Biden Administration Proposes New Framework for Exercising March-In Rights on Government-Funded Inventions; Drug Pricing May Be Considered

BACKGROUND: THE BAYH-DOLE ACT AND MARCH-IN RIGHTS

The Bayh-Dole Act was intended to promote utilization of inventions arising from federally supported research efforts and to encourage the progression of inventions from the lab to the marketplace. It applies to any grant, contract, or cooperative agreement from a federal agency for experimental, developmental or research work. Under the Bayh-Dole Act, the funding recipient (i.e., the contractor) has the right to retain ownership of inventions conceived or first reduced to practice under the federal funding agreement.

Among the rights and obligations laid out in the Bayh-Dole Act are “march-in rights,” which allow a federal funding agency to require a Bayh-Dole contractor to issue a license to the invention (if the contractor refuses, the agency can issue the license). Under 35 U.S.C. § 203, march-in rights may only be exercised in four circumstances:

1. Action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable amount of 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 that 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
4. Action is necessary because the agreement required by 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 § 204

To date, no federal agency has exercised march-in rights under the Bayh-Dole Act. However, the National Institute of Standards and Technology (NIST) reports that it has repeatedly been asked to provide clarity on whether price may be considered as a factor when deciding march-in rights.[1] As discussed below, the proposed guidance on statutory criteria 1 and 2 most plainly reflect the inclusion of pricing as a potential basis for exercising march-in rights.

THE NEW DRAFT FRAMEWORK

The new draft framework asks federal agencies to consider three questions when deciding whether to exercise march-in rights:

1. Does the Bayh-Dole Act apply to the invention(s) at issue?
   1. It only applies when the invention was conceived of or first reduced to practice pursuant to a federal funding agreement.
2. Are any of the four statutory criteria met for exercising march-in rights?
   1. This is broken down into four subsections with one for each statutory criterion.
   2. The draft framework provides facts that the agency may gather, questions to ask and factors for considering whether any of the statutory criterion are met.
3. Would exercising march-in rights support the policy and objectives of the Bayh-Dole Act considering the specific case and broader context?

The draft framework goes on to provide eight example scenarios that illustrate how an agency may use the framework in considering whether to exercise march-in rights.

The draft framework provides the below helpful infographic to assist with working through these three primary questions. We will provide an overview of each throughout this article but will primarily focus on the second question: Is a statutory criterion met?

DOES THE BAYH-DOLE ACT APPLY?

When considering march-in rights, agencies must consider the threshold question of whether the Bayh-Dole Act applies. This is a fact intensive inquiry that requires agencies to evaluate whether the inventions are subject to the Bayh-Dole Act (i.e., whether the invention was conceived of or first reduced to practice pursuant to a qualifying federal funding agreement). The proposed framework sets out a series of questions to guide agencies through this assessment. After reaching an affirmative, agencies may move on to assessing which (if any) of the four statutory criteria support the exercise of march-in rights.

STATUTORY CRITERION ONE: EFFECTIVE STEPS TO ACHIEVE PRACTICAL APPLICATION

This criterion focuses on the steps a contractor has taken to develop and commercialize the subject invention(s). For example, if a contractor stopped working on the invention, refused to restart work, and refused offers to license it, that suggests limited opportunities to commercialize it into new products and further signals a potential conflict with the Bayh-Dole Act’s objective to encourage utilization and commercialization of federally funded inventions. It may support exercising march-in rights if the contractor has not licensed the invention or if no product embodying the invention exists on the market.

The proposed framework further provides that if the contractor has commercialized the product but the price (or other terms) is unreasonable, agencies may need to further assess whether march-in is warranted to meet the needs of the government or protect the public against nonuse or unreasonable use of the invention.

These examples of scrutinizing pricing when considering effective commercialization of government-funded inventions reflects the Biden administration’s position that high pricing can limit public availability and therefore supports exercising march-in rights.

STATUTORY CRITERION TWO: HEALTH OR SAFETY NEEDS

This criterion focuses on the nature of any health or safety need that is not being reasonably satisfied and allows agencies to assess what would be required to meet the need and to evaluate how march-in rights could affect that need. The draft framework includes questions to guide an agency’s assessment, which focus on identifying unmet health or safety needs, how the subject invention or product at issue addresses any such needs, and drilling into what is necessary to resolve said needs.

The draft framework also includes questions that focus on pricing, particularly:

• Is the contractor or licensee exploiting a health or safety need to set a product price that is extreme and unjustified given the totality of circumstances?
• For example, has the contractor or licensee implemented a sudden steep price increase in response to a disaster that is putting people’s health at risk?

The draft framework includes a note that says, “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.”

These examples of scrutinizing pricing when considering existing health or safety needs that are not reasonably satisfied by the contractor again reflect the Biden administration’s position that high pricing can limit public availability of subject invention(s) and may therefore support exercising march-in rights.

STATUTORY CRITERION THREE: FEDERAL REGULATIONS FOR PUBLIC USE

This criterion focuses on whether action is necessary to meet requirements for public use specified by any relevant federal regulations. Agencies are directed to evaluate whether any federal regulations relate to use of products commercialized from the subject invention and assess whether the contractor has taken reasonable steps to address any needs related to the federal regulations. This includes making the subject invention available to those who require it.[2]

STATUTORY CRITERION FOUR: PREFERENCE FOR THE US INDUSTRY

This criterion relates to 35 U.S.C. § 204 and requires that exclusive licenses to use or sell the subject inventions in the US include an agreement that products embodying subject inventions shall be manufactured substantially in the US. This requirement may be waived by the agency that granted the funding. Generally, agencies will consider this criterion by evaluating if § 204 applies, requesting information on where products are manufactured and determining if a manufacturing waiver is required or if a waiver of the US industry preference has been granted.

WOULD MARCH-IN SUPPORT THE POLICY AND OBJECTIVES OF THE BAYH-DOLE ACT?

Finally, the proposed framework directs agencies to consider whether exercising march-in rights would support the policy and objectives of the Bayh-Dole Act, incentivizing innovation and promoting access to the fruits of that innovation in the US.

The proposed framework compiles questions to guide agency consideration, which target whether:

• March-in would achieve the desired results of increasing availability of the subject invention, e.g.,
  • Is there a willing or able licensor or a likelihood one can be found?
  • Would additional intellectual property rights be needed to make the product?
• There are other alternatives that would address the issue, e.g.,
  • Are there other technologies that could be used? If so, how effective are they?
  • Could another government action (antitrust activity, bankruptcy, etc.) better address the problem?
• The broader implications of using march-in rights are supported, e.g.,
  • Would exercising march-in here promote competition without unduly encumbering future research and development?
  • Would exercising march-in here impact utilization of subject inventions more broadly?

SPECIFIC QUESTIONS FROM NIST

NIST published the draft framework in the form of a Request for Information (RFI) in the Federal Register. The RFI asks for public feedback on five particular questions, listed below.

1. After reading through the framework and example scenarios, if needed, how could the guidance about when an agency might want to exercise march-in and the factors that an agency might consider be made clearer?
2. The framework contains many terms which have specific meanings under Bayh-Dole or in technology development and commercialization. Are the definitions provided at the beginning of the framework easy to understand? Do they aid in your ability to interpret the framework?
3. How could the framework be improved to be easier to follow and comprehend?
4. Does this framework sufficiently address concerns about public utilization of products developed from subject inventions, taking into account the fact that encouraging development and commercialization is a central objective of the Bayh-Dole Act?
5. The framework is not meant to apply to just one type of technology or product or to subject inventions at a specific stage of development. Does the framework ask questions and capture scenarios applicable across all technology sectors and different stages of development? How could any gaps in technology sectors or stages of development be better addressed?

The public comment period closes on February 6, 2024. If you would like to provide comments in response to this new proposed framework or would like further information on its implications to inform your business operations or strategic decision-making, please contact one of the authors for further guidance.