Public Comment Window Opens on Proposed Guidance for U.S. Government March-in Rights Targeting Drug Pricing

On December 7, 2023, the U.S. Department of Health and Human Services and Department of Commerce announced development of a framework for implementation of the government’s “march-in” authority under the Bayh-Dole Act.¹ This framework would articulate guiding criteria for agencies deciding whether to exercise this authority to compel a patent owner to license a patent on a federally funded invention to another party on reasonable terms and, for the first time, would allow agencies to consider the price of the patented product in making that assessment. A White House fact sheet also issued on December 7 explained that this proposed framework is intended “to support lowering prescription drug costs and increase Americans’ access to life-saving medications,”² signaling that the proposed change targets innovators in the pharmaceutical and biotechnology industry.

March-in Rights

The Bayh-Dole Act and Executive Order 12591 outline the rights of government contractors and government agencies with respect to work performed under a government funding agreement. Generally, these provisions give a funding agency the authority to reclaim rights from a contractor to enable the agency to license a patented invention to another entity. The “march-in” authority applies in limited and strictly defined situations, such as where the patented invention has not been adequately commercialized or the contractor cannot meet the health and safety needs. In those limited situations, the agency can require licensing of a patented invention made under the agency’s funding agreement to “a responsible applicant or applicants, upon terms that are reasonable under the circumstances.”³ The statute identifies what types of actions are appropriate based on each of the circumstances that justifies use of the march-in right.⁴

To date, however, no government agency has exercised march-in rights.⁵ And since the enactment of the Bayh-Dole Act in 1980, the price of a prescription drug or other patented product has never been understood as a basis for doing so. As recently as a January 2021 round of proposed rulemaking, a proposed provision stated that march-in “shall not be exercised exclusively based on the business decisions of the contractor regarding the pricing of commercial goods and services arising from the practical application of the invention.”⁶ That provision was not finalized, but it embodied a policy that had enjoyed longstanding support from U.S. government administrations, the university sector, and the private sector as a safeguard protecting the investment in research and development collaboration that the act was designed to foster.

The Proposed Framework

The new Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights addresses the factors an agency may consider when deciding whether it is allowed to exercise march-in rights. In contrast to previous proposed guidance and a departure from longstanding policy, this framework would permit agencies to consider price as a factor in determining that a drug or other government-funded invention is not accessible to the public.⁷

Specifically, statutory criterion 2 allows march-in where “action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees.”⁸ The proposed framework includes the following points among those to be considered in assessing this criterion:⁹

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.

The other three statutory criteria concern achieving practical application of the invention, meeting federally established requirements for public use, and addressing deficiencies under related requirements for domestic manufacture.¹⁰ In addition to providing guidance on how to determine whether one of the four march-in criteria of 35 U.S.C. § 203(a) is met, the proposed framework defines terms, provides regulatory and historical context, and addresses other aspects of the march-in analysis, including how to determine whether the Bayh-Dole Act applies to an invention and who owns the relevant patent rights. It also addresses policy considerations and discusses hypothetical scenarios and examples.

The Department of Commerce body that issued the proposed framework, the National Institute of Standards and Technology (NIST), plans to hold at least one informational webinar explaining it. Details, including dates, times, and any registration requirements, will be announced at https://www.nist.gov/tpo/policy-coordination/bayh-dole-act.¹¹

Public Comment

NIST has requested public comments on the proposed framework and has issued guidance on the manner of submitting comments as well as the subjects on which it is most interested in receiving public input.¹² Any comments must be received by 5 p.m. Eastern time on February 6, 2024.¹³

U.S. Drug Pricing Initiatives

The majority of the administration’s policy focus on drug pricing in 2023 has been focused on Inflation Reduction Act implementation, regulatory reforms to the Medicaid price reporting metrics, and litigation and expected reforms in the 340B Drug Pricing Program. 2024 is expected to be a turbulent year in drug pricing policy, with stakeholder litigation challenges expected for unconstitutional policies. Please see Sidley’s U.S. Drug Pricing resources here and here for more information.