To date, no federal agency has exercised march-in rights to convey patent licenses to third parties, even in instances where petitioners have requested that the government exercise its march-in rights.

Following enactment of the Inflation Reduction Act, which provides for Medicare drug price negotiations, the White House has announced new actions to lower drug costs, including the release of a proposed framework for agencies to exercise march-in rights under the Bayh-Dole Act to promote public accessibility to tax-payer-funded drugs. If adopted, the framework would make it easier for the government to exercise march-in rights and would impact the value of license rights to government-funded inventions.

Bayh-Dole Act Promotes Commercialization of Government-Funded Technologies

Congress enacted the Bayh-Dole Act, 35 U.S.C. § 200-212 (formally known as the University and Small Business Patent Procedures Act of 1980) to benefit the public by promoting utilization of inventions developed with federally supported research. The act provides a framework for universities, nonprofit institutions and small businesses who receive government grants—described as "contractors"—to "elect to retain title" in inventions resulting from that research. Contractors electing ownership are expected to seek patent protection on inventions they choose to own in order to effectuate commercialization of those inventions. The Bayh-Dole Act is widely credited with fostering the development of thousands of new businesses and the introduction of many new products to the public.

The Bayh-Dole Act imposes further obligations on contractors. For example, the contractor must grant a nonexclusive, nontransferable, irrevocable, fully paid up license to the government for the government’s research use. In addition, under 35 U.S.C. § 203, the government retains “march-in” rights to government-funded inventions, and under four statutory criteria, the government can require a contractor to grant a license to a third party or grant such a license itself.

Governmental March-In Rights Under the Bayh-Dole Act

Under 35 U.S.C. § 203 of the Bayh Dole Act, the government can only exercise its march-in rights to a government-funded invention if it determines that action is necessary based on any one of four statutory criteria:

1. 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;
2. Action is necessary to alleviate health or safety needs which 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; or
4. Action is necessary because the agreement required by Section 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 Section 204 [which favors manufacture in the United States].

To date, no federal agency has exercised march-in rights to convey patent licenses to third parties, even in instances where petitioners have requested that the government exercise its march-in rights. For example, in 1997, CellPro Inc. lost an infringement suit involving a patent to an invention funded by the National Institutes of Health (NIH) where the licensees of the technology had not yet obtained FDA approval for a product. CellPro then requested that NIH exercise its march-in rights and grant a license to CellPro so that its product could remain on the market. Although the NIH acknowledged that CellPro’s device was the only FDA-approved product on the market, NIH denied CellPro’s petition, noting that the patentee had not immediately sought to enjoin CellPro and that the licensees were making reasonable efforts to commercialize their own product. Since CellPro’s petition, several others have been submitted to NIH in unsuccessful attempts to obtain access to lower priced drugs. In one widely cited example, NIH turned down a 2016 petition to exercise its march-in rights where the petition cited the difference in drug pricing of Xtandi/enzalutamide in the U.S. and in other high-income nations. In denying the petition, NIH noted that Xtandi was widely available and there was no evidence that the drug was in short supply.

The Proposed Framework for Agencies to Determine Whether to Exercise March-In Rights

On December 8, 2023, the National Institute of Standards and Technology (NIST) published a “Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights,” attaching a copy of the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights to the request.

The NIST draft guidance sets forth a framework, depicted as a flowchart, for agencies to use to determine if march-in rights should be exercised:

Under this framework, the first step is to determine whether Bayh-Dole applies. The second step is to determine whether any one of the statutory criteria is met. The third and final step is to determine whether march-in rights would achieve the policy and objectives of the Bayh-Dole Act.

The NIST draft guidance proposes questions for a granting agency to consider when determining if a statutory criterion is met. Of greatest relevance to pharmaceutical and biologic drug companies, the proposed questions would have an agency consider whether drug prices offered to the U.S. public are reasonable, in determining whether the first statutory criterion is met (whether effective steps have been taken to achieve practical application):

If the contractor or licensee has commercialized the product, but the price or other terms at which the product is currently offered to the public are not reasonable, agencies may need to further assess whether march-in is warranted. Whether action may be needed to meet the needs of the Government or protect the public against nonuse or unreasonable use of the subject invention may include consideration of factors that unreasonably limit availability of the invention to the public, including the reasonableness of the price and other terms at which the product is made available to end-users.

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III. D. At what price and on what terms has the product utilizing the subject invention been sold or offered for sale in the U.S.?

a. Has the contractor or licensee made the product available only to a narrow set of consumers or customers because of high pricing or other extenuating factors? Has the contractor or licensee provided any justification for the product's price or background on any extenuating factors which might be unreasonably limiting availability of the subject invention to consumers or customers?

Similarly, in determining if the second criterion is met (whether action is necessary to alleviate health or safety needs), the questions for an agency to consider include consideration of not only drug price increases, but the initial drug prices, if the prices are deemed “extreme, unjustified, and exploitative of a health or safety need”:

V. Is the contractor or the licensee exploiting a health or safety need in order to set a product price that is extreme and unjustified given the totality of circumstances?

A. 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?

It should be noted that in reviewing this question, 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.

NIST does not provide any further guidance on what would constitute “high pricing,” a “steep price increase” or prices that are “extreme, unjustified, and exploitative of a health or safety need.”

NIST’s request for information on the draft guidance calls for comments on how to respond to five questions:

1. After reading through the framework and example scenarios, if needed, how could the guidance be made clearer regarding when an agency might want to exercise march-in and the factors that an agency might consider?
2. The framework contains many terms that 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?

NIST has also scheduled a web-based meeting on December 13, 2023, to detail procedures for making public comments in response to the above questions. The USPTO has also issued a press release further publicizing “NIST’s calls for public comments on draft March-In Rights Guidance.”

Takeaways for Licensees of Government-Funded Inventions

Licensees of government-funded inventions should monitor publication by NIST of any final guidance on the exercise of march-in rights.

Licensees of government-funded inventions should take care to structure licenses and patent portfolios to avoid intermingling of government-funded inventions with company-funded inventions. This will minimize the risk of disputes over whether march-in rights apply to company inventions.

For More Information

If you have any questions about this Alert, please contact Vicki G. Norton, Ph.D., Ryan C. Smith, Ph.D., any of the attorneys in our Intellectual Property Practice Group, any of the attorneys in our Life Sciences and Medical Technologies Industry Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.