The failed Bayh-Dole bargain, 3

We are working through a new article on Bayh-Dole march-in, written by two PhD patent attorneys. In its way, the article is more puff piece than law review, drawing its frame from the sources chosen, not much looking at the law itself, but also not much looking at the policy implications of using the pathway of march-in to create competition to restore reasonable terms for public access, especially to new medicines based on discoveries made in federally funded research.

In the big picture, the federal government could fund the “development” of new medicines that its research has discovered and then could produce and distribute those medicines directly, or contract with others to do so on its behalf. What sort of pricing would we expect if the government contracted for production and distribution? Perhaps cost of production plus a “reasonable” margin for contractors? If a company wanted to compete with this arrangement,  having open access to the invention, what pricing would we expect from it? If higher than the government version, on what basis? Higher quality? additional functionality? more readily available? Any of that might make reasonable sense.

The line of reasoning that currently controls federal practice is that the federal government, instead of funding development (as the 1947 AG’s report insisted), sets up as its working practice in public health that the government stands aside and leaves it to “private industry” to decide what to develop, how much to spend on development, and then, as a consequence, it would appear to be only right–so the anti-march-in folks might argue–to let those companies charge whatever price they want to, as if they had not participated in a government effort to develop new medicines, that the government purpose in supporting research was to subsidize the private corporate expense and take some of the risk involved in finding new, lucrative mass producible health products. Monopoly pricing and suppression of alternatives and availability then become the necessary incentives for someone to take *exclusive* control of an invention made in federally supported work–and therefore, by this reasoning, monopoly pricing and suppression of alternatives and availability become positive markers of Bayh-Dole’s success. More money made by marking up important new drugs by 100x means more money for a university licensor, which then feeds more money into AUTM’s bogus model for economic contribution of university exclusive licensing practice. For such big numbers, AUTM expects us all to be overjoyed. That we are not means, apparently, that we are critics of Bayh-Dole (maybe, but not here–we would that Bayh-Dole were enforced) and opposed to all IP (not really) and therefore (big leap off cliff) against all innovation. It’s nonsense.

Bayh-Dole does not put this idea of monopoly pricing incentives forward as policy or objective, and instead insists on utilization, public availability, free competition and enterprise, and reasonable terms where there is a product. The Bayh-Dole policy vision, then, is almost but not quite entirely at odds with what the folks opposed to march-in put forward. But our authors describe the march-in debate on Xtandi from this anti-Bayh-Dole framework, without the least indication that they care.

Let’s look then at their treatment of Bayh-Dole’s march-in provisions at 35 USC 203. There, while they get it right that there are indeed advocates for using march-in to address unreasonable pricing of medicines, they don’t get march-in quite right , which is a disappointment, since march-in is the primary focus of their article. The issue for march-in not whether a drug price is “high”–that’s another debate worth continuing to have, and even to resolve. In Bayh-Dole, the issue is whether a price–or any other term on offer to the public–is reasonable. Given that the remedy for an unreasonable term is to permit others to practice the invention, a readily apparent argument is that a reasonable term–such as a reasonable price–is what one would expect if there were competition–multiple suppliers, multiple formulations, combinations with other medicines and interventions, multiple methods of delivery. Bayh-Dole expressly lists “free competition” as an objective: use the patent system to promote . . . “free competition and enterprise” (35 USC 200). March-in is a means to introduce “free competition” where a contractor has failed to achieve practical application–utilization of an invention (made in federal work) with benefits available to the public on reasonable terms (see 35 USC 201(f)).

It may be that it’s bad policy to expect free competition to address unreasonable pricing. Perhaps free competition is itself a fantasy, or even if there is competition, that alone is not enough to encourage companies to lower their prices, and profit margins, once a price point has been set that’s maybe 100x the cost of production. It may be that once the government has identified a candidate compound through its research, it should commit to developing the compound as a medical platform that then can be adopted by any number of producers. That would eliminate the argument that private investors requiring a patent monopoly with pricing and suppression of alternatives are the desired participants to benefit from discoveries made in federally supported work. Perhaps the idea of competition in health care is an ineffectual bureaucratic patch over a fundamental design defect in the law. As it is,  Bayh-Dole sets up its default to contractor ownership as one of “reasonable terms or free competition”–and march-in is the pathway between these two circumstances. Those opposing march-in appear to be entirely uncomfortable with competition. That’s interesting, given that patent trolls are fine with competition–raking off a patent rent from twenty companies, while a bit more work, is just as fine as focusing on one company only, and spreads the risk across a number of deals. It’s the spectre of competition that freaks out those that oppose march-in, and thus aim to block the operation of Bayh-Dole.

If you consider their argument for a bit, you might see that it rests on two implicit assertions that are entirely without evidence: (1) that only patent speculators with the incentive of monopoly pricing and suppression of competition will take licenses to inventions made in work receiving federal support; and (2) if those patent speculators don’t get licenses, then there will be no more biomedical innovation based on federal research. Reject these two assertions and the impetus for Bayh-Dole itself pretty much fails.

Others assert that march-in rights were never intended as such [perhaps, meaning, never intended to address the high cost of drugs], and do not provide such a broad authority, but rather are narrowly limited to the four circumstances expressly identified in the statute.

Well, yes, that may be what others assert, but our authors leave it at that, without indicating that the four circumstances at 35 USC 203(a) are very broad, especially the first–which comprises not only nonuse but also delays in development and failure to offer product (and other benefits) to the public on reasonable–competitive, as if there were competition–terms. As for the “never intended” one would think attorneys would at least be curious about who does the intending in statutes, especially ones where Congress lays out (and votes on) what it intends, such as we see at 35 USC 200 “Policy and objectives.”

Another concern is that use of march-in rights would discourage private investment in the enormous cost and effort needed to bring treatments from early-stage research to the marketplace.

No doubt, a concern. But look at the reasoning–the claim is that unless exclusive licensees have a right to slow walk development or exploit patients with monopoly pricing, those exclusive licensees would not participate in developing federal inventions. The claim, then, is that Congress intended nonuse, slow use, and unreasonable terms as “incentives” to place federal inventions preferentially with what–exploiters? speculators? price-gougers? rich incompetents? It doesn’t work, does it. It’s a stupid argument, even if it exists in the wild. Our authors might pick a better debate rather than hand-wave and waste everyone’s time.

Yet in the 40+ years since march-in rights were codified . . .

The codification wasn’t finalized until 1987, so not 40+ years, more like 35. But details.

no federal agency has actually exercised its march-in rights.

Howard Bremer, in a talk given in 1992, claimed to have intervened in the drafting of the march-in regulations to ensure that the march-in regulations, essentially, would not be easy to use. Apparently, he was right, did his job well. But that means, too, that university patent administrators like Bremer at the Wisconsin Alumni Research Foundation (which did the first IPA deal with Latker at the NIH in 1968), were the advocates for the exploitation of patients using monopoly patent pricing–a position that would appear to “contravene” the law. At least we can see here who patients are up against–university patent administrators are not on their side.

The article then turns to a summary of failed petitions for march-in over the years without bothering to note that Bayh-Dole provides no mechanism for petitions for march-in. Under Bayh-Dole regulations, a federal agency “receives information that it believes might warrant the exercise of march-in rights”–it’s that “believes” that’s so odd. If an agency doesn’t “believe,” contra to what Journey advises, then that’s the end of march-in. Bremer did his job very well indeed.

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