By Hideki Tomoshige and Sujai Shivakumar
By accelerating new products to market, the nation’s innovation system—a network of interconnected activities across university researchers, small and large businesses, and venture capital and other financial organizations, among other actors—enhances economic growth, competitiveness, and national security. Securing the future of this innovation system should therefore be a national priority.
The Bayh-Dole Act, enacted in 1980, is a key pillar of this innovation system. In essence, it allows institutions and other grant recipients to hold patents on inventions that stem from government-funded research, enabling them to license the rights to those inventions to private sector partners who can then commercialize them. In this way, Bayh-Dole created an incentive for private sector development and commercialization of federally funded research and development (R&D). It decentralized technology management to universities and businesses that invented technologies catalyzed by government support.
Since it was enacted in 1980, the act has led to over $1.3 trillion in U.S. economic growth, created more than 4.2 million jobs across the country, and contributed to the success of over 11,000 new start-up companies from universities throughout the United States. Bayh-Dole continues to encourage American entrepreneurship today, helping to strengthen the nation’s innovative capacity.
Bayh-Dole also provides safeguards to ensure protection against non-use or improper use of federally funded innovations. One of these safeguards, the march-in right, authorizes federal agencies to require patent owners to provide licenses to “any responsible entity or entities” if they determine that the licensee is not moving to commercialize the technology or that the action is necessary to protect public health or safety.
For decades some members of Congress and some academic observers have argued that federal agencies should make use of march-in rights in cases where the product of a federally funded innovation is seen as overpriced, particularly for prescription drugs. But in 2002, former senators Birch Bayh and Bob Dole, the sponsors of the Bayh-Dole Act, stated in an editorial that “Bayh-Dole did not intend that government set prices on resulting products. The law instructs the government to revoke such [patent] licenses only when the private industry collaborator has not successfully commercialized the invention as a product.” The senators’ statement underscores the fact that Bayh-Dole was enacted to spur innovation, not to serve as a price regulation function.
Current attempts to extend the federal government’s march-in authority to include market price for the purpose of controlling drug prices, outlined in a request for information (RFI) published by the National Institute of Standards and Technology (NIST) are therefore troubling. Specifically, the government proposes to exercise its march-in right when it deems that a drug, which at some point in its development was supported by federal funding, is being sold at an “unreasonable” or “extreme and unjustified” price. The idea is that by exercising this right, the government would grant intellectual property rights to another company in the hope that that alternative company would offer the drug at a lower price.
This proposal should be rejected. In the first place, it will not significantly lower drug prices. Drugs derived from patents developed with federal funds account for less than 10 percent of all drugs in the United States. Corporations developing products based on discoveries arising from federally funded research also invest substantially more than the government contributed, and conduct further research, product development, clinical trials and product performance validation, manufacturing technology development, and distribution infrastructure deployment, resulting in entirely new portfolios of privately owned intellectual property. Using march-in rights to control drug prices will not effectively achieve the desired policy outcome because of the limited impact on overall drug prices.
Second, the proposal has the potential to negatively disrupt the U.S. innovation system widely. Beyond attempting to control drug prices, the proposed rule amendments would expand the federal government’s march-in authority across all sectors of the economy, allowing federal agencies to challenge patents developed with federal funds across all market sectors on the basis of product price. The NIST RFI outlines potential scenarios involving patents ranging from 3D printing technology to vehicle-to-everything communications technology, face masks, and water purification technology.
Third, employing march-in rights as a means of price control creates an uncertain environment surrounding the commercialization of university research, given the lack of clear guidelines for federal officials when it comes to determining whether the market price of an innovation is “unreasonable” or “extreme and unjustified.” This uncertainty would have several adverse effects on the U.S. innovation system that would manifest in the following ways.
Conclusion
The Bayh-Dole Act boosted technology transfer between academia and industry. The proposed framework for exercising march-in rights could undo the act’s benefit. Alternative approaches potentially exist to address drug pricing challenges while avoiding the pitfalls of using march-in rights. For instance, the Inflation Reduction Act of 2022 included a new measure to prevent drug price hikes beyond inflation rates, and Executive Order 14036 aimed to bolster antitrust enforcement, seeking to foster enhanced competition in the market.
Indeed, the proposed march-in rights framework poses a direct threat to U.S. national security and competitiveness. The Bayh-Dole Act is a cornerstone of global innovation policy, and the NIST proposal to invoke federal march-in rights at the government’s discretion to address what it deems to be unfair market prices would pose a self-inflicted harm on a key foundation of American innovation.
Hideki Tomoshige is an associate fellow with the Renewing American Innovation (RAI) Project at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Sujai Shivakumar is director and senior fellow of the RAI Project at CSIS.
This piece was originally published on May 23rd, 2024 with the Renewing American Innovation (RAI) Project at the Center for Strategic and International Studies (CSIS).
