White House Proposal Floats Pricing as a Basis for Allowing Alternative Manufacturers under “March-In” Rules

White House Proposal Floats Pricing as a Basis for Allowing Alternative Manufacturers under “March-In” Rules

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A new Biden Administration proposal would provide a path for federal agencies to cite high prices as a reason for giving alternative producers rights to make products covered by federally funded inventions.

On December 7, 2023, the White House announced a variety of “New Actions to Lower Health Care and Prescription Drug Costs by Promoting Competition.”1 Among the administration’s intended steps is “[p]romoting equitable access to lower-priced taxpayer-funded drugs” by expressly including drug pricing in the factors agencies follow in considering the exercise of “march-in rights” under the Bayh-Dole Act, which governs patent rights in inventions arising from research funded by the federal government.  In connection with the White House’s announcement, the Department of Commerce’s National Institute of Standards and Technology (NIST) announced2 the release for public comment until February 6, 2024 of its Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights (the “Draft Framework”).3 Importantly, the Draft Framework adds pricing as a consideration at multiple steps of the agency’s process in evaluating the application of march-in rights under the Bayh-Dole Act of inventions funded by the federal government.

Overview of March-In Rights

Enacted in 1980, the Bayh-Dole Act allocates ownership and license rights in inventions developed by federal government funding recipients in the performance of R&D work funded (whether in whole or in part) by the federal government.  See 35 U.SC. § 200 et seq.  In exchange for allowing funding recipients to retain title to their inventions, the Bayh-Dole Act gives the government license rights in the invention, including march-in rights; i.e., a right of the government to require the funding recipient “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.”  35 U.S.C. § 203(a).  The Act specifies four circumstances under which the funding agency may exercise march-in-rights: (1) contractor inaction, (2) health or safety needs, (3) unmet requirements for public use or (4) a breach of applicable license requirements.  See id.

No federal agency has ever exercised march-in rights, and relatively few petitions requesting that an agency do so have even been submitted.  Regulations prescribing march-in procedures do not contain substantive guidance on when to assert march-in rights.  See 37 C.F.R. § 401.6.

Overview of the Draft Framework

The potential exercise of march-in rights to reduce drug prices has long been the subject of advocacy efforts.  In March 2023, the Department of Commerce and the Department of Health and Human Services jointly announced that an interagency working group would “develop a framework for implementation of the march-in provision that clearly articulates guiding criteria and processes for making determinations where different factors, including price, may be a consideration in agencies’ assessments.”4 The Draft Framework is the result of this interagency working group.

The Draft Framework describes a sequence of questions for agencies to consider in evaluating the potential exercise of march-in rights.

First, does the Bayh-Dole Act apply?  For example, were the relevant inventions conceived or first actually reduced to practice in the performance of a  federal funding agreement?  See 35 U.S.C. § 201(e).

Second, if Bayh-Dole applies, is the exercise of march-in rights necessary to (a) “achieve practical application of the subject invention,” (b) “alleviate health or safety needs,” (c) “meet [regulatory] requirements for public use,” or (d) effectuate the statutory aim of encouraging manufacturing in the United States?  35 U.S.C. § 203(a).  For each of the statutory criteria, the Draft Framework provides a sequence of questions for agencies to consider. 

Third, if one of the statutory criteria is satisfied, would the exercise of march-in rights support the policy and objectives of the Bayh-Dole Act?  In evaluating that question, the Draft Framework encourages agencies to consider not only the high-level objectives—which include innovation, public access to inventions, health and safety, competition, and public-private collaboration—but also practical considerations such as the feasibility of a new licensee bringing a product embodying a particular invention to market.

In addition, the Draft Framework discusses eight example scenarios in diverse fields—biotechnology, construction technology, traffic safety, new disease treatments, respiratory masks (in the context of a pandemic), and water filtration.  For each scenario, the Draft Framework discusses the potentially relevant statutory criteria, examples of specific considerations an agency might analyze in evaluating a potential exercise of march-in rights, and identifies factual details and further questions potentially weighing for and against march-in.

Notably, the Draft Framework addresses pricing-related considerations several times, and suggests that pricing may be considered at multiple steps of the proposed agency evaluation process.  First, the Draft Framework identifies specific pricing questions in connection with two of the statutory criteria (relating to practical application of the subject invention and health and safety).  Second, the Draft Framework discusses pricing in two of its exemplary scenarios (relating to water filtration and respiratory masks).

Conclusion

To date, federal agencies have been operating without substantive guidance regarding their decisions to assert march-in rights.  Therefore, depending on whether and how it is implemented following the comment period, as well as potential subsequent litigation, the Draft Framework could make agencies more confident asserting march-in rights under the Bayh-Dole Act.  NIST will hold a public webinar regarding the draft framework on Wednesday, December 13, 2023,5 and comments to the Draft Framework can be filed with NIST through February 6, 2024.6

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