Draft Framework for Exercise of March-In Rights under Bayh-Dole Act Targets High Drug Pricing

The National Institute of Standards and Technology (NIST) released for public comment a “Draft Interagency Guidance Framework for Considering the Exercise of March In-Rights”[1] (“March-In Framework”) on December 8, 2023 following the White House’s announcement of initiatives to lower health care and prescription drug costs via competition.[2]

The Bayh-Dole Act was enacted in 1980 and provides rights to individuals and entities (“contractors”) that produce inventions with Federal assistance.  Contractors retain title to inventions resulting from federally funded research subject to requirements to timely disclose the invention and pursue patent protection and commercialization.[3]  In addition to retaining a worldwide, non-exclusive license to practice the invention, the government also retains certain rights, called “march-in” rights, in subject inventions.[4] March-in rights may be exercised only in certain circumstances, such as if the contractor is not commercializing the invention. The government can require a contractor of the subject invention to grant a license to a responsible applicant on reasonable terms.[5]  If the contractor refuses to comply, the government may grant the license to the applicant.[6]

Although march-in rights have never been exercised[7], the March-In Framework provides guidance to agencies regarding the decision whether to exercise march-in rights, including three principal questions that should be assessed:

A. Does Bayh-Dole Apply?

Bayh-Dole applies only to “subject inventions,” which are inventions “conceived or first actually reduced to practice in the performance of a work under a funding agreement” to which Bayh-Dole applies.[8]  Not every patent acknowledging government funding meets the statutory definition of “subject invention” (e.g., where the funding agreement is made primarily for educational purposes).[9]  Although contractors are obligated to report inventions that are believed to qualify as subject inventions, the March-In Framework provides a series of questions for assisting agencies in the fact-dependent inquiry of determining whether a product embodies a subject invention.[10]

B. Is one of the four statutory circumstances under 35 U.S.C. § 203(a)[11] met for the march-in rights to be exercised?

1. 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.

For subject inventions that are not commercialized, the March-In Framework provides guidance for evaluating the diligence efforts of contractors.  Notably, for the first time, the March-In Framework acknowledges an agency is permitted to consider whether pricing is limiting the availability of the product to the public such that commercialization efforts have not resulted in practical application of the invention.[12]

2. Public health or safety needs are not reasonably satisfied by the contractor, assignees or their licensees.

Exercising of march-in rights may address public health or safety needs by providing additional access to a product or increasing a product’s quality or quantity.  The March-In Framework again notes that extreme and unjustified prices that exploit a health or safety need may justify the exercise of march-in rights.[13]

3. Requirements for public use specified by federal regulations are not reasonably satisfied by the contractor, assignee or licensees.

4. The agreement to domestic manufacturing requirements under 35 U.S.C. § 204 has not been obtained or waived, or has been breached.

C. Does the exercise of march-in rights support the policy and objectives of Bayh-Dole?

The Bayh-Dole’s policy goals are: “incentivizing U.S. innovation and promoting access to the fruits of innovation in the U.S.”[14]  To this end, the March-In Framework provides a series of questions to help agencies evaluate the practical value of exercising march-in rights, specifically in terms of increasing accessibility to the subject invention, alternatives to pursue instead of or in parallel with march-in proceedings, and the implications of exercising march-in on the broader R&D ecosystem.[15]

NIST will take public comments until February 6, 2023, whereafter NIST and an Interagency Working Group will develop a final framework for the exercise of march-in rights.[16]  The draft March-In Framework provides an indication of the Biden-Harris Administration’s willingness to use high prices to establish a basis for march-in rights as a tool for achieving lower drug prices.  While the exercise of march-in rights is currently unprecedented, contractors should be aware of their obligations under Bayh-Dole to commercialize subject inventions and be diligent in documenting development and licensing efforts.