Biden Administration Releases New Proposed Framework for the Exercise of March-In Rights under

August 2024 · 8 minute read

The Biden Administration’s recent publication of the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights and its request for comments on the draft guidance will impact how march-in rights under Bayh-Dole may be exercised in the future.

Background

On December 7, 2023, the Biden Administration announced “a proposed framework for . . . the exercise of march-in rights on taxpayer-funded drugs” and, for the first time, specifically stated that “price can be a factor in considering whether a drug is accessible to the public.” A day later, the National Institute of Standards and Technology (NIST) published a Request for Information and released its Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights which “reviews the factors that an agency may consider when deciding whether to exercise march-in rights.” 88 Fed. Reg. 85593, 85593 (“Draft Guidance”). The Draft Guidance comes less than nine months after the Departments of Commerce and Health & Human Services issued a joint press release announcing the formation of an Interagency Working Group for Bayh-Dole that would pursue a “whole-of-government approach” to review the government’s march-in authority. Importantly, the Draft Guidance confirms that no agency has ever exercised its march-in authority. Id. at 85596.

If a patentee obtains a patent using federally funded research, the Bayh-Dole Act allows the government agency that provided the funding to require that the patentee grant a license to another entity if the agency determines that (1) the patentee “has not taken . . . effective steps to achieve practical application of the subject invention,” or (2) such an action is “necessary to alleviate health or safety needs which are not reasonably satisfied” by the patentee. See 35 U.S.C. § 203(a)(1), (2). The term “practical application” requires that a product be manufactured “under such conditions as to establish that the invention is being utilized and that its benefits are . . . available to the public on reasonable terms.” 35 U.S.C. § 201(f). Further, the “available to the public on reasonable terms” language has, in the recent past, been the subject of debate regarding drug pricing and is addressed in the Draft Guidance.

Key considerations under the draft guidance for exercising march-in rights

The Draft Guidance provides a framework agencies can use to evaluate whether to invoke their march-in authority. It states that while an agency “may consider a variety of facts,” it must assess “three overarching questions: (1) whether Bayh-Dole applies to the invention(s) at issue; (2) whether any of the statutory criteria for exercising march-in applies under the circumstances; and (3) whether the exercise of march-in rights would support the policy and objectives of Bayh-Dole.” 88 Fed. Reg. 85593, 85596. While the Draft Guidance acknowledges that the first question can be a complex and fact-intensive inquiry, (id. at 85597), the second and third questions draw the most attention.

1. Are any of the statutory criteria for exercising march-in rights met?

The first statutory criterion discussed in the Draft Guidance is whether agency action is necessary because a patentee has not taken effective steps to achieve practical application of the subject invention. 88 Fed. Reg. 85593, 85598-99; see also 35 U.S.C. § 203(a)(1). The Draft Guidance first references the pricing of a commercialized product in this context. It states that if a product has been commercialized, “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.” 88 Fed. Reg. 85593, 85598. It also states that “whether action may be needed to . . . protect the public against non-use 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.” Id. Finally, it notes that if an agency is evaluating whether to exercise march-in rights on a commercialized product it may ask “at what price and on what terms has the product . . . been sold or offered for sale in the U.S.” and whether “the [seller has] provided any justification for the product’s price or background on any extenuating factors which might be unreasonably limiting availability of the [product] to consumers or customers.” Id. at 85599.

While the Draft Guidance does not provide a comprehensive list of factors agencies should use to evaluate the reasonableness of a product’s price, it includes two hypothetical “scenarios” demonstrating how the framework could be used to evaluate the price of a product. Id. at 85601-05 (Scenarios 5, 6). In Scenario 5, the Draft Guidance outlines a situation where, due to a recent a spike in demand and no corresponding increase in production, the price for a company’s product has increased by 1000% in three months. Id. at 85603. The Draft Guidance explains that “if the evidence suggests this 1000% increase was an intentional act by the company to ‘cash-in’ on this newly discovered health and safety need, that would weigh in favor of march-in. However, if the entire market has seen similar price increases and there is a compelling justification for such a high price, e.g., a shortage of essential raw materials is making increased production impossible, that would weigh against march-in.” Id. In Scenario 6, the Draft Guidance outlines a situation where after a viral outbreak, a mask manufacturer increased the price of its masks 100% and continued to raise the price over the course of a month, ultimately resulting in a 400% price increase. Id. It then details the types of questions and information an agency would likely seek from the mask manufacturer in that scenario. Id. at 85603-04. The Draft Guidance’s reference to these scenarios makes it clear that an agency’s evaluation of a product’s price will be highly fact-specific and require an exchange of information between the agency and manufacturer.

The second statutory criterion discussed in the Draft Guidance is whether agency action is necessary to alleviate health or safety needs not reasonably satisfied by the patentee. 88 Fed. Reg. 85593, 85599; see also 35 U.S.C. § 203(a)(2). The Draft Guidance asks agencies to consider whether the patentee is “exploiting a health or safety need in order to set a product price that is extreme and unjustified given the totality of circumstances.” 88 Fed. Reg. 85593, 85599. The Draft Guidance notes that “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.” Id.

2. Would the exercise of march-in rights support the policies and objectives of Bayh-Dole?

The Draft Guidance identifies two main objectives of Bayh-Dole: (1) “promoting the development of new products in the U.S.” and (2) “their availability to end-users or consumers in the U.S.” and instructs agencies evaluating their march-in authority to prioritize both. 88 Fed. Reg. 85593, 85600. It also instructs agencies to “weigh how an individual march-in decision could impact the broader policy objectives for U.S. competitiveness and innovation.” Id.

In support of these objectives, the Draft Guidance asks agencies to consider “whether there is intellectual property (beyond the subject invention(s)) that could possibly prevent other licensees from making the product or offering the service in question.” Id. It clarifies that “a complicated intellectual property landscape could reduce the likelihood of successful licensing and weigh against march-in,” at least because “if only one of several patents necessary to produce a product is subject to march-in, that likely weighs against march-in, since other licensees would need separate permission to use several other patents before they could make the product.” Id. This is particularly relevant to the pharmaceutical industry as often drug products are covered by multiple patents, not all of which will be subject to Bayh-Dole.

The Draft Guidance also instructs agencies to consider when the relevant patents expire. Id. It notes that “if the patent term is likely to end before the march-in process concludes . . . these factors weigh against a decision to exercise march-in rights.” Id. Additionally, it notes that agencies should consider whether there are alternatives to the exercise of march-in rights and specifically cites pending patent litigation as an example. Id. (agencies should “consider whether other legal processes (e.g., a challenge to the validity of the patent, licenses being revoked) may allow another manufacturer to bring the product to market more quickly, as that could weigh against use of march-in”).

Next steps

Comments on the Draft Guidance must be received by 5:00pm Eastern on February 6, 2024. Given that NIST received over 81,000 comments in response to a January 2021 notice of proposed rulemaking on a similar topic, one can reasonably expect a similar, if not greater, response to this Draft Guidance.

Key Takeaways

  • The significant amount of work the Biden Administration has devoted to putting together the Draft Guidance signals that it is serious about pursuing the finalization of a framework agencies can use to decide whether to exercise their march-in rights.
  • Regardless of which factors are incorporated into any final framework, the Biden Administration has acknowledged that an analysis of an agency’s march-in rights will be “extremely fact-dependent” and will be “based on the totality of all circumstances.” This leaves room for both the agencies tasked with applying a framework and any patentee subject to a march-in proceeding with a significant amount of latitude to make arguments regarding the exercise of an agency’s march-in authority.

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