On December 7, the Biden administration announced a proposed framework for determining whether the government may exercise its march-in rights to license pharmaceutical patents to third parties if it determines that the price of a covered drug is too high.
Under the University and Small Business Patent Procedures Act of 1980, more commonly known as the Bayh-Dole Act, universities, nonprofit institutions, and small businesses are permitted to retain ownership rights in any inventions they develop that arise out of federally funded research programs (“subject inventions”). Those rights include the right to obtain patents on the subject inventions and license them to third parties in any field of use. However, the funding agency retains the right to require the contractor, an assignee, or an exclusive licensee of any such patent to grant a license to a third party. If the contractor refuses, the funding agency may grant a license itself. These rights are referred to as “march-in” rights. Since the Bayh-Dole Act was enacted in 1980, the march-in provision has never been exercised. The Act specifies that the funding agency may exercise its march-in rights only if it determines that:
- 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;
- Action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;
- 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
- Action is necessary because the agreement required by 35 U.S.C. § 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
The march-in rights framework proposed by the Biden administration is a set of factors that a funding agency may use in deciding whether one or more of the above statutory criteria are met.
For the first time, agencies would be permitted to consider the price of a patented product in making this decision. The framework directs agencies to consider, among other factors:
- At what price and on what terms the product utilizing the subject invention has been sold or offered for sale in the U.S.
- Whether the contractor or licensee has made the product available only to a narrow set of consumers or customers because of high price or other extenuating factors
- Whether the contractor or licensee has provided any justification for the product’s price or background on any extenuating factors that might be unreasonably limiting availability of the subject invention to consumers or customers
- Whether the contractor or the licensee is exploiting a health or safety need in order to set a product price that is extreme and unjustified given the totality of circumstances
While application of the proposed framework is not limited to pharmaceutical patents, the Biden administration has touted it as a strategy for promoting access to lower-priced drugs. To that end, the proposed framework would allow funding agencies to consider price as a factor when determining whether to exercise march-in authority. The framework is open to public comment through February 6, 2024.
What This Means for Clients
The march-in framework is the latest development in a series of government actions related to pharmaceutical patents. On July 29, 2022, the United States Patent and Trademark Office issued a notice reminding life sciences companies and individuals associated with the filing of and prosecution of patent applications of their duty of candor in dealing with the USPTO, particularly as it pertains to representations in Food and Drug Administration submissions and related USPTO filings. (See Fish & Richardson’s September 15, 2023, legal alert.) And on November 7, 2023, the Federal Trade Commission announced that it had challenged the listing of more than 100 patents held by 10 branded drug companies as improperly or inaccurately listed in FDA’s Orange Book. (See Fish & Richardson’s November 9, 2023, legal alert.)
Organizations with life sciences patents or applications resulting from government-funded research should keep these developments in mind during the patent and regulatory processes. Best practices to consider in light of the proposed march-in framework include:
- Making a thorough and well-documented assessment of whether federal funding was used to support the work described in patent applications.
- Confirming that patent applications include appropriate government interest statements where the research, development, and/or clinical studies resulting in the invention involved federal funding. Government funding should be acknowledged in all later patent family members, including, for example, continuation, divisional, and national phase applications. A recent study by the Government Accountability Office found that 2,703 of 19,055 patents with application dates in calendar years 2012 through 2021 did not fully or correctly disclose National Institutes of Health support. Further developments in this area could potentially require stricter compliance with funding disclosure requirements.
- Confirming that requirements for timely reporting of disclosed inventions to the funding agency have been met.
- Confirming inventorship at the outset of and throughout prosecution. The NIH has shown a willingness to challenge inventorship of patents involving federal funding and federal researchers.
Fish & Richardson will continue to monitor these developments and update clients as more information becomes available.