Federal March-In Rights Meet Clawbacks – The Future of 35 USC ss. 200-212

This post could have been “The Revival of the March-In Rights of the Bayh-Dole Act.”

The passage of the Bayh-Dole Act in 1980 permitted universities to take title to inventions made with federal funding and grant licenses to commercial entities. These licenses were notably to “small business concerns” such as start-ups in the pharma and biotech ventures running on capital attracted by professors and their IP rights. Sections 200-212 covered the “who, how, what and were” requirements for universities to obtain title to inventions made with government funding and occupy pages 93-107 of the Act as presented by J. M. Samuels’ “Patent Trademark and Copyright Laws.” The requirements that must be met include the now-universal notice clause on resultant patents, “The invention was made with Government Support [usually naming the agency and the grant number] and that the Government has certain rights in the invention.”

To meet the many, most often notice, requirements of Sections 200-212, universities established or greatly expanded their “tech transfer offices” often staffed by attorneys with STEM backgrounds. Out-licensing inventions supported by the NIH or NSF—or even by collaborations with branches of the military—became an important source of revenue for universities. A single patent claim in a patent licensed to a big pharma company could yield millions of dollars in royalties over the patent term, if the claim covered a pharmaceutical that was a commercial success.

Toward the end of 2023, President Biden, under pressure to reduce the price of drugs made with Government funding, announced that his administration would consider whether or not to exercise the “March-in Rights” outlined in 35 USC s. 203, particularly s. 203(a)(3). This subsection, in accord with regulations summarized in ss. 204-212, permits the original Government funding agency that permitted the “contractor” such as a university to elect title, to grant a license to technology in any “field of use to a responsible applicant…upon terms that are reasonable under the circumstances”.

Such circumstances include failure of the contractor or assignee to take “effective steps to achieve practical application of the subject invention in such field of use”. More notably, subsect 3 permits march-in if “necessary to alleviate health or safety needs which are not reasonably satisfied by the “contractor” [the university], assignee, or their licensees.

In other words, mine I guess, the Commerce Department is empowered to decide, at least initially, if a price increase initiated by the licensee of a “university” is so severe that it would pose a “health need”’ e.g., that the patients who were receiving the drug, or who would be helped by the drug, could no longer afford the increased price.

Questions such as under what circumstances would march-in rights be justified, were released by the National Institute of Standards and Technology, on Dec. 8, entitled “Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights.” This request for comments cites the ‘Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights.’ The comment period closes on Feb. 6, 2024. The request for information is an attempt to put meat on the bare bones of ss. 204-212. It contains 8 factual scenarios.

The first one is a page-of-fine-print long, and summarizes a pharmaceutical case in which a company obtains an exclusive license to a university-developed invention. It elects title and develops a lead compound that is FDA-approved and on the market. Later the  company develops a second somewhat better drug to treat the same condition. The company again elects title, gets FDA approval but shelves the first drug. A third party company can’t get a license to the first drug and asks the funding agency to march-in and force company 1 to grant it a license.

The scenario does not reach a final conclusion but does ask if the license granted by the university contains a claw-back provision that would cancel the license to the first drug if the licensee shelved it thus abrogating the need for a march-in analysis. I was patent attorney for a university and it was able to cancel the license and regain its rights to the first compound that, in fact, was FDA-approved and reached the market. Ironically the second compound was found to have long-term side effects and was forgotten.

In the 6th scenario, in the early stages of a pandemic, a “consumer goods company working under a government contract” develops an effective face mask, files for a patent and meets the Government reporting requirements to elect title. The mask is found to be more effective than expected and the company quickly increases its price 400%. The company also threatens to sue other mask manufacturers. “Trade associations representing front-line health care workers” ask the government funding agency to march in and issue licenses to competitors to bring down the price.

Of course, these masks would alleviate “an unmet healthcare need” and/or “ensure the benefits of the mask are available to the public on reasonable terms” suggesting that march-in rights might be an appropriate response “to deter others from similar actions in the future.” The comments following the facts of this scenario are a page long, but their relevance to controlling prescription drug prices is manifest.  March-in rights have never been used for any purpose, let alone to control drug pricing. As Dylan sang, “I hope that you die, and I hope you die soon.”

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