Bayh-Dole march-in won’t change drug prices but other things might–1

Folks think that somehow Bayh-Dole permits government take over of pharma patents and by doing this, somehow, the price of drugs will necessarily–magically–go down. Let’s work through this idea.

Set aside for a moment that many drugs don’t do much more than make acute conditions chronic–they don’t cure, they don’t prevent, they treat symptoms, they delay, they have side effects that may require other drugs. In short, they are highly profitable stopgaps that delay disease so that–if there’s sufficient progress–someday one can expect to die of something else, and most every something else has its own set of delaying, mitigating drugs. Each line of drugs has its own $100K or more per year price tag. The argument is that the public demands that stopgap drugs be made much cheaper. It is a reasonable argument.

And sure, the argument is about an aspect of public health. But it misses the huge problem that these drugs play on a kind of mental addiction–people need them because they are made to appear better than any alternative–a placebo, say, or an older drug now off patent, or some other intervention. But they don’t stack up to cures or prevention or restorations–however these might be brought about. So set it aside for a moment that the drugs making lots of profits are not necessarily the medical interventions we actually want. They are what we want because we don’t have what we actually want, and they are set up as better than the past or placebos.

Now consider the Bayh-Dole  march-in proposal. First, Bayh-Dole applies only to inventions made in federally supported work. That’s maybe 5% of the commercially available drugs. There are no drugs for diabetes–one of the major public health issues in the country–in the Orange Book that cite inventions made in federally supported work. There are a few significant drugs that do cite federal support–Xtandi, for prostate cancer; Truvada for HIV suppression–but generally most commercial and generic drugs fall outside of Bayh-Dole’s scope.

For the few drugs that do come within Bayh-Dole’s scope, even if there were some magic involved that caused their price to fall to $0, the cost to take them would not move much at all. That’s because many of these drugs require regular monitoring via lab tests and doctor’s visits and/or require specialized–clinic-based–delivery. The recurrent physician, clinical, laboratory costs easily swamp out the cost of the drug isolated as a line item. That’s not to say that lowering the cost of the drug itself is not a worthy concern–it’s just that it’s nothing in the larger scheme of the cost of taking the drug. One might expect, even, that if a drug becomes more available, then the physicians, the clinics, the lab medicine operations, and the providers of all the drug delivery and testing equipment and reagents and whatnot would see more business. It’s rather like a popular band not having to pay royalties for the songs they perform. The concert ticket doesn’t go down in price, the concert venue and staging doesn’t cost any less, but the band has one less financial bother. Nice for the band. Even if Bayh-Dole could be used to drop drug prices, for the few drugs involved, the cost to take the drugs would not change much.

Now, for Bayh-Dole. Bayh-Dole allows the federal government to acquire inventions (and associated patent rights) only if a federal contractor (a person or organization that has become a party to a federal funding agreement) takes ownership of an invention and then fails to file a patent application or having filed a patent application decides not to prosecute the application or to maintain an issued patent. Nothing there about price.

Bayh-Dole’s “march-in” procedures involve something else entirely–compulsory licensing. If a subject invention–one made in federally supported work and acquired by a federal contractor–is not being used with benefits available to the public on reasonable terms, or is otherwise not reasonably available to alleviate public health needs, then the federal agency that provided the funding may “march-in” and require the invention be licensed (or licensed differently). See 35 USC 203(a)(1) and (2). The first march-in condition–non-use–is tied up in Bayh-Dole’s definition of “practical application” (35 USC 201(f)):

The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.

This definition is based on a definition in executive branch patent policy dating from 1963, where it had a somewhat different role, reminding us now that Bayh-Dole is something of a Frankenstein’s monster of various body parts collected by a rather unreliable Igor. Simplified of its qualifications, the definition reads–

practical application involves established use of a subject invention such that the benefits of that use are available to the public on reasonable terms.

This definition clearly does involve price, as price is a primary consideration for anything that might be made available to the public. Reasonable terms necessarily must include reasonable price, as the public would recognize price. $100,000 a year for a medicine that delays the progress of a cancer for two years or perhaps even indefinitely is not a reasonable price unless, say, it costs $90,000 a year to make the medicine and there’s no other way to make it.

If any part of this definition is not met, the standard is not met, and march-in under 35 USC 203(a)(1) is indicated. Thus, if there is no use of a subject invention, the standard is not met. If there is a use of some part of a claimed invention but not other parts, then the standard is not met for those other parts. If the use does not result in benefits available to the public (as distinct to benefits to some select few, say), then the standard is not met. If the benefits to the public are not available on reasonable terms, the standard is not met.

Just on this standard of practical application, almost everything claimed by patent under Bayh-Dole should be the subject of march-in. Even in the rare instances in which a commercial product has been produced, almost all of the claimed inventions involved have gone unused, undeveloped–those other elements have been suppressed in favor of the tiny bits that have been used.

For the bits that have been used and result in commercial “success,” march-in threatens to divide a market that is built on terms that are not “reasonable.” March-in involves giving others access to licensed rights. But that merely divides a big pie. The new licensee(s) might charge just as much as any existing licensee, and so though there is competition to see who gains a share of the big pie, there’s nothing to indicate that any of the new licenses will compete primarily on price. Indeed, the new licensees might have greater startup costs to recover before they can afford to compete on price. They will have to do their own redevelopment of product, their own testing and regulatory approvals–all the while avoiding any other proprietary positions claimed by the company already making product but offering it on unreasonable terms. March-in then penalizes a pie-maker but does not address the size of the pie. That is, march-in does not directly demand any new licensee price new product “reasonably.” The march-in remedy is licensing, not lower prices, with a bureaucratic policy magic imagining price competition without considering often much greater cost of new entry against an established incumbent company.

The bureaucratic idea appears to be that a new licensees will immediately compete on price–assuming that any of these new licensees can get their versions of the drug through the FDA approval process–not cheap, not quick, not easy. Have we mentioned scaling up manufacturing, establishing distribution networks, dealing with physician and pharmacist training, marketing to gain visibility, and the like? Now we have.

Moreover, the march-in procedures themselves were designed not to operate–the intent was to stymie federal agency efforts to march-in. Howard Bremer, who was instrumental in the drafting of the march-in procedures, later bragged publicly about this aspect of march-in. Even if the NIH wanted to march-in–and it doesn’t–the procedure to march-in would take years, replete with hearings, contestations, appeals, litigation. Even if march-in did offer a path to lower drug prices, it would take years to get there, the NIH doesn’t want to use march-in, and the NIH claims that the negative consequences of march-in outweigh any benefit–such as lower drug prices or having multiple sources of supply or wider variation in formulation or delivery.

There is no public mechanism to initiate a march-in. The public has no right of appeal, no way to make a federal agency march-in. Even inventors do not have such a right under Bayh-Dole. The Supreme Court in Stanford v Roche was ready to call such a lack “deeply troubling” were it not for the Court’s narrow interpretation of Bayh-Dole’s provisions on the disposition of ownership. One might think, even, that the Supreme Court’s message was that Bayh-Dole, were it determined to be a broad statute to vest ownership of inventions in organizations that received federal funds, would be unconstitutional. That would be something, no?

March-in is a part of Bayh-Dole that makes it appear there is a means to “protect the public against the nonuse or unreasonable use” of inventions made in federally supported work. That appearance of such protection then, so the theory must go, mitigates the concerns anyone might have about giving carte blanche monopoly control of such inventions, via patents, to federal contractors in areas that historically were treated as special cases where such monopoly control was not to be permitted in the federal government’s own inventions or any inventions made in public health research that the government chose to support (and an organization chose to accept). The appearance of public protection is all that operates–federal agencies don’t have to march-in, and the NIH is a leading example of not marching in. The idea is that if the NIH doesn’t march-in, there must be nothing going on that’s contrary to the purpose of Bayh-Dole or NIH policy. The implication is that high drug prices and monopoly suppliers and restrictions on variations in formulation and delivery and the like are the desired results of NIH policy and practices. One would have to do more than demand that the NIH march-in, then. One would have to also alter NIH policy and practices, and see that NIH does indeed change its practices, and even then, one has to get the new policy and practices right. Rotsa ruck with that.

March-in is DOA as an approach to drug prices in the near term. But march-in could be used–ubiquitously–to address stated policy objectives of Bayh-Dole–to promote free competition and enterprise and to encourage maximum participation of small businesses in federally supported research and development. (See 35 USC 200.) To illustrate, consider that an invention, for patent purposes, is rarely a thing–it is a set of claims, that together may include many different variations, implementations, applications, methods of making, functional equivalents. For biomedical patents, the number of compounds that may be claimed in a single patent may run to the hundreds or thousands or more. Any thing from set X combined with any thing from set Y with anything drawn from chemical set Z used for any condition in set A on any living thing in set B. Bayh-Dole’s march-in for nonuse applies to each one of these claimed combinations. In essence, a federal contractor gets first pick of a combination to “develop” for public benefit, and then march-in requires the licensing of all the other combinations–and the government can set the terms for such licensing (so long as they are reasonable under the circumstances)–so, could be royalty-free, non-exclusive. If the NIH acted on Bayh-Dole’s march-in requirement, it would march-in on every subject invention, say within three years of a patent issuing. If it did not appear likely that claimed variations were to be developed, then the invention owner would be compelled to release those variations for others to use and develop.

That the NIH does not march-in at all makes a mockery of Bayh-Dole’s march-in procedure and frustrates the essential purpose of having march-in–to promote free competition and encourage maximum participation by small companies in research and development. FRAND licensing–or even royalty-free non-exclusive licensing–is the obvious, number one way to achieve both of these objectives. March-in is the mechanism by which such FRAND licensing comes about. A federal contractor gets first pick. Everyone else gets, timely, their picks as well. Preventing others from picking at all–using the patent as a means to exclude all other use and manufacture and sale–runs against Bayh-Dole’s policy objectives for the use of the patent system. One might say that the NIH engages in, and promotes, anti-competitive behaviors that Bayh-Dole’s march-in was intended to prevent.

Now here’s the funny thing. Advocates of Bayh-Dole have long claimed that the only way that private investment will be attracted to biomedical inventions made in work with federal support is if some one organization gains an exclusive position on the entirety of the invention–every compound and variation on every claim. Without such a monopoly over the entire claimed research discovery, the public will never see any benefit from the research. No products will ever be developed. The federal research funding is all but wasted. It’s a nonsense argument–stupid as it is blind as it is historically defective–but there it is. If no one would possibly develop any variation on any claimed biomedical invention without an exclusive position, then it should not matter at all that the federal government marches-in on every invention made in work with federal support and compels a FRAND or royalty-free, non-exclusive license.

If the advocates’ claim is true, then no one will take such a license or work with any variation. Try it. There’s nothing at all to lose. If the advocates are wrong, as they surely are, then march-in will produce the free competition and maximal opportunities for small companies to develop federally supported inventions. Any competitive positions for such development will arise by making patentable improvements along the way. Again, free competition to improve rather than a general monopoly position to exclude just such activity in favor of profit-seeking without competition around any of the many claimed variations.

For all that, the pharmaceutical companies that objected to Public Health Service invention policy were not concerned with obtaining a monopoly position as they were what they called “contamination” of their own research and development if they took in for work a government-claimed invention in a related area. They were concerned that if they worked on that government invention, then all their other work would be then subject to a claim of government support and thus government ownership or a government license with the right to release freely to everyone what the company had spent its own resources to develop. Somewhere along the way, folks like Norman Latker at the NIH turned this legitimate concern for contamination into the utter nonsense claim that any invention available to all will be used by no-one.

There are other Bayh-Dole mechanisms available to the NIH to address competition, involvement of small companies, and invention nonuse or unreasonable use. Here are two: use the government license (35 USC 202(c)(4)) and enforce the nonprofit invention assignment clause (35 USC 202(c)(7)(A)). We will deal with these next.

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