FTC Supports Marching In On Patent Rights As A Mechanism To Control Drug Prices

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Duane Morris LLP

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The Federal Trade Commission (FTC) has announced its support of the federal government's use of "march-in rights" as a mechanism to control the price of pharmaceuticals.
United States Intellectual Property

The Federal Trade Commission (FTC) has announced its support of the federal government's use of "march-in rights" as a mechanism to control the price of pharmaceuticals. The National Institute of Standards and Technology (NIST) late last year issued its "Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights" that would fundamentally change the use of march-in rights by allowing the government to exercise price control under the Bayh-Dole Act, which the FTC announced its support for last week. This shift is the latest effort by federal agencies to lower drug prices in the wake of President Joe Biden's Executive Order on Promoting Competition in the American Economy. See our previous Alert.

Key Takeaways

  • In the more than 40 years since the passage of the Bayh-Dole Act, the federal government has declined to use march-in rights to exercise price control over drugs and diagnostics developed with federal funding.
  • Critics of the exercise of march-in rights to exercise price control warn that it could disincentivize innovation or commercialization of research.
  • The NIST's draft framework is not final, but NIST is expected to issue a final framework in the coming months.
  • Drug and device developers should consult with experienced counsel to help them navigate this rapidly changing regulatory landscape.

What Is the Bayh-Dole Act?

Congress passed the Bayh-Dole Act in 1980. It allows academic institutions and small businesses to patent and license inventions they have made that were supported, at least in part, by federal funding. Before Bayh-Dole, the government took control of such patent rights. By empowering academic institutions and small businesses to patent and license inventions, the government incentivized commercialization of discoveries made with the help of federal funding.

The Bayh-Dole Act has a provision that allows the government to "march in" and require patent holders to license their inventions to additional companies. The idea is to ensure that the licensee makes good faith efforts to develop the technology into a useful product. The government has never exercised this right, likely because patent holders tend to actively monitor their licensees. University tech transfer offices, for example, can terminate the issued license and find a better partner to commercialize the federally funded technology.

What's New in the Draft Framework?

Under the Bayh-Dole Act, agencies can "march in" if one of these four scenarios are present:

  1. "the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention";
  2. "health or safety needs... are not reasonably satisfied by the contractor, assignee, or their licensees";
  3. "requirements for public use specified by Federal regulations... are not reasonably satisfied by the contractor, assignee, or licensees"; or
  4. The subject invention will not be manufactured in the United States.

The draft framework provides that an agency should consider three broad overarching questions when determining whether to exercise its march-in rights:

  1. Whether Bayh-Dole applies to the inventions at issue;
  2. Whether the above-listed statutory criteria for exercising march-in rights apply; and
  3. Whether the exercise of march-in rights would support the policy and objectives of Bayh-Dole.

The FTC's Support for the Draft Framework

The FTC commented on the NIST draft framework, praising the "expansive and flexible" approach. In its comment, the FTC focused in particular on the pharmaceutical industry, indicating that it viewed the draft framework as "an important check on companies charging Americans high prices for drugs that taxpayers funded." Specifically, the FTC expressed support for "marching in" on the basis of high prices in order to improve patient access to pharmaceuticals.

The FTC further used its comment as an avenue to highlight an additional area not addressed by the draft framework: patent thickets. The FTC urged agencies to address this issue using the "whole of government" approach to competition issues. According to the FTC patent thickets are threats to competition because they do not necessarily reflect true innovation but can, for example, delay generic or biosimilar entry. This statement aligns with the FTC's recent efforts to address what it views as improper listing of patents in the Orange Book.

What's Next?

The comment period on the draft framework expired shortly after the FTC's submission. In addition to the FTC's comment, NIST received several others, including from critics of the exercise of march-in rights who warn that marching in could be a disincentive to innovation or commercialization of research. NIST will review the comments it received and is expected issue a final framework in the coming months. Life sciences companies should consult with experienced counsel to help them navigate this rapidly changing regulatory landscape.

For More Information

If you have questions about this Alert, please contact Sarah O'Laughlin Kulik, Sean P. McConnell, Frederick R. Ball, any of the attorneys in our Antitrust and Competition Group, any of the attorneys in our Life Sciences and Medical Technologies Industry Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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