[author: Kevin E. Noonan]
Since 1980, the Bayh-Dole Act has encouraged, facilitated, and required universities and other recipients of Federal grant money to license inventions resulting from funded research for commercialization. While this has been one of the bedrocks upon which the biotechnology industry was built, and has enabled almost every research university to obtain patent protection on its technologies (instead of watching them be stolen by corporations foreign and domestic), it has never avoided opposition by "public interest" groups who believe that universities should not be engaged in profit-making ventures or that the U.S. citizenry should not have to pay businesses for inventions the public has already paid for. Of course, this argument ignores the relative financial contributions of the parties: while the Federally funded invention is the sine qua non of the commercial technology it is rarely enough, and (particularly in the pharmaceutical and biotechnology industries) the costs of research is vastly outweighed by the cost of development.
However, these concerns, as well as the concern that a company could license university and other Federally funded inventions and then suppress them motivated (in part) a section of the law that gave the government "march-in" rights. These rights, and the conditions triggering their exercise, are set forth in 35 U.S.C. § 203:
35 USC § 203 - March-in rights
(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require 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, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such—
[Indent2] (1) action is necessary because 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 in such field of use;
(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;
(3) action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or
(4) action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.
(b) A determination pursuant to this section or section 202 (b)(4) shall not be subject to chapter 71 of title 41. An administrative appeals procedure shall be established by regulations promulgated in accordance with section 206. Additionally, any contractor, inventor, assignee, or exclusive licensee adversely affected by a determination under this section may, at any time within sixty days after the determination is issued, file a petition in the United States Court of Federal Claims, which shall have jurisdiction to determine the appeal on the record and to affirm, reverse, remand or modify, as appropriate, the determination of the Federal agency. In cases described in paragraphs (1) and (3) of subsection (a), the agency's determination shall be held in abeyance pending the exhaustion of appeals or petitions filed under the preceding sentence.
Regulations on how these rights can be petitioned for exercise by the relevant Federal agencies (such as the National Institutes of Health) have been promulgated:
37 C.F.R. § 401.6 Exercise of march-in rights.
(a) The following procedures shall govern the exercise of the march-in rights of the agencies set forth in 35 U.S.C. 203 and paragraph (j) of the clause at § 401.14.
(b) Whenever an agency receives information that it believes might warrant the exercise of march-in rights, before initiating any march-in proceeding, it shall notify the contractor in writing of the information and request informal written or oral comments from the contractor as well as information relevant to the matter. In the absence of any comments from the contractor within 30 days, the agency may, at its discretion, proceed with the procedures below. If a comment is received within 30 days, or later if the agency has not initiated the procedures below, then the agency shall, within 60 days after it receives the comment, either initiate the procedures below or notify the contractor, in writing, that it will not pursue march-in rights on the basis of the available information.
(c) A march-in proceeding shall be initiated by the issuance of a written notice by the agency to the contractor and its assignee or exclusive licensee, as applicable and if known to the agency, stating that the agency is considering the exercise of march-in rights. The notice shall state the reasons for the proposed march-in in terms sufficient to put the contractor on notice of the facts upon which the action would be based and shall specify the field or fields of use in which the agency is considering requiring licensing. The notice shall advise the contractor (assignee or exclusive licensee) of its rights, as set forth in this section and in any supplemental agency regulations. The determination to exercise march-in rights shall be made by the head of the agency or his or her designee.
(d) Within 30 days after the receipt of the written notice of march-in, the contractor (assignee or exclusive licensee) may submit in person, in writing, or through a representative, information or argument in opposition to the proposed march-in, including any additional specific information which raises a genuine dispute over the material facts upon which the march-in is based. If the information presented raises a genuine dispute over the material facts, the head of the agency or designee shall undertake or refer the matter to another official for fact-finding.
(e) Fact-finding shall be conducted in accordance with the procedures established by the agency. Such procedures shall be as informal as practicable and be consistent with principles of fundamental fairness. The procedures should afford the contractor the opportunity to appear with counsel, submit documentary evidence, present witnesses and confront such persons as the agency may present. A transcribed record shall be made and shall be available at cost to the contractor upon request. The requirement for a transcribed record may be waived by mutual agreement of the contractor and the agency. Any portion of the march-in proceeding, including a fact-finding hearing that involves testimony or evidence relating to the utilization or efforts at obtaining utilization that are being made by the contractor, its assignee, or licensees shall be closed to the public, including potential licensees. In accordance with 35 U.S.C. 202(c)(5), agencies shall not disclose any such information obtained during a march-in proceeding to persons outside the government except when such release is authorized by the contractor (assignee or licensee).
(f) The official conducting the fact-finding shall prepare or adopt written findings of fact and transmit them to the head of the agency or designee promptly after the conclusion of the fact-finding proceeding along with a recommended determination. A copy of the findings of fact shall be sent to the contractor (assignee or exclusive licensee) by registered or certified mail. The contractor (assignee or exclusive licensee) and agency representatives will be given 30 days to submit written arguments to the head of the agency or designee; and, upon request by the con- tractor oral arguments will be held before the agency head or designee that will make the final determination.
(g) In cases in which fact-finding has been conducted, the head of the agency or designee shall base his or her determination on the facts found, together with any other information and written or oral arguments submitted by the contractor (assignee or exclusive licensee) and agency representatives, and any other information in the administrative record. The consistency of the exercise of march-in rights with the policy and objectives of 35 U.S.C. 200 shall also be considered. In cases referred for fact-finding, the head of the agency or designee may reject only those facts that have been found to be clearly erroneous, but must explicitly state the rejection and indicate the basis for the contrary finding. Written notice of the determination whether march-in rights will be exercised shall be made by the head of the agency or designee and sent to the contractor (assignee of exclusive licensee) by certified or registered mail within 90 days after the completion of fact-finding or 90 days after oral arguments, whichever is later, or the proceedings will be deemed to have been terminated and thereafter no march-in based on the facts and reasons upon which the proceeding was initiated may be exercised.
(h) An agency may, at any time, terminate a march-in proceeding if it is satisfied that it does not wish to exercise march-in rights.
(i) The procedures of this part shall also apply to the exercise of march-in rights against inventors receiving title to subject inventions under 35 U.S.C. 202(d) and, for that purpose, the term ''contractor'' as used in this section shall be deemed to include the inventor.
(j) An agency determination unfavorable to the contractor (assignee or exclusive licensee) shall be held in abeyance pending the exhaustion of appeals or petitions filed under 35 U.S.C. 203(2).
(k) For purposes of this section the term exclusive licensee includes a partially exclusive licensee.
(l) Agencies are authorized to issue supplemental procedures not inconsistent with this part for the conduct of march-in proceedings.
Last Thursday, four groups (the American Medical Students Association (AMSA), Knowledge Ecology International (KEI), U.S. Public Interest Research Group (PIRG), and the Universities Allied for Essential Medicines (UAEM)) filed a petition with the NIH requesting the agency to exercise these march-in rights over the anti-AIDS drug ritonavir, exclusively sold by Abbott Laboratories. This is but the fifth petition filed under the law, and none of them have been successful. Before discussing the latest petition it will be helpful to review the circumstances and histories of the other petitions, all to the NIH, to discern the agency's reasoning for refusing to march-in in those instances.
The first petition was by the start-up company CellPro, which produced a device (the Ceprate SC) for segregating hematopoietic stem cells from mixtures of cells containing not only stem cells but, most importantly, leukemia, lymphoma, and other blood cancer cells, thus enabling autologous reimplantation of hematopoietic stem cells in patients whose bine marrow had been irradiated to treat such cancers. (The CellPro story, not surprisingly told not dispassionately by the company founder, Rick Murdock, in Patient No. 1: A True Story of How One CEO Tool on Cancer and Big Business in the Fight of His Life, New York: Crown Publishers 2000) CellPro was sued by Baxter International and Johns Hopkins University, licensee and owner, respectively, of patents (U.S. Patent Nos. 4,965,680; 5,130,144; 5,035,994; and 4,965,204) directed to monoclonal antibodies specific for antigens uniquely expressed on the stem cell surface. After losing in the district court, CellPro faced an injunction that, while permitting the company to stay on the market until Baxter could get FDA approval on a competing device, was subject to a 100% (later reduced to 60%) royalty on its "incremental profits." CellPro petitioned Donna Shalala, Secretary of Health and Human Services in the Clinton administration, alleging that Baxter and Hopkins had failed the provisions of § 203(a)(1) and (2), for not having obtained FDA approval for its competing device in development and for obtaining an injunction that would remove the Ceprate SC device from the marketplace. The petition was supported in public hearings by testimony (written and oral) by physicians attesting to the use and benefits of the device, and the negative medical consequences that would ensue.
Nonetheless, the NIH (headed at the time by Nobel Laureate Harold Varmus) refused to exercise its march-in rights. In its refusal, the agency stated that it had considered whether Baxter had failed to commercialize and decided it had not failed, based on the totality of their development and regulatory approval activities but disregarding the fact that those activities did not result in a commercial, FDA-approved product. With regard to whether there was an "unmet public health or safety need," the agency again decided not to exercise the rights, based on the "considerable debate among scientists and clinicians" regarding whether the function of the Ceprate device (immunoselection of [hematopoietic] stem cells prior to [bone marrow] implantation) was beneficial. Thus, the agency decided it was "premature" for either CellPro or Baxter to claim clinical benefit (although this was presumably at least one basis for FDA approval). Baxter's agreement to permit CellPro to remain on the market (albeit under draconian royalty terms) was also a factor, and that CellPro did not introduce sufficient evidence that Baxter could not satisfy the medical need in the face of Baxter's averments that they could satisfy the market (including replacing any Ceprate devices removed from the market). The agency also enunciated something close to a philosophy about attempts to have it exercise march-in rights under circumstances of a dispute between private parties: the agency was wary of:
Forced attempts to influence the marketplace for the benefit of a single company, particularly when such actions may have far-reaching repercussions on many companies' and investors' future willingness to invest in federally funded medical technologies. The patent system, with its resultant predictability for investment and commercial development, is the means chosen by Congress for ensuring the development and dissemination of new and useful technologies. It has proven to be an effective means for the development of health care technologies. In exercising its authorities under the Bayh-Dole Act, NIH is mindful of the broader public health implications of a march-in proceeding, including the potential loss of new health care products yet to be developed from federally funded research.
Finally, however, the agency reserved the right to "monitor the situation" to determine if the factual grounds for its decision proved true.
In 2004 a group called Essential Inventions filed a petition based not on private interests but on what it characterized as the "public interest" for lower prices on the HIV protease inhibitor ritonavir, sold by Abbott as Norvir® (the same drug that is the subject of the latest petition). The factual basis for the petition was that Abbott had increased the price of the drug by ~400%. In this case, there was no university party involved; Abbott had been funded by research monies from the Reagan administration in an effort to develop more effective anti-AIDS drugs. The patents at issue (U.S. Patent Nos. 5,541,206; 5,635,523; 5,648,497; 5,674,882; 5,846,987; 5,886,036) were the same patents that are the subject of the current petition, as was the basis in the statute: that the requirement for licensing on "reasonable terms" ("upon terms that are reasonable under the circumstances") was violated by Abbott's pricing for Norvir®. (It should be noted that this portion of the statute would appear to refer to the licensing terms between the "contractor" and the licensee and not to be related to the price the licensed drugs are sold for.) This argument is supported by a 2001 law review article by Arno & Davis (Peter S. Arno & Michael H. Davis, Why Don't We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed upon Patents Derived in Whole or in Part from Federally Funded Research, 75 Tulane L. Rev. 631, 660-661 (2001)), that argued that the legislative history and "purpose" of the Bayh-Dole Act indicated that price was part of the "reasonable terms" requirement. The petitioners suggested a smorgasbord of remedies, including a 5% royalty, calculated on generic price; a requirement that "every manufacturer " contribute to R&D Funds for AIDS; that the NIH adopt the "Commonwealth" model of open licensing; and that these licenses include the right to distribute worldwide (disregarding that the NIH had not authority to countenance patent infringement in other countries). The NIH held public hearings and received written and oral testimony from a "variety of groups and individuals representing universities, the AIDS community, pharmaceutical interests, drafters of the Bayh-Dole Act, and other interested parties." Again, despite these arguments (including arguments that Abbott's pricing was preventing state government agencies from providing Norvir® to patients), the NIH again refused to exercise its march-in rights, saying:
[T]he 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.
(Interestingly, as a result of this petition, Abbott agreed to exempt governmental purchasers, both Federal and state, from the price increase, a circumstance raised in the most recent petition.)
Essential Inventions filed another petition in 2005, this time involving Pfizer's glaucoma drug Xalatan®. The grounds for this petition were also drug price but here the actual costs ($64/4-6 week supply) were much less than the costs for Norvir® (up to ~$14,000/year). In this case, the drug was developed by researcher at Columbia University (owner of U.S. Patent No. 4,3599,35) and licensed exclusively to Pfizer; the NIH noted that there were other patents owned by Pfizer that relate to the drug but are not covered by march-in rights. Petitioners compared the cost of the drug in the U.S. with costs in Canada and several European countries (and disregarded the fact that the comparison is with countries having government-subsidized medical systems). The petitioners proposed substantially the same terms for licensing under the exercise of the NIH's march-in rights for this drug as they had for Norvir® and the NIH refused to exercise the rights for essentially the same reasons (repeating verbatim its opinion that controlling drug prices was something best left to Congress).
The most recent petition arose under circumstances where the exclusive licensee, Genzyme, developed manufacturing difficulties that severely reduced the availability of its licensed drug for treating Fabray's disease, Fabrazyme®. The petition was filed on behalf of three patients (Joseph M. Carik, Anita Hochendoner, and Anita Bova) and alleged as the basis for exercise of march-in rights that Genzyme could not adequately satisfy the public health need for the drug. Here, the drug, agalsidase beta, was developed at Mt. Sinai School of Medicine (owner of U.S. Patent No. 5,356,804) and exclusively licensed to Genzyme. The petitioner requested an "open" license (citing such licenses granted by IBM as part of computer standard setting and by Microsoft as part of the settlement of the government's antitrust action against that company), and also wanted any such license to extend to commercial "know-how" including recombinant cell lines expressing the drug. The NIH once again refused to exercise its march-in rights, in this case on the grounds that permitting other licensees under march-in would not solve the problem, due to the time needed (for clinical studies and regulatory approval) to get the drug to market (see "HHS Denies Request to Exercise Bayh-Dole 'March-in' Rights for Fabrazyme"). The agency also cited the diligence exhibited by Genzyme in addressing the problem and planning to have full production sufficient to satisfy the patient population within about 24 months from when the manufacturing difficulties arose. The agency also noted that there were "at least 5 other companies worldwide are [] engaged in commercial development of alternative treatments" that would not need to license Mt. Sinai's patents to enter the marketplace.
In the latest petition, the allegations again involve the cost of Abbott's Norvir® to U.S. patients. In view of the agreement following the 2004 petition that has Abbott selling the drug to state and Federal government agencies at reduced cost (i.e., not subject to the ~400% price increase), the petition focuses on the impact of these costs on private parties. In this regard the petitioners argue that, in view of the financial crisis, these high[er] drug costs were "undermining the international competitiveness of [U.S.] employers" and harming the economy (leaving unsaid the hope for a different outcome from a different administration). The economic aspect of the argument is accented by a quotation from a speech by President Obama to the AMA on June 15, 2009, where he said, inter alia, that the cost of health care "is a threat to our economy." Specifically, the petition argues that:
While at one point in time the U.S. economy was so healthy and dominant it could ignore such concerns, this is no longer the case. The U.S. economy as a whole is now smaller than the combined economy of the members of the European Union. Between 1970 and 2011, the U.S. share of the global GDP declined from 35 percent to 22 percent, and the U.S. share of high-income country GDP has declined from 45 percent to less than 34 percent.
With the current financial crisis, U.S. unemployment is at high levels, our share of global GDP has shrunk sharply since 2000, and we no longer can afford the luxury of paying more for drugs invented on NIH grants than do our trading partners in other high income countries.
The petition asks for two specific remedies to be imposed "without prejudice to" further march-in rights in response to "anticompetitive, abusive or unfair practices" by a licensee. These remedies are:
• A ceiling on prices for U.S. residents, to be imposed when US prices for a drug higher than 7 of 10 comparison countries, among "high income" countries as determined by the World Bank, or prices for U.S. residents, to be imposed when are 10% higher than the median price in those countries (these circumstances would be "presumptively not reasonable" under the statute); and
• Licenses specific for use of a patented invention in the development of a "dependent" technology, such as a co-formulation of a patented drug with another drug.
In addition, the petition requests imposition of "open" licensing for the drug under the agency's march-in rights provisions. Petitioners suggest two additional "legal mechanisms" for achieving these ends: royalty-free government license (involving participation by the government in drug distribution, etc.) and the grant of government licenses to third parties.
In addition to the public health and unreasonable licensing grounds for the petition, petitioners further argue that the Americans with Disabilities Act (as it has been interpreted by the Equal Employment Opportunities Commission) and the PPACA (the "healthcare law") impose requirements on employers that implicate the provisions of § 203(a)(3) that allow the agency to exercise march-in rights to permit compliance with Federal regulations. The petitioners clearly are using this case as a stalking horse for a more extensive assault on drug prices, noting that there are several other drugs that they believe should be subject to the price ceiling and open licensing, including sitagliptin (Januvia®) and Tobrex® (ophthalmic tobramycin). Finally, the petition asserts the policy rationale that "[t]he failure to grant a single march-in request in more than 30 years has sent a signal to the patent holder that the NIH will permit almost anything, no matter how abusive that action is to the public that paid for the research."
Under the relevant regulations, the agency has 60 days to make a decision, which would occur after the election and may provide a Christmas present for the petitioners. One fact is clear: consumers of technology, not producers, are motivated to exercise the relevant provisions in the law to influence government to provide extra-agency regulation of the drug marketplace and to essentially chose the economic "winners" and "losers" in so doing. It is well to remember how famously government control of markets failed during the major part of the last century, during a time when the West was experiencing technological and economic rejuvenation after a century of world warfare. In a particular instance there may be a justification for the government to use its march-in rights to protect the public health, such as an epidemic or natural disaster, or when a company harms the public health by preventing commercialization of technology (something truly contrary to the "purpose" of the Bayh-Dole Act). Prudence suggests, however, that government regulation of drug prices should occur only under circumstance where there is government regulation of everything else, and that that eventuality should arise sparingly and rare.
