The failed Bayh-Dole bargain, 4

Finally, we reach Xtandi. The authors provide the pricing of $156,000 per year, but don’t point out that generic manufacturers have offered to produce Xtandi for $3 per pill–or about $4,300 per year. There’s a claim that Astellas has spent $1.4 billion on development, but there’s no supporting documentation for this claim. Give that UCLA exclusively licensed the series of compounds of which Xtandi was one to Medivation, who then contracted with Astellas for development on a non-exclusive basis (dividing up the world into a non-US market and a US market to avoid the US manufacturing requirement in Bayh-Dole), and that both UCLA and Medivation have sold out their interest in Xtandi in the Pfizer/Royalty Pharma transactions, what Astellas has put into development really has no bearing on march-in. There’s nothing in march-in that says “you can charge unreasonable prices if you spent a lot of money.” The standard of what is reasonable does not depend merely on what one has spent, but also on what one has made, and what one would make if there were, say, competition, even if there’s not because of the patent situation.

Our authors then quote from Astellas’s response to the march-in petition:

Based on an analysis of third-party claims data from January to November of 2021, 71% of US patients paid less than $100 in out-of-pocket costs for their XTANDI prescription regardless of insurance type.

March-in is concerned with the terms offer, not merely what some patients pay. Even if 71% of patients pay less than $100, that leaves 29% of patients exposed to much higher costs, and we still have not addressed the statutory concern–whether a price or other term is “reasonable.” Give the remedy using march-in is multiple sources–competition–the nature of “reasonable” would appear strongly tied to what prices would be if Xtandi were a generic.

As all await the NIH’s decision, the outcome will be significant regardless.


But it is not a matter of whether Secretary Becerra should “reject” the march-in petition. The petition provides substantive information that the pricing scheme for Xtandi is unreasonable. There’s pricing way in excess of what it costs to produce the drug, those involved have raked in billions beyond what they have spent “developing” the drug, and the question is whether the pricing on offer reflects a competitive price, a price that would be expected if there were multiple sources for the drug–innovating on dosage, methods of delivery, combinations with other therapies, and the like. Bayh-Dole requires federal agencies to assess what’s reasonable within the statute’s usage and the express statement of Congress with regard to policy and objectives. If HHS does not march-in on Xtandi, it will confirm that the bargain in Bayh-Dole’s contracting provisions is not operable–that contractors retain title to health care inventions made in federal work, on the condition that they comply with the public protection parts of the law, including reasonable terms, US manufacture in some cases, reporting on utilization, and in the case of nonprofits, not assigning inventions without federal approval except to companies that have a primary function managing inventions and when they do assign–including by exclusive license of all substantial rights–they require the assignee to comply with the nonprofit’s patent rights clause.

To argue that companies now engaged in exploiting inventions made in federally supported work will no longer participate if they cannot price gouge, suppress use and innovation, and slow walk rollouts of treatments is to argue that Congress intended that Bayh-Dole should attract just such companies to public health problems, rather than attracting companies willing to honor the public protection provisions–including the expectation of “free competition and enterprise” and “practical application.” Those arguing against march-in argue, in essence, that there is no such public bargain in Bayh-Dole, that federal agencies don’t have to enforce the public protections, that Congress did not intend enforcement but rather put all those provisions there to make a show of concern but really left it up to the executive branch to bother with the objectives of Bayh-Dole or turn a blind eye, whatever.

In the antitrust case involving WARF’s vitamin D patents, the court observed that WARF’s argument that it had used its patents to produce a commercially lucrative product for its licensees weighed against WARF’s suppression of access to the vitamin D invention for others, such as margarine producers, which supplied the poor with a less expensive alternative to butter. So to, here, with Xtandi, the express purpose of Bayh-Dole is not to create commercially lucrative products, but to promote utilization in the form of practical application, including “on reasonable terms” or otherwise require licensing to add competition.

One would think that a couple of attorneys would look more carefully at the law, given the bulk of their article merely repeats talking points of the anti-march-in crowd about the history of Bayh-Dole and the nature of march-in. Our authors are correct, however, that whatever decision HHS makes will be significant. If HHS decides not to march-in, then that decision sets up the repeal of the law for having failed in its express purpose. If HHS decides to march-in, then we finally have Bayh-Dole implemented–at least in one aspect–as the statute provides. Wouldn’t that be a kick rather than having the patent monopolists and price gougers making the law up for their convenience as they go?

Before we leave this happy land of march-in, keep in mind that Bayh-Dole provides at least two other means to protect the public from unreasonable terms. The first is that the government may act on its right to practice and have practiced any subject invention for all government purposes. The “practice” wording is lifted from the Kennedy patent policy by way of the IPA program, where it means, expressly, “to make, to use, and to sell.” Congress–and Latker–would have to go out of their way to define “practice” so that it did not mean what it meant in the context from which it was copied. The government has a right, without any procedures or determinations or petitions, to make, use, and sell the invention upon which Xtandi is based, and to authorize others to do so for any government purpose–“for or on behalf of the United States.” This license extends, as well, to the States, which were also included in the Kennedy policy license as part of the definition of “Government.” The government’s exercise of its rights would create a competition in what the federal government has asserted is a “governmental market.” The government has an interest in the delivery of new medicines to the public, has allocated research funds to that purpose, and thus has a right under Bayh-Dole to do so, even if doing so competes with private interests hoping to clean up by exploiting patients and their insurers, including the federal government. Competition addresses unreasonable terms. The simple thing is for the government to act on its rights. Much easier than march-in, which was made inoperable and entirely discretionary for federal agencies.

A second means to protect the public is to enforce Bayh-Dole’s requirement that nonprofit assignment of subject inventions must convey as well the nonprofit patent right clause. This requirement is important to the design of Bayh-Dole, but ignored. An exclusive license to all substantial rights to an invention–to make, use, and sell it, and do so for the greater part of the term of the patent, and the like–is another form of assignment. UCLA assigned a series of compounds to Medivation, a speculative drug prospecting firm without any meaningful operations of its own by means of an exclusive license to all substantial rights. The controlling patent rights clause is the nonprofit clause, which requires among other things that all income earned with respect to the subject invention, less amounts used to administrate subject inventions, be used to support “scientific research or education.” So, not profits to pocket but rather profits to devote to the specified public causes. Bayh-Dole here amounts to “perhaps it is reasonable to charge a lot if the income goes to the specified public causes.” Again, the provision is ignored, but it’s there and ought to be enforced, if Bayh-Dole is to have any purpose in “protecting the public from nonuse and unreasonable use.”

If the nonprofit patent rights clause were enforced, then Medivation (and now Pfizer) would demand that UCLA convert the exclusive license to non-exclusive, which would amount to the same outcome as federal march-in. UCLA would license to others (as it did, anyway, to screw over Medivation with a second series of compounds). Or, if Pfizer were feeling generous and publicly spirited, it would agree to an audit of all its Xtandi income and dedicate the balance after the costs of administrating subject inventions–which would be minimal, other than perhaps payments to inventors–to scientific research or education.  That would be a day of rejoicing.

The public bargain set forth in Bayh-Dole was failed from the outset. The law is drafted so that federal agencies have no requirement to enforce the patent rights clauses to protect the public or to conform to the policy and objectives of the law. It’s clear that universities also are unwilling to work within Bayh-Dole and routinely misrepresent or circumvent or ignore its requirements. The policy tools are there in Bayh-Dole–enforcement of the patent rights clauses, protection for inventors working on federal projects, public protections for nonuse and unreasonable use, all focused on using the patent system to promote utilization of inventions arising from federally supported work and to promote free competition and enterprise. But the policy tools are not used, and the policy nonuse is supported by federal agencies and by university lobbying organizations. In their view, the only part of Bayh-Dole worth having is 35 USC 202(a)–contractors, if they get title to an invention made in federal work, can keep title. The rest–the public bargain–to them is rot.


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