International report - The federal government's march-in right: what does it mean for your intellectual property? 07 Dec 16
Baker Donelson - USA
Academic research has been the catalyst for inventions that have improved quality of life. Noteworthy examples include Clearfield rice (Louisiana State University), the nicotine patch (University of California) and anti-histamine drug Allegra (Georgetown). Although academia remains a source of technologies ripe for commercial R&D, there is growing concern that the federal government will utilise a never-before-used provision in the Bayh-Dole Act 1980 to control the skyrocketing cost of medications stemming from federally funded research.
Historically, the federal government has been the primary funding agency of academic research, providing approximately 60% of funds spent by academic institutions (through the American Association for the Advancement of Science (AAAS) and the National Science Foundation). However, not until the passing of the Bayh-Dole Act did federally funded inventions have a clear path to commercialisation. Encouraging the development and commercialisation of federally funded inventions in an effort to stimulate the economy, the Bayh-Dole Act (sponsored by Senators Birch Bayh of Indiana and Bob Dole of Kansas) gives academic institutions and small companies first rights to ownership (and thus control of the commercialisation process) of inventions developed with the assistance of federal research dollars. Incentivising the commercialisation of federally funded inventions, academic institutions and small companies can benefit from any royalties that result from commercialisation of the subject invention. In return for electing title of such inventions, the academic intuition agrees to abide by several provisions, such as patent application filing provisions, reporting provisions and manufacturing provisions.
One such provision, commonly referred to as the federal government's march-in right, allows the funding agency to 'march in' to the institution-controlled commercialisation process and require licences for a federally funded invention to be granted, or to grant licences itself, if certain circumstances are met.
Federal march-in rights are particularly concerning to exclusive licensees of federally funded inventions as the federal government seemingly has the power to eliminate any market edge that is provided by an exclusive licence simply by marching in.
Recently, the government's march-in right has been in the spotlight as the cost of drugs continues to skyrocket. Proponents for the use of the march-in right to control drug costs argue that the high cost of therapeutics limits the availability of such federally funded inventions, and thus such inventions are not available to the public on reasonable terms. Opponents argue that the federal march-in right was never intended to be a cost-controlling measure, but instead was intended to stimulate the commercial development of federally funded inventions. As a major provider of research dollars for the development of such inventive treatments (AAAS), the National Institute of Health (NIH) is at the centre of this debate. At present, the NIH has received five such march-in requests and has denied every one, maintaining the stance that the march-in right is not a cost control measure but rather a measure to ensure federally funded inventions are being made available to the public. In response to the most recent march-in request, NIH Director Francis Collins cited the increasing sales of the prostate cancer drug Xtandi as evidence of the invention's availability to and use by the public (see Collins' letter in response to the Xtandi petition).
So what does this mean to licensees of federally funded inventions? Provided that the licensee can demonstrate that it is working to make the technology available to the public, the federal march-in right should not be of serious concern. In fact, of the five march-in requests received by the NIH, all but one were denied outright without even a hearing (the 2004 Ritonavir case). It must be noted that in the more than 36 years of the Bayh-Dole Act, no federal agency has exercised its march-in rights.
Of course, the Bayh-Dole Act can be replaced or amended, which some have called for, and the focus of the federal government can change. Should the federal government march in on an exclusive licence, there will be a ripple effect throughout many industries. For example, a pharmaceutical company may no longer be interested in licensing a promising therapeutic compound developed with federal funds for fear of the federal government marching in if the cost of the product is too high. On the other hand, academic institutions may no longer invest resources and energy to participate in the commercialisation process if they cannot find a licensee, simply leaving once promising inventions to languish. However, the biggest effect will be felt by the general public, as they will no longer benefit from the research their tax dollars have funded for decades.
However, for the moment the Bayh-Dole Act and its original intention – encouraging the development and commercialisation of federally funded inventions – continues to be on solid ground, and academic institutions continue to be fertile grounds for innovative technologies.
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