United States: What You Need To Know About Retained Rights In Federally Funded Patented Drugs

The issue of drug pricing is top of mind

More than 50 members of Congress, led by Rep. Lloyd Doggett (D-TX), sent a letter to Secretary of Health and Human Services Sylvia Matthews Burwell and to National Institutes of Health (NIH) Director Francis Collins on January 11, 2016, urging the agencies "to utilize your existing statutory authority to respond to the soaring cost of pharmaceuticals" to address "price gouging" by pharmaceutical manufacturers. In particular, the members of Congress requested that NIH reverse its longstanding interpretation of the Bayh-Dole Act of 1980 and to now exercise statutory "march-in" rights to effectuate price controls on patented drugs developed in whole or in part with federal funds.

Secretary Burwell, testifying before the House Ways and Means Committee on February 10, 2016, was asked whether the letter was being given "thorough consideration." In response, Secretary Burwell stated: "Your letter we have received, thank you, and we are continuing to try and pursue every administrative option. We've proposed legislative and statutory changes as a part of the budget, but are looking at a wide array, of which we welcome your letter and your suggestions."

Although this congressional request has been resolved favorably to the licensees of patented drugs developed in whole or in part with federal funds (as we describe below), the issue of price substantiation and of balancing a drug's price with its impact on patient outcomes is very much top of mind for payers, including the federal government. This is the first in a series of alerts focused on little-known retained rights and what pharmaceutical manufacturers should be doing to support the price being charged for drugs.

The federal government's rights

The goals and objectives of the Bayh-Dole Act of 1980 are: "to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area." 35 U.S.C. §200.

To effectuate these goals and objectives, the act articulates rules governing the licensing of federal-government-owned inventions. In addition, in a significant change from the prior scheme of the government generally owning patentable inventions developed by contractors with the support of federal funds, the act grants rights to government contractors to elect title to inventions developed with federal funding. (These rights to retain ownership were expanded beyond small businesses and nonprofits by Executive Order 12591 in 1983.) The contractor then could advance and commercialize the inventions by licensing to third parties.

Safeguarding against the lack of use or misuse of retained ownership rights, the act also retains certain rights in the federal government. First, the federal funding agency retains "a nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world." 35 U.S.C. §202(c)(4). Second, the federal funding agency retains the right to request "the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances." 35 U.S.C. §203(a).

In the event the contractor, assignee or licensee refuses the request from the federal funding agency, under certain limited circumstances, the federal funding agency has the power to require the contractor, assignee or licensee to grant the license. This power, known as the "march-in" right, is available only in one of the following circumstances:

  • Because the contractor, assignee or licensee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use
  • To alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee or licensees
  • To meet requirements for public use specified by federal regulation, when such requirements are not reasonably satisfied by the contractor, assignee or licensees
  • Because the required agreement to manufacture the products substantially in the United States has not be obtained or waived, or because the licensee breaches the agreement. 35 U.S.C. §(a)(1-4)

Thus, while the contractor obtains title to the invention, that title is not absolute. The federal funding agency may either: (a) exercise its royalty-free rights in the invention for or on behalf of the federal government, or (b) assert its march-in rights to require the grant of a license to a third party. These federally retained rights are what are at issue both in the requests of the members of Congress to Secretary Burwell and Director Collins, and in a petition relating to the federally funded patented drug enzalutamide discussed below.

NIH's pronouncements on march-in rights with respect to drug pricing

Importantly to the bio-pharma industry—which often relies on the government for funding of novel technologies, or for collaborations to address emerging threats such as Zika and Ebola viruses—at no time since the enactment of the Bayh-Dole Act has NIH exercised its march-in rights. On five occasions, in response to requests that it exercise those rights, the NIH has issued determinations explaining its rationale for declining to exercise march-in rights. In three of those determinations, the requesters cited pricing as the basis for requesting the exercise of march-in rights.

The NIH has consistently determined that cost or pricing of inventions is not appropriately addressed through a march-in proceeding. In the first of the determinations, "In the Case of Novir® Manufactured by Abbott Laboratories, Inc. (2004)," the NIH stated:

Finally, the issue of the cost or pricing of drugs that include inventive technologies made using Federal Funds is one which has attracted the attention of Congress in several contexts that are much broader than the one at hand. In addition, because the market dynamics for all products developed pursuant to licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by NIH, the NIH agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices. The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively. [Italics added]

The second determination, "In the Case of Xalatan® Manufactured by Pfizer, Inc. (2004)," resulted in a very similar statement:

Finally, the issue of the cost or pricing of drugs that include inventive technologies made using Federal Funds is one which has attracted the attention of Congress in several contexts that are much broader than the one at hand. In addition, because the market dynamics for all products developed pursuant to licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by NIH, the NIH agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices. The issue of whether drugs should be sold in the United States for the same price as they are sold in Canada and Europe has global implications and, thus, is appropriately left for Congress to address legislatively. [Italics added]

More recently, in 2013, Novir® again was at issue in the determination "In the Case of Novir® Manufactured by AbbVie (2013)." Several public interest groups requested the NIH exercise march-in rights with respect to Novir primarily because of the drug's pricing. The requestors proposed two rules relating to price: (1) establishing a rebuttable presumption that the price for a drug in the US is not reasonable if it is greater than the price in seven of the 10 largest countries; and (2) requiring the secretary of HHS to grant licenses to third parties to use NIH funded inventions subject to the payment of a reasonable royalty and appropriate field of use. The NIH, in a determination signed by Director Collins, reached the following conclusion:

We do not think that the AbbVie pricing policies and pricing disparities between the United States and other countries trigger any of the four Bayh-Dole march-in criteria...

The NIH is sensitive to the impact of the pricing of drugs and their availability to patients. As in 2004, when similar pricing and availability issues were raised and discussed at public hearings, the NIH's role in the present case is limited to compliance with the Bayh-Dole Act, including its march-in criteria...

Drug pricing and patient access are broad and challenging issues in the United States. The NIH continues to agree with the public testimony in 2004 that the extraordinary remedy of march-in is not an appropriate means of controlling prices of drugs broadly available to physicians and patients. [Italics added]

Secretary Burwell recognized these prior precedents in her March 2, 2016, response to Rep. Doggett. In her response letter, Secretary Burwell stated:

The NIH considered using its march-in authority to address drug pricing concerns in 2004 for Novir® (ritonavir) and Xalatan® (latanoprost), and in 2013 for the pricing of Novir® a second time... In each review, the NIH considered whether the marketed drug met the statutory requirements to justify use of the march-in authority and determined that it did not." [footnotes omitted]

As the conclusion to her response, Secretary Burwell did note the following:

NIH considers the application of the march-in statute on a case-by-case basis, and is prepared to use its authority if presented with a case where the statutory criteria are met regarding the commercialization and use of an NIH-funded, patented invention, and where march-in could in fact alleviate health or safety needs, or address a situation where effective steps are not being taken to achieve practical application of the inventions. After consulting with the NIH, we believe the statutory criteria are sufficiently clear and additional guidance is not needed.

The issue is not closed, but the recent response is positive

In the meantime, the opportunity for NIH to change its long-held positon on the impropriety of exercising march-in rights to effectuate price controls on patented drugs developed with federal funds was put before the NIH. On January 14, 2016, Knowledge Ecology International and the Union for Affordable Cancer Treatment submitted a request to Secretary Burwell, Director Collins and Defense Secretary Ashton Carter. They requested that the federal government "use its rights in patents for the prostate cancer drug (enzalutamide), marketed under the brand name Xtandi by Japan-based Astellas Pharma... Specifically, we ask the Department of Health and Human Services (DHHS), National Institutes of Health (NIH), and/or the Department of Defense (DoD) to use its royalty-free rights in the relevant patents, or to grant this request for march-in rights." The basis for this request is that: "This is a product that has an average wholesale price (AWP) of $129,269 per year, and which is far more expensive in the United States than in other countries."

The requestors also make a broader request: "More generally, we ask the U.S. federal government to adopt the policy that the federal government will use its royalty free rights, or grant licenses under federal march-in rights, when prices in the United States are excessive, and/or higher than they are in high income foreign countries, and to apply that policy in this case for patents on enzalutamide."

With respect to this request relating to Xtandi, and in response to Secretary Burwell's March 2, 2016, letter, Rep. Doggett issued the following statement:

When Americans pay for research that results in a pharmaceutical, that drug should be available at a reasonable price. While establishing guidance to discourage widespread price gouging is clearly justified, I am pleased that the Administration is prepared to use existing authority on a case-by-case basis to address this problem.

It should do so immediately by responding favorably to the pending petition for Xtandi, a prostate cancer drug, which taxpayers funded through U.S. Army and NIH grants. A Japanese licensee, Astellas, is charging Americans $129,000 for this drug, which sells in Japan and Sweden for $39,000, and in Canada for $30,000. Nowhere in the world is it remotely as expensive in the United States. Licensing patents to competitors would mean lower drug prices through competition.

An unaffordable drug is 100% ineffective. Americans shouldn't have to choose between their lives and their livelihoods on this and many other outrageously priced pharmaceuticals.

Rep. Doggett's statement, however, fails to take into account the more than 10 years of consistent and repeated NIH determinations, as recited in Secretary Burwell's reply, that NIH does not have the authority to exercise its retained rights on the basis of pricing or cost. Secretary Burwell's reaffirmation of this position in her reply to Rep. Doggett should give some level of comfort to pharmaceutical manufacturers that are subject to federal retained rights.

However, the focus and attention on drug pricing is not likely to go away. In our next bulletin, we will address the key aspects of price substantiation that all pharmaceutical manufacturers should focus on, and for which they are developing their strategy and position.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
24 Oct 2017, Seminar, Washington, DC, United States

The Dentons Forum for Women Executives invites you to join us for a luncheon featuring guest speaker Liza Mundy, journalist and author. Ms. Mundy recently released her latest book, Code Girls, the riveting untold story of more than 10,000 spirited young American women who cracked German and Japanese codes to help win World War II.

27 Oct 2017, Seminar, New York, United States

Please join us for a milestone event, our 10th annual CLE Seminar for In-House Counsel.

1 Nov 2017, Seminar, Washington, DC, United States

Celebrate the 58th anniversary of Dentons' Government Contracts practice

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.