NIH Declines to Exercise March-in Rights over Abbott Laboratories' Norvir®

by McDonnell Boehnen Hulbert & Berghoff LLP

NIHLast week, the National Institutes of Health denied a petition from a coalition of "public interest" groups who petitioned the agency to exercise so-called "march-in rights" under provisions of the Bayh-Dole Act against Abbott (now, AbbVie) over its antiretroviral drug ritonavir, exclusively sold by Abbott Laboratories under the name Norvir®.  These rights, and the conditions triggering their exercise, are set forth in 35 U.S.C. § 203:

35 USC § 203 - March-in rights

(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to 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, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such—

(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 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.

(b) A determination pursuant to this section or section 202 (b)(4) shall not be subject to chapter 71 of title 41. An administrative appeals procedure shall be established by regulations promulgated in accordance with section 206. Additionally, any contractor, inventor, assignee, or exclusive licensee adversely affected by a determination under this section may, at any time within sixty days after the determination is issued, file a petition in the United States Court of Federal Claims, which shall have jurisdiction to determine the appeal on the record and to affirm, reverse, remand or modify, as appropriate, the determination of the Federal agency. In cases described in paragraphs (1) and (3) of subsection (a), the agency's determination shall be held in abeyance pending the exhaustion of appeals or petitions filed under the preceding sentence.

Regulations on how these rights can be petitioned for exercise by the relevant Federal agencies (such as the National Institutes of Health) have been promulgated:

37 C.F.R. § 401.6 Exercise of march-in rights.

(a) The following procedures shall govern the exercise of the march-in rights of the agencies set forth in 35 U.S.C. 203 and paragraph (j) of the clause at § 401.14.

(b) Whenever an agency receives information that it believes might warrant the exercise of march-in rights, before initiating any march-in proceeding, it shall notify the contractor in writing of the information and request informal written or oral comments from the contractor as well as information relevant to the matter. In the absence of any comments from the contractor within 30 days, the agency may, at its discretion, proceed with the procedures below. If a comment is received within 30 days, or later if the agency has not initiated the procedures below, then the agency shall, within 60 days after it receives the comment, either initiate the procedures below or notify the contractor, in writing, that it will not pursue march-in rights on the basis of the available information.

(c) A march-in proceeding shall be initiated by the issuance of a written notice by the agency to the contractor and its assignee or exclusive licensee, as applicable and if known to the agency, stating that the agency is considering the exercise of march-in rights. The notice shall state the reasons for the proposed march-in in terms sufficient to put the contractor on notice of the facts upon which the action would be based and shall specify the field or fields of use in which the agency is considering requiring licensing. The notice shall advise the contractor (assignee or exclusive licensee) of its rights, as set forth in this section and in any supplemental agency regulations. The determination to exercise march-in rights shall be made by the head of the agency or his or her designee.

(d) Within 30 days after the receipt of the written notice of march-in, the contractor (assignee or exclusive licensee) may submit in person, in writing, or through a representative, information or argument in opposition to the proposed march-in, including any additional specific information which raises a genuine dispute over the material facts upon which the march-in is based. If the information presented raises a genuine dispute over the material facts, the head of the agency or designee shall undertake or refer the matter to another official for fact-finding.

(e) Fact-finding shall be conducted in accordance with the procedures established by the agency. Such procedures shall be as informal as practicable and be consistent with principles of fundamental fairness. The procedures should afford the contractor the opportunity to appear with counsel, submit documentary evidence, present witnesses and confront such persons as the agency may present. A transcribed record shall be made and shall be available at cost to the contractor upon request. The requirement for a transcribed record may be waived by mutual agreement of the contractor and the agency. Any portion of the march-in proceeding, including a fact-finding hearing that involves testimony or evidence relating to the utilization or efforts at obtaining utilization that are being made by the contractor, its assignee, or licensees shall be closed to the public, including potential licensees. In accordance with 35 U.S.C. 202(c)(5), agencies shall not disclose any such information obtained during a march-in proceeding to persons outside the government except when such release is authorized by the contractor (assignee or licensee).

(f) The official conducting the fact-finding shall prepare or adopt written findings of fact and transmit them to the head of the agency or designee promptly after the conclusion of the fact-finding proceeding along with a recommended determination. A copy of the findings of fact shall be sent to the contractor (assignee or exclusive licensee) by registered or certified mail. The contractor (assignee or exclusive licensee) and agency representatives will be given 30 days to submit written arguments to the head of the agency or designee; and, upon request by the con- tractor oral arguments will be held before the agency head or designee that will make the final determination.

(g) In cases in which fact-finding has been conducted, the head of the agency or designee shall base his or her determination on the facts found, together with any other information and written or oral arguments submitted by the contractor (assignee or exclusive licensee) and agency representatives, and any other information in the administrative record. The consistency of the exercise of march-in rights with the policy and objectives of 35 U.S.C. 200 shall also be considered. In cases referred for fact-finding, the head of the agency or designee may reject only those facts that have been found to be clearly erroneous, but must explicitly state the rejection and indicate the basis for the contrary finding. Written notice of the determination whether march-in rights will be exercised shall be made by the head of the agency or designee and sent to the contractor (assignee of exclusive licensee) by certified or registered mail within 90 days after the completion of fact-finding or 90 days after oral arguments, whichever is later, or the proceedings will be deemed to have been terminated and thereafter no march-in based on the facts and reasons upon which the proceeding was initiated may be exercised.

(h) An agency may, at any time, terminate a march-in proceeding if it is satisfied that it does not wish to exercise march-in rights.

(i) The procedures of this part shall also apply to the exercise of march-in rights against inventors receiving title to subject inventions under 35 U.S.C. 202(d) and, for that purpose, the term ''contractor'' as used in this section shall be deemed to include the inventor.

(j) An agency determination unfavorable to the contractor (assignee or exclusive licensee) shall be held in abeyance pending the exhaustion of appeals or petitions filed under 35 U.S.C. 203(2).

(k) For purposes of this section the term exclusive licensee includes a partially exclusive licensee.

(l) Agencies are authorized to issue supplemental procedures not inconsistent with this part for the conduct of march-in proceedings.

A little over one year ago, four groups (the American Medical Students Association (AMSA), Knowledge Ecology International (KEI), U.S. Public Interest Research Group (PIRG), and the Universities Allied for Essential Medicines (UAEM)) filed a petition with the NIH requesting the agency to exercise these march-in rights over the anti-AIDS drug ritonavir, exclusively sold by Abbott Laboratories (see "Groups Petition for NIH Exercise of March-in Rights over Abbott Laboratories' Norvir®").  Significant to the NIH's latest decision, AbbVie's Norvir® product was the subject of a challenge by a group called Essential Inventions filed a petition, based not on private interests but on what it characterized as the "public interest" for lower prices on the HIV drugs.  In this case, there was no university party involved; Abbott/AbbVie had been funded by research monies from the Reagan administration in an effort to develop more effective anti-AIDS drugs.  The patents at issue (U.S. Patent Nos. 5,541,206; 5,635,523; 5,648,497; 5,674,882; 5,846,987; 5,886,036; the agency notes that not all of these patents were developed under government contract and thus the Bayh-Dole march-in provisions do not apply to these patents) were the same patents that were the subject of the current petition, as was the basis in the statute:  that the requirement for licensing on "reasonable terms" ("upon terms that are reasonable under the circumstances") was violated by Abbott's pricing for Norvir®.  The NIH held public hearings and received written and oral testimony from a "variety of groups and individuals representing universities, the AIDS community, pharmaceutical interests, drafters of the Bayh-Dole Act, and other interested parties."  Despite these arguments (including arguments that Abbott's pricing was preventing state government agencies from providing Norvir® to patients), the NIH refused to exercise its march-in rights, saying:

[T]he issue of the cost or pricing of drugs that include inventive technologies made using Federal funds is one which has attracted the attention of Congress in several contexts that are much broader than the one at hand.  In addition, because the market dynamics for all products developed pursuant to licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by NIH, the NIH agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices.  The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively.

In the latest petition, the allegations again involved the cost of Abbott's Norvir® to U.S. patients.  In view of the agreement following the 2004 petition that has Abbott selling the drug to state and Federal government agencies at reduced cost, the petition focused on the impact of these costs on private parties.  In this regard the petitioners argued that, in view of the financial crisis, these high[er] drug costs were "undermining the international competitiveness of [U.S.] employers" and harming the economy (leaving unsaid the hope for a different outcome from a different administration). 

The petition asked for two specific remedies to be imposed "without prejudice to" further march-in rights in response to "anticompetitive, abusive or unfair practices" by a licensee.  These remedies are:

• A ceiling on prices for U.S. residents, to be imposed when US prices for a drug are higher than 7 of 10 comparison countries, among "high income" countries as determined by the World Bank, or prices for U.S. residents, when are 10% higher than the median price in those countries (these circumstances would be "presumptively not reasonable" under the statute); and

• Licenses specific for use of a patented invention in the development of a "dependent" technology, such as a co-formulation of a patented drug with another drug.

In addition, the petition requested imposition of "open" licensing for the drug under the agency's march-in rights provisions.  Petitioners suggested two additional "legal mechanisms" for achieving these ends:  royalty-free government licenses (involving participation by the government in drug distribution, etc.) and the grant of government licenses to third parties.

In addition to the public health and unreasonable licensing grounds asserted in the petition, petitioners further argued that the Americans with Disabilities Act (as it has been interpreted by the Equal Employment Opportunities Commission) and the PPACA (the "healthcare law") imposes requirements on employers that implicate the provisions of § 203(a)(3) that allow the agency to exercise march-in rights to permit compliance with Federal regulations.  Finally, the petition asserted the policy rationale that "[t]he failure to grant a single march-in request in more than 30 years has sent a signal to the patent holder that the NIH will permit almost anything, no matter how abusive that action is to the public that paid for the research."

After setting forth the facts as alleged by petitioners (and otherwise) and controlling law, the agency cited the following grounds for denying the petition.  First, the agency found that AbbVie had "achieved practical application of the Subject Patents" as required under § 203(a)(1) because "Norvir® has now been on the market as an FDA approved drug since 1995," primarily as a coadministered drug used to "booster the effectiveness of protease inhibitors."  The agency further stated that "[t]he Requestors have provided no information, and no information was identified to suggest, that ritonavir is in short supply" either as a standalone drug or when co-formulated or co-administered.  In addition, the agency noted that Matrix Laboratories and Gilead had both received FDA approval for combinations of ritonavir and other antiretroviral drugs.  Accordingly, "AbbVie's record of manufacture and ritonavir's availability and use around the world demonstrate that" AbbVie has satisfied the requirements of § 203(a)(1).

Second, the agency rejected Petitioner's argument that AbbVie had failed to satisfy the requirements of § 203(a)(2) to alleviate health or safety needs of the public due, according to Petitioners, to its high price.  The agency cited evidence that AbbVie had adopted a "Patient Assistance Program" for patients prescribed the drugs having no prescription drug insurance, and the company's testimony that it "provides access to Norvir® at no cost or at reduced prices for eligible patients."  The agency also relied upon the previous denial of exercise of march-in rights for Norvir®, wherein the agency had determined that "Norvir® has been approved by the FDA as safe and effective and is being widely prescribed by physicians for its approved indications."  And the changes that have occurred since this earlier agency determination involved "new formulations and combination therapies using ritonavir," developments that increased rather than decreased access.  Accordingly the agency found "[n]o new information [] to suggest [that] AbbVie failed to 'reasonably satisfy' the health and safety need standard of [§ 203(a)(2)] of the Bayh-Dole march-in statute."

Finally, the agency found that recently enacted provisions of the Americans with Disabilities Act (ADA) and the Patient Protection and Affordable Care Act (PPACA) do not constitute "Federal regulations" under § 203(a)(3) unsatisfied by AbbVie.  That portion of the statute applies, according to the NIH, "when a statute or regulation, e.g., a safety or standards regulation, specifically requires the use of a patented technology, and the patent owner is not willing to grant licenses to third parties required to use it in their products.  Finding that these circumstances do not apply in this instance, the NIH denied the petition because "these statutes do not apply as a basis for consideration of march-in rights."  The NIH also rejected "additional government actions" including a request for use of the government's "use" license and a request that the NIH develop rules when there are price disparities between the U.S. and other developed countries.  As to the former, the agency stated that while the NIH has the authority to grant a non-exclusive license under § 202(c)(4) the agency "is a research institution not a drug manufacturer" and that "[e]ven if the NIH were to exercise its Government license [] it would not address the majority of the patients listed" in the Orange Book that were not government-owned.  Further, the NIH noted that "there is already a statutory mechanism, the Hatch-Waxman Act, to address barriers to generic [drug] entry" and that, in fact, "Hatch-Waxman proceedings have been instituted for at least three generic companies" for ritonavir.

Regarding the request that the NIH issued rules for addressing price disparities, the agency rejected the scheme.  As set forth in the petition decision, Petitioners had asked the NIH to establish two rules:

Rule 1: there will be a rebuttable presumption that the price of an NIH-supported drug is not "reasonable" when the price in the U.S. is higher than the price in "seven of the ten largest countries" (measured by Gross National Product) or when the U.S. price is 1at least 10% higher than in the reference countries.  Under this Rule, the NIH would "award contracts or grant license to competitors" if the presumption was not rebutted.  These countries include "high-income" countries such as Norway, Italy, France, Canada, Australia, the Netherlands, New Zealand, and the United Kingdom.

Rule 2 is a compulsory licensing provision, that requires the NIH Director to grant such a license "subject to the payment of a reasonable royalty and [be limited to an] appropriate field of use, for "a drug, drug formulation, delivery mechanism, medical device, diagnostic or similar invention" that "is used or is potentially useful to prevent, treat, or diagnose [human] medical conditions or diseases," where "co-formulation, co-administration, or concomitant use with a secondary product is necessary to effect significant health benefits from the second product" under circumstances where the patentee has "refused a reasonable offer for a license."

The agency rejected Rule 1 because "[i]t is not appropriate to assess the price of one drug out of the context of a country's entire health care delivery and drug pricing/reimbursement system" (particularly because "the United States does not have a delivery system like any of these other country comparators").  The NIH refused to consider Rule 2 because in its view the Bayh-Dole Act does not provide for the authority to grant such compulsory licenses when a Petitioner has not identified "any of the four Bayh-Dole march-in criteria."

The agency noted in its conclusion that it is "sensitive to the impact of the pricing of drugs and their availability to patients."  However, the NIH also noted that its authority is limited to policing compliance with the Bayh-Dole Act, and that here as in 2004 "the extraordinary remedy of march-in is not an appropriate means of controlling prices of drugs broadly available to physicians and patients," suggesting petitioners pursue "legislative and other remedies.

There is one additional aspect of this decision that bears mentioning.  Senator Patrick Leahy (D-VT) recently sent a letter to Francis Collins, NIH Director, asking that the agency exercise its march-in rights with respect to Myriad's BRCA gene testing patents (see "Senator Leahy Urges NIH to Use March-In Rights on Myriad BRCA Test").  While it is impossible to assess how the agency will react to a request from a Senator and politician rather than a groups such as Petitioners here, many of the factual considerations that mitigated against exercise of march-in rights here exist in the Myriad case.  (Of course, in Myriad what is at issue is the availability of a test for a relatively rare genetic mutation, rather than price availability for a drug for patients with a life-threatening and incurable infection.)  Thus, what might be truly extraordinary would be if the NIH came to a different decision in Myriad than it has here.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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