In December the White House announced a new draft guidance that allows federal agencies to grant nonvoluntary licenses to patents on inventions funded with taxpayer dollars. These are called “march-in” rights, and they allow the government to force licensing, when necessary, to remedy an abuse or nonuse of such patented inventions.
The draft guidance fundamentally changes policy on federally funded inventions, including drugs and other products that rely on inventions that are sold at high prices by pharma and biotech companies. In doing so, it flexes a muscle that past administrations feared to brandish.
At issue is the ability and inclination of the federal government to grant compulsory licenses to patents on federally funded inventions, allowed under a 1980 law, the Bayh-Dole Act. The march-in right is a key safeguard to protect the public from an abuse of patent-granted monopolies on inventions. In the 43 years following the passage of the act, however, the federal government has never formally used the right, despite plenty of cases where it was warranted, including cases of excessive drug pricing.
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It’s a long-standing federal failure to have never exercised this safeguard to lower drug prices, and the new draft document signals a significant change in policy. But the draft makes mistakes that could limit the march-in right to too few cases and gives pharmaceutical firms an unearned pass on pillaging the taxpayers who paid for the inventions behind their expensive new drugs.
President Joe Biden, his allies and members of his staff have described the newly announced policy as a significant tool to lower drug prices. But the actual published document is less ambitious. Among other things, it avoids the core issue related to every past attempt to use march-in rights to address prices—the argument that U.S. taxpayers should not have to pay more than people in other high-income countries when the federal government funded the invention.
Knowledgeable critics and supporters of march-in rights agree they are relevant to relatively few products. They only apply when the federal government funding is related to an invention but do not apply to other research subsidies. A review of patents for new small-molecule drugs shows only a handful with any government rights and even fewer cases where all the listed patents disclose federal funding. Furthermore, even when the federal government has rights in all patents on a product, additional barriers may also exist, particularly those relating to the regulatory pathway or access to know-how or proprietary cell lines.*
For example, the proposed guidance states that “timing factors, like the remaining patent life compared to the time required to complete march-in proceedings, exhaust appeals, and further develop the technology … could weigh against march-in.” Notably, the march-in right is subject to an automatic stay while patent holders pursue appeals, presenting the risk that drug firms will game the system and run the clock before a march-in remedy can be put in place.
Making matters worse, there is considerable underreporting of government rights in patented inventions. Some corrected disclosures may not appear in patent searching tools. And the corrections can be late. Norvatis waited 18 years to disclose government patent rights in Gleevec, a cancer drug that made $4.65 billion in 2015 alone. Federal science agencies are lax in enforcing disclosure requirements. We have been waiting four years for the National Institutes of Health to respond to a petition about the failure of patent holders to disclose federal rights in six key cancer treatment patents involving drugs such as Keytruda, Opdivo, Tecentriq, Bavencio and Imfinzi.
Still, march-in rights matter. Products where federal rights are robust—such as the prostate cancer drug Xtandi, for which march-in rights apply to all relevant patents—can be important in their own right, and they impose large costs on our health system. Restrictive licensing of federally funded patents by drug companies can also limit competition and raise the cost of developing new products in fields of use broader than a single product.
It is also an unforced error to look at the march-in right alone when it is just one of three such rights available to the federal government. Others give the federal government worldwide royalty-free licenses for a taxpayer-funded invention, and a separate statute allows government use of any patent with compensation—zero for government-funded inventions—set by a judge. The government should use all these rights to lower drug prices without roadblocks.
An example of such delay comes in a recent decision on an excessive-pricing case involving Xtandi; the NIH rejected the march-in, partly on the timing issue. A generic alternative had already obtained tentative approval from the FDA, and the only potential delay was the march-in proceeding itself and the time that would be taken by the patent holder to exhaust administrative and judicial appeals. The last patent expires in August 2027.
The petitioning cancer patients filed an appeal with the Secretary of Health and Human Services, arguing that this “‘clock has run out” argument ignored the federal government’s parallel authority to obtain generic versions for Medicare, Medicaid and programs that use the Federal Supply Schedule even while a march-in appeal played out.
In other cases, where drugs have a more complicated patent landscape that march-in rights won’t cover completely, the federal government should use both the march-in right and the government’s statutory authority to deal with the patents not subject to Bayh-Dole rights. That could help lower costs for treatments such as the drug Spinraza or the gene therapy Zolgensma, two very expensive treatments for spinal muscular atrophy that have multiple patents from multiple patent holders.
If President Biden wants to use executive action to low prices for government funded medical inventions, he can start by dealing with the outstanding appeal of the NIH decision in the Xtandi case. That could be resolved quickly.
HHS can notify the drug’s makers, Astellas and Pfizer, that unless the price of Xtandi is reduced to the level of other high-income countries (it is now three to six times more expensive), the government is prepared to begin a march-in proceeding. But also, importantly, HHS should say the government is prepared to use its royalty-free license and contractual authority to immediately permit generic versions of the drug to Medicare, Medicaid and programs on the Federal Supply Schedule. If Astellas and Pfizer refuse to lower the price, the generics would soon dominate the biggest market segment for the prostate cancer drug, and with the royalty-free license, those two firms’ compensation would be zero. Faced with this choice, Astellas and Pfizer will find lowering the price of the drug the better outcome.
Once the government breaks the taboo and uses the march-in right, either as leverage to lower a price or to enable competition, discussions about reasonable pricing of government-funded inventions will become less theoretical and more concrete. That should bring about some of the drug price cuts that candidates often claim to support when talking to voters but don’t pursue once elected.
This is an opinion and analysis article, and the views expressed by the author or authors are not necessarily those of Scientific American.
*Editor’s Note (1/31/24): This sentence was edited after posting to better clarify the description of additional barriers that may exist when the federal government has rights in all patents on a product.