On December 7, 2023, the Biden administration announced a blueprint for a framework that may be a tough pill to swallow for the pharmaceutical industry. This framework suggests that drug prices should be a crucial factor in determining whether the public can access taxpayer-funded meds without breaking the bank. More strikingly, it allows government agencies to license the patents of these drugs to other parties if the original cost is deemed excessively high.

The crux of this proposal lies in the exercise of “march-in rights,” a concept rooted in the Bayh-Dole Act of 1980.  Before the Bayh-Dole Act, the government would often claim ownership of any invention developed with its support, leading to many innovations languishing undeveloped. The Bayh-Dole Act changed this, encouraging research institutions with federal funding to patent and license their inventions, thereby benefiting the public.  Under Bayh-Dole, any non-profit organization or small business is generally permitted to retain title to inventions developed with federal funding, provided the institution commits to commercialization of the invention. Furthermore, a 1983 policy extended Bayh-Dole protections to all companies regardless of size.

March-in rights empower the federal government to intervene and relicense patents arising from federally supported research, especially if there is a failure in making the research commercially available or addressing health or safety needs. In contrast to the license the government already receives in a federally-funded invention, which must be used for the benefit of the government, a license granted by the government under the march-in rights provision permits the government to more broadly assign licenses, including to a patent-holder’s competitor. 

While the Bayh-Dole Act expressly contemplates march-in rights and delineates specific circumstances in which the government may exercise these rights, the government has never exercised these rights in the 43-year history of the Act, despite several petitions that, similar to the announced framework, cited high prices as the basis for the lack of practical application.

Furthering this development, on December 9, 2023, the National Institute of Standards and Technology (NIST) sought public input on the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights. This framework aims to provide a structured approach for when and how march-in rights might be used, particularly when the cost or terms of a product are unreasonable. The framework outlines potential scenarios for application and directs agencies to consider the broader impact on the research and development ecosystem.

One notable scenario presented in the framework is during the early stages of a respiratory virus pandemic (i.e., COVID-19). For example, if a company, supported by government funding to develop improved face masks, significantly hikes prices during the pandemic, the government might use march-in rights to license the patent to other entities, thereby preventing price gouging and supply suppression in a health crisis.

However, the framework emphasizes the need for comprehensive information before exercising these rights. This includes assessing whether there’s an unmet need, whether similar prices are being charged by other manufacturers, and the legitimacy of not licensing to other manufacturers.

The proposal also extends beyond pricing issues. It considers situations where a licensee might shelve an invention to favor a competing product or when a disaster disrupts the manufacturing of critical medications. In such cases, the focus is on whether the contractor is exploiting a health or safety need for higher charges.

In essence, this framework represents a bold move in the ongoing drama of drug pricing. It’s a mix of government oversight, economic twists, and a dash of “not so fast” to companies thinking they can turn a health crisis into a cash cow. Additionally, the government’s foray into exercising these rights could be a cause for concern in the government contracts industry, where companies have relied on the government’s disinterest in exercising march-in rights when pursuing federally-funded R&D. Stay tuned to see how this plays out!