Federal Agencies Seeking Patent Seizure Authority Through Draft NIST Guidance
In Short
The Situation: On December 8, 2023, the National Institute of Standards and Technology ("NIST") released a proposed framework for federal agencies regarding the exercise of the government's march-in rights for federally funded inventions. Among other considerations, the proposed framework considers the price of a product as a relevant factor with respect to whether an invention has achieved practical application or whether it reasonably satisfies health or safety needs. Comments regarding the proposed framework are due by February 6, 2024, at 5:00 p.m. ET.
The Result: Although the government has not previously exercised its march-in rights, NIST's notice indicates that federal agencies may begin to exercise those rights to promote competition and reduce prices, including in the health care industry.
Looking Ahead: The proposed framework may chill collaboration between the biotech and pharmaceutical industry and universities and small biotech companies receiving federal funding for research and development.
On December 7, 2023, the Biden-Harris Administration announced that NIST "released a proposed framework for agencies on the exercise of march-in rights," which "specifies for the first time that price can be a factor in determining that a drug or other taxpayer-funded invention is not accessible to the public." The proposed framework sets forth certain factors, including product price, that a federal agency may consider when deciding whether to exercise march-in rights with respect to a subject invention.
Background
Under the Bayh-Dole Act, recipients of federal funding for research and development pursuant to a federal funding agreement agree to allow the government to retain certain rights for a subject invention, including "march-in" rights. Under 35 U.S.C. § 201, a subject invention includes "any invention or discovery [by a federal funding recipient] which is or may be patentable," and which is "conceived or first actually reduced to practice in the performance of work under a funding agreement." Under 35 U.S.C. § 203, the march-in rights allow the federal agency to require that the federal funding recipient (or its assignee or exclusive licensee) to license the subject invention to a third party under certain circumstances. But to date, no federal agency has exercised the government's march-in rights.
Proposed Framework
The proposed framework is intended to provide federal agencies prerequisites for exercising march-in rights, to ensure the objectives of Bayh-Dole Act are met, to encourage consistency in its application, and to balance the need to incentivize industry investment with the need to promote public utilization. The proposed framework requires that a federal agency assess three overarching questions.
First, as a threshold question, the federal agency must assess whether an invention is a "subject invention" resulting from federal funding.
Second, the federal agency must consider if any of the following statutory criteria under 35 U.S.C. § 203(a) for march-in are met: (i) the federal funding recipient "has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention"; (ii) "action is necessary to alleviate health or safety needs which are not reasonably satisfied"; (iii) "action is necessary to meet requirements for public use" and such requirements are not reasonably satisfied; or (iv) action is necessary because an exclusive right to use or sell the subject invention in the United States does not include a provision that the subject invention will be manufactured substantially in the U.S. or a waiver of such requirement was not obtained.
The third overarching question that a federal agency must consider is whether the exercise of march-in rights would support the policy and objectives of the Bayh-Dole Act, including how exercising the march-in right for a particular subject invention could impact the broader policy objectives for U.S. competitiveness and innovation.
NIST's proposed framework highlights certain types of information relevant to each of the four statutory criteria above. The proposed framework lists the price of a product as a factor to consider under both criterion (i) and (ii). For example, under criterion (i), the "reasonableness of the price" is a factor in determining whether a product has achieved "practical application." Under criterion (ii), a factor is whether the "licensee is exploiting a health or safety need in order to set a product price that is extreme and unjustified given the totality of circumstances."
Potential Implications
The proposed framework is another step taken by the Biden-Harris administration to curtail drug pricing for products associated with federal funding. Prior guidance from Centers for Medicare and Medicaid Services indicated that federal funding may reduce the government's initial offer in negotiating the maximum fair price under the Inflation Reduction Act. Such initiatives are likely to chill collaboration of the biotech and pharmaceutical industry with universities and small biotech companies receiving federal funding.
NIST has specifically requested public input on whether the proposed framework sufficiently addresses concerns about public utilization, in view of the Bayh-Dole goals of encouraging development and commercialization. Comments submitted by industry participants should shed light on this issue.
Three Key Takeaways
1. NIST's proposed framework for exercising the government's march-in rights for federally funded inventions is another step by the Biden-Harris Administration intended to increase competition in the health care industry and lower prescription drug costs.
2. The proposed framework seeks to use product price as a factor in evaluating whether to exercise government march-in rights.
3. In view of the proposed framework, collaboration between the biotech and pharmaceutical industry and universities and small biotech companies receiving federal funding may be chilled.
