senators Elizabeth Warren (D-MA), Angus King (I-ME), and Lloyd Doggett (D-TX) sent HHS and Commerce a letter expressing disappointment at the Xtandi decision. 

Bayh-Dole has attracted attention from Congress at other times, as well, including report language in the 2017 National Defense Authorization Act directing the Department of Defense (DOD) to exercise march-in rights where a drug, vaccine, or medical technology resulting from DOD funding is priced in the U.S. at more than the median price from a set of other countries.

Details of Draft Framework
The introduction to the draft framework from NIST lists four objectives for the framework: to provide guidance to agencies on factors to consider and processes needed for exercising march-in, ensuring that such decisions support the policy and objectives of Bayh-Dole, encourage consistent application of march-in authority, and, notably, “balance the need to incentivize industry investment in the development and commercialization of subject inventions with the need to promote public utilization of subject inventions.”

The draft framework focuses on three overarching questions necessary to assess whether to exercise march-in rights over a specific invention:

1. Does Bayh-Dole apply to the invention (i.e., is it a “subject invention”)?
2. Is one of the four statutory criteria (listed above) met?
3. Would exercising march-in rights support the policy and objectives of Bayh-Dole, including whether it would achieve the desired objective, whether there are better alternative solutions, and whether there are any wider implications that may conflict with the Bayh-Dole objectives?

In general, the framework provides guidance on specific information it recommends that agencies collect, from both contractors and other sources, in order to answer the above questions.

Does Bayh-Dole Apply?
As a threshold matter, the agency must determine whether the invention is a “subject invention,” defined by the statute as “any invention of the contractor [i.e., a recipient of federal funding from a relevant agency] conceived or first actually reduced to practice in the performance of work under a funding agreement.”

This question can be answered in two ways. First, under Bayh-Dole, contractors are obligated to report inventions they believe qualify as “subject inventions,” and the agency can assume that any reported inventions are subject inventions. 

Second, the invention may be a subject invention that is unreported, and the framework provides several questions relevant to determining whether it may be a subject invention, such as whether patents, patent applications, or publications mention government funding, and whether it can be determined that the product at issue arose from the funded work. The framework notes that the contractor may dispute whether an invention is an unreported subject invention by raising it as a “genuine dispute over material facts,” as provided at 37 C.F.R. § 401.6(3-5).

Are the Statutory Criteria Met?
The framework provides considerations for each of the four potential criteria under which march-in can be exercised, as well as some guidance on how agencies should consider these questions. Below are notable points from each criterion’s discussion.

• Has not taken steps to achieve practical application: The framework provides ways to analyze inventions at three stages: 1) not yet licensed and no contractor plans to develop it, 2) has licensed or in development for commercialization, and 3) has been commercialized. Most notably, the agency states that, for commercialized products where “the price or other terms at which the product is currently offered to the public are not reasonable, agencies may need to further assess whether march-in is warranted.” The framework also provides further considerations for considering whether price may be a barrier:
  • “Has the contractor or licensee made the product available only to a narrow set of consumers or customers because of high pricing or other extenuating factors? Has the contractor or licensee provided any justification for the product’s price or background on any extenuating factors which might be unreasonably limiting availability of the subject invention to consumers or customers?”
• Health or safety needs: There are a number of potential considerations presented for how to assess whether a health or safety need exists that may justify march-in, including an analysis of what may be necessary to resolve the health or safety need, such as “greater quantity of quality of a specific product,” “different or additional ways to access the product,” and “more options to access similar, but not identical products,” such as a new use for an existing drug that may require different dosages. The framework specifically raises the drug’s price in this context, asking whether a contractor or licensee may be “exploiting a health or safety need in order to set a product price that is extreme and unjustified given the totality of circumstances,” such as “a sudden, steep price increase in response to a disaster that is putting people’s health at risk.” The framework further emphasizes that this analysis is not limited to price increases, rather, “the agency is not limited to reviewing price increases; the initial price may also be considered if it appears that the price is extreme, unjustified, and exploitative of a health or safety need.”
• Requirements for public use specified by federal regulations: There is a relatively brief discussion of circumstances in which a federal regulation may require that a subject invention be used in a certain way not satisfied by the contractor, assignee, or licensees, including whether the contractor or licensees may be restricting access or imposing barriers to access to the subject invention for those who require it under federal regulation.
• Breach or absence of Section 204 manufacturing agreement: The framework includes a variety of questions for assessing whether the product arising from the subject invention is being manufactured subject to a Section 204 agreement (requiring that products be manufactured substantially in the United States) or whether a suitable waiver has been obtained.

Would March-In Support Bayh-Dole Objectives?
In considering whether exercise of march-in rights would support the objectives of Bayh-Dole, the framework identifies two overarching themes: “promoting the development of new products in the U.S. and their availability to end-users or consumers in the U.S.,” and “incentivizing U.S. innovation and promoting access to the fruits of that innovation in the U.S.”

The framework suggests a variety of considerations for determining whether the exercise of march-in rights will promote the law’s objectives, including:

• Likelihood of march-in addressing the concern that led to its exercise:
  • Whether there are able and willing licensees
  • How quickly they may be able to produce the product
  • How soon the product’s patent may be expiring
  • Whether other patents are required to product the product
  • Other regulatory exclusivities, such as FDA exclusivity, and how much time remains on them
  • Whether there is an emergency or urgent public health need and how long it may last
• Other alternatives to march-in: The framework sets out several other pathways through which the challenge giving rise to march-in may be resolved, such as efforts by the contractor or licensee, anti-trust activity, patent litigation, or other actions by another federal agency.
• Wider implications of march-in: The framework explains that, “[a]t its core, the Bayh-Dole Act focuses on U.S. innovation and the commercialization of inventions that arise from federally funded R&D,” and “funding agencies should consider both the practical impact and the potential impact on the broader R&D ecosystem.” The framework raises several questions for analyzing these implications, such as whether march-in would “promote competition without unduly encumbering future R&D,” potential decrease in interest in federal funding or collaborations with the federal government, or “an impact on U.S. competitiveness and innovation.”

Specific Biopharma Hypothetical Examples
The framework provides seven hypothetical scenarios “where march-in could emerge,” to “showcase how an agency might apply [the draft NIST] framework, considering certain factors and questions, in assessing march-in.” The examples all assume it has been determined that there is a subject invention and that no additional intellectual property is needed—i.e., they only consider the second and third questions discussed above. The examples provide guidance on considerations an agency would use, rather than conclusions as to how it should act. 

Below are the four specific examples provided directed to the biopharma industry:

• A biotech company that partners with a federally funded university and receives an exclusive license to a government-funded patent for an autoimmune skin disease treatment, but then stops development on products for that patent when it receives FDA approval for a similar product that did not receive any government support. A second company has requested a license for the government-funded patent but had its request denied, and approaches the government to exercise march-in rights.
• A small pharmaceutical start-up that received extensive government funding for an approved treatment for a rare disease, for which it also holds all manufacturing and use patents, has its manufacturing disrupted by a natural disaster, and a rare-disease patient group approaches the government to march-in and issue licenses to all the patents necessary to produce the product.
• During a respiratory virus pandemic, a consumer goods company developed a face mask under a government contract and files a patent for the mask, including reporting the mask as a subject invention. The company raises the price of its mask by 400% over the course of a month, while also sending letters to other mask manufacturers flagging the patent application and threatening lawsuits. Trade associations representing healthcare workers ask the government to march-in and issue licenses to the other manufacturers in order to bring down the price of masks. Notably, the framework’s analysis notes that, if “other mask manufacturers [are] charging similarly high prices under the circumstances, all to fund facility expansion … that would weigh against march-in.”
• A government-funded university executes a license for an Alzheimer’s treatment with a Swiss pharmaceutical company, without including any provisions in the agreement regarding the Section 204 requirement for U.S. manufacturing. The agency initiates its own consideration of march-in rights, and the framework notes that the initial step would be to consult with the university about potential ways to amend the licensing agreement to provide for U.S. manufacturing.

Notably, none of these examples references a case where march-in rights are considered solely because of the high price of a patented pharmaceutical product.

Conclusion
NIST solicits comments on the draft framework, which will be due 60 days following the framework’s publication in the Federal Register (currently scheduled for December 8). The agency notes that comments can be very broad and extend beyond the questions raised in the document, including “any topic believed to have implications for decision making related to march-in, regardless of whether the topic is included in this document.” Additionally, on December 13, NIST will be hosting a webinar to discuss the draft framework.

The consideration of whether price can be a factor in considering whether a drug is accessible to the public would be the most significant expansion of march-in rights since the enactment of Bayh-Dole. Adoption of the draft framework could also have profound implications for the future of university/private company tech transfer, as the risk of government march-in could lead biopharma companies to avoid the licensing of university inventions supported in part by NIH funding. While the NIST draft framework is only a request for information and not a directive for any particular agency to take action, the White House announcement makes clear that the Biden Administration plans to include march-in-rights in the broader discussion of drug pricing.