The 1980 Bayh-Dole Act is named after two former US Senators, Birch Bayh and Bob Dole. In 2002 both claimed the Bayh-Dole Act march-in provisions were not intended to address cases where prices for inventions are unreasonable, and Senator Bayh repeated this view during a 2004 march-in case involving Abbott patents on ritonavir.
Among the provisions of the Act that suggest otherwise are the following:
35 U.S.C. 200 Policy and objective. “. . . 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;’
35 USC § 203 – March-in rights . . . “The Federal agency under whose funding agreement the subject invention was made shall have the right . . . to grant a nonexclusive, partially exclusive, or exclusive license in any field of use . . . if the Federal agency determines that such—
- (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.
35 USC § 201 – Definitions
- (f) The term “practical application” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.
Birch Bayh is a former Democratic Senator from Indiana. He was defeated by Dan Quayle in the 1980 election. After leaving the Senate he became a beltway lawyer/lobbyist. Bob Dole left the US Senate 1996, and he also became a beltway lawyer/lobbyist, as well as a star in Pfizer ads for Viagra.
In Bayh’s case, his views appear to have evolved, with the interests of his clients.
In a March 3, 1997 petition, Birch Bayh and Lloyd N. Cutler asked DHHS Donna E. Shalala to grant a march-in license to CellPro, Inc., a small Washington State firm manufacturing an FDA medical device that was used in bone marrow transplants. Cellpro was involved in litigation over alleged infringement of patents granted to Johns Hopkins University, which Hopkins had subsequently licensed to a Cellpro competitor. In the March 3, 1997 petition, Bayh and Cutler focused on the above quoted provisions in 35 USC 203(a)(1-4), and in the discussion of the reasonable terms for licensing the invention, made it clear that the Secretary could and should consider the impact of licensing polices on the prices faced by consumers.
The Honorable Donna E. Shalala
Department of Health and Human Services
200 Independence Avenue, S.W.
Washington, D.C. 20201
Dear Secretary Shalala:
Under the Bayh-Dole Act, 35 U.S.C. 9 200 et sea., the Secretary of Health and Human Services has the authority to issue licenses under privately owned patents to inventions developed as a result of government-financed research. We are writing to request your action pursuant to that Act to ensure that an important new medical product will be available for use in this country.
As discussed in more detail below, the exclusive private licensee of rights under a patent that resulted from federally-funded medical research is threatening to force removal from the market of our client’s allegedly infringing product that recently received FDA approval for use in bone marrow transplantation to treat breast cancer and related diseases. The exclusive licensee’s own efforts to develop a product for such use has not resulted in an FDA approved product and may never do so. Nevertheless, the licensee has refused to license our client’s product on reasonable terms and is taking the position that its approved product should be subject to an injunction preventing its use. These are the precise circumstances in which Congress provided in 35 U.S.C. 203 for the exercise of “march in” rights to protect the public interest. Accordingly, on behalf of our client, CellPro, Incorporated, the company whose product has been approved by the FDA, we ask that you exercise those rights to require that a license be issued to the extent necessary to ensure that the product remains on the market or, if necessary, issue such a license yourself.
. . .
In enacting Bayh-Dole, Congress made the judgment that policy objectives of commercializing the results of federally-funded research were better served by allowing federal nonprofit grantee institutions like Johns Hopkins to obtain and hold patent rights, with exploitation of inventions generally left to the nonprofits’ licensing programs and competitive forces. At the same time, however, Congress recognized that in particular cases the public interest might require government action and therefore included in the Act ‘march-in’ provisions “to ensure that the Government obtains sufficient rights in federally supported inventions to . . . protect the public against nonuse or unreasonable use of inventions.” . . .
To carry out these federal policies, the Bayh-Dole Act provides that a Federal agency may exercise its march-in rights and require the exclusive licensee of an invention made with Federal funds to issue a license to a responsible applicant’s “upon terms that are reasonable under the circumstances” if the Federal agency determines that
(a) 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; [or]
(b) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees. 35 U.S.C. 203.
In the present instance, both of these statutory bases have plainly been met.
As to the question of reasonable license terms, there are fortunately several clear benchmarks on which the agency can rely. First, Baxter itself initially offered (before attempting to extract exclusive distribution rights over CellPro products) a license based on a lump sum payment of $750,000 and a 16% royalty on antibody sales or the antibody content of other products. Baxter also entered into nonexclusive licenses on essentially these same terms with two competitors of CellPro (though neither of those firms has in fact developed a product). This, CellPro submits, should set a cap on what could be regarded as “reasonable under the circumstances.”
In fact, the circumstances — and the interests of the public which paid for the research that led to the patents and is now being asked to pay again — cry out for a far lower royalty payment by CellPro.
CellPro submits that there may well be reason for the government to adopt regulations covering situations like the present where the same product may be claimed to be covered by patents arising out of work done by more than one federal grantee. Moreover, investigation may be needed to determine whether the royalty layering that plainly exists in the present case . . . is a common problem that leads to unreasonably high royalties (and prices of medical care) that should be dealt with by regulation.
. . .
Baxter has threatened to require CellPro to remove the Ceprate products from the market on the basis of patents issued to Johns Hopkins that are governed by the Bayh-Dole Act. In doing so, Baxter threatens the welfare and very lives of many individuals who need bone marrow transplants and whose suffering could be lessened and whose lives could be saved with these products. The Secretary has the authority under the applicable law and regulations to avoid this result, and on behalf of CellPro, we urge that you take immediate steps to do so. We would also appreciate the opportunity to meet and discuss this request with Health and Human Services and NIH staff at the earliest possible opportunity.
Very Truly Yours
Lloyd N. Cutler
Bayh and Cutler also enlisted consider support among members of Congress in support of the march-in petition, but Johns Hopkins and Baxter Health Corp mobilized the opposition, and August 1, 1997 the NIH announced the petition was rejected.
On June 14, 2001, Birch Bayh joined Venable Baetjer Howard & Civiletti as a partner, where he focused on “the firm’s growing public policy advocacy practice.”
In addition to his work as a pitchman for Pfizer’s erectile dysfunction drug Viagra, Bob Dole was working for the law firm Verner, Liipfert, Bernhard, McPherson and Hand, whose lobbying clients included included such companies as Amgen, American Biosystems, Biovail, Eli Lilly, and Genetech as well as trade association such as the Intellectual Property Owners Association and PhRMA.
On March 27, 2002, five years after the Cellpro case and less than a year after Bayh joined Venable, Professors Peter Arno and Michael Davis published an editorial in the Washington Post, with the title: “On Paying Twice for the Same Drugs.” The Washington Post guest editorial presented to a wider audience a paper published earlier in the Tulane Law Review, under the title: “Why Don’t We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed upon Patents Deriving in Whole or in Part from Federally Funded Research,” Tulane Law Review, Vol 75:631, 2001. In both the law review and the Washington Post editorial page, Arno and Davis argued the Bayh-Dole act march-in provisions appy when new drugs “invented wholly or in part with federal funds” are not “made available to the public at a reasonable price.”
Bayh-Dole is a provision of U.S. patent law that states that practically any new drug invented wholly or in part with federal funds will be made available to the public at a reasonable price. If it is not, then the government can insist that the drug be licensed to more reasonable manufacturers, and, if refused, license it to third parties that will make the drug available at a reasonable cost.
The federal government is supposed to manage the public’s investment in the pharmaceutical industry, but it doesn’t. Although Bayh-Dole has been in place for 20 years, the government has never enforced it — not even once. That, despite the AIDS crisis at home and abroad, despite the millions of elderly and chronically ill Americans in need of affordable prescription drugs and the 40 million others who have no health insurance coverage whatever — and despite the general hand-wringing over the skyrocketing costs of pharmaceuticals.
Why is the federal government such an irresponsible investor of public funds? First, the government agencies responsible for implementing Bayh-Dole either do not understand the law or are reluctant to exercise their responsibilities. In particular, the National Institutes of Health prefers to avoid pricing issues and to remain within the loftier realms of research. Some of NIH’s repeated public statements over the years indicate an astonishing and continuing ignorance of the Bayh-Dole provisions.
The Arno Davis article attracted considerable attention to this issue, and also mobilized a joint response from both Bayh and Dole in a letter to the editor of the Washington Post. Bayh and Dole claiming Arno and David “mischaracterized the rights retained by the government” and claiming that it was “intentional” that the Act made “no reference to a reasonable price.”
Birch Bayh and Bob Dole, letter to the Editor, The Washington Post, Apr 11, 2002
Our Law Helps Patients Get New Drugs Sooner
As co-authors of the Bayh-Dole Act of 1980, we must comment on the March 27 op-ed article by Peter Arno and Michael Davis about this law.
Government alone has never developed the new advances in medicines and technology that become commercial products. For that, our country relies on the private sector. The purpose of our act was to spur the interaction between public and private research so that patients would receive the benefits of innovative science sooner.
For every $1 spent in government research on a project, at least $10 of industry development will be needed to bring a product to market. Moreover, the rare government-funded inventions that become products are typically five to seven years away from being commercial products when private industry gets involved. This is because almost all universities and government labs are conducting early-stage research.
Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional; the primary purpose of the act was to entice the private sector to seek public-private research collaboration rather than focusing on its own proprietary research.
The article also mischaracterized the rights retained by the government under Bayh-Dole. The ability of the government to revoke a license granted under the act is not contingent on the pricing of a resulting product or tied to the profitability of a company that has commercialized a product that results in part from government- funded research. The law instructs the government to revoke such licenses only when the private industry collaborator has not successfully commercialized the invention as a product.
The law we passed is about encouraging a partnership that spurs advances to help Americans. We are proud to say it’s working.
The writers are, respectively, a former Democratic senator from Indiana and a former Republican senator from Kansas.
As is the custom for the Washington Post (and most other newspapers), the April 11, 2002 letter to the editor from Bayh and Dole does not disclose if either of the former Senators had competing interests. Would it have made a difference to the readers if the Washington Post article was accompanied with a note that explained that both Bayh and Dole were working for firms that had several drug companies as clients? Probably so.
In 2004, Essential Inventions petitioned the Department of Health and Human Services to issue compulsory licenses under the Bayh-Dole “March-In” procedures for patents on two US government-funded pharmaceutical inventions: Abbott’s Norvir (INN: ritonavir) and Pfizer’s Xalatan( INN: latanoprost). In both cases, one of the grounds was the fact that the products were available in the US at prices far higher than prices charged in other high income countries. These 2004 cases were the first to come before the NIH where the pricing of the product was the primary focus.
Birch Bayh provided a written statement to the NIH, and appeared in person at a May 25, 2004 NIH meeting where the Essential Inventions petition for ritonavir was discussed. As the petitioner, I was at the NIH meeting, and listened as Bayh began his testimony by claiming “no one” had paid him to attend the meeting. While it was hard to know for sure if anyone had paid Bayh for his time on that specific day, it was a matter of public record that Venable, the firm where he was a Partner, represented Abbott, the target of the March-in request. The NIH meeting was widely reported in the press. Would it have made a difference if Bayh had disclosed his firm actually represented Abbott? I think it would have.
During the May 25, 2004 meeting, and in his written Statement, Bayh repeated the arguments he had made earlier in the April 11, 2002 letter to the Washington Post, arguing that nothing in the Bayh-Dole Act could be the basis for evaluating the reasonableness of the price of a product. Bayh made no attempt to explain why in 1997 he had invited Secretary Shalala “to determine whether the royalty layering . . . is a common problem that leads to unreasonably high royalties (and prices of medical care) that should be dealt with by regulation.”
One possible distinction is that in the 1997 Cellpro petition, Bayh and Cutler may have raised the issue of “unreasonably high royalties (and prices of medical care)” in the context of 35 USC 203(3), which reads:
(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;
Under this interpretation, Bayh and Cutler were inviting DHHS to adopt a rule dealing with product royalty and pricing issues.
Earlier NIH has adopted policies to promote broader access to patented inventions, for the purposes of research.
One such example was a 2001 agreement* between the NIH and WiCell Research Institute, Inc., for patents licensed to WiCell Research Institute, Inc., a non-profit institution established in advance research in the area of stem cells, and which as a license from the Wisconsin Alumni Research Foundation (WARF) to distribute stem cells. The patents were a product of NIH funded research at the University of Wisconsin, Madison. The NIH MoU with WiCell was modified in February 2008. [pdf]
Another such example involves the NIH policy on sharing and distributing “mouse resources,” which among other things, says that:
If the materials are patented or licensed to an exclusive provider, other arrangements may be used, but commercialization option rights, royalty reach-through, or product reach-through rights back to the provider are inappropriate.
In any event, the late recollections of Bayh and Dole regarding the legislative history and meaning of the march-in provisions, given at a time when both worked for firms with pharmaceutical company clients and when Dole was employed by Pfizer as an actor and celebrity endorser of Viagra, are secondary to the plain language of the statute, and to more contemporaneous records.
As many have written, the 1980 Bayh-Dole Act was part of a long debate on public policy regarding patents on government funded research. There were strong voices, like Senators Long and Nelson, or Congressman Jack Brooks, who opposed “giveaways” of government patent rights to the private companies, and there were those, like Senators Bayh and Dole, and many Universities and corporations, that wanted to privatize the ownership of the patent rights. When concerns would be raised about abuses of patent rights or other public interest concerns in management or ownership of patents on federally funded inventions, the march-in provision were often presented as important safeguards, in a variety of different contexts and wordings, over several decades. The notion that the federal government required “sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use” was clearly stated as “policy and objective” for the act, and the phrase “benefits . . . available to the public on reasonable terms” have a plain meaning that supports the view held by Arno, Davis and others.
The range of rights retained by the government are so extensive that a policy of protecting the public from unreasonable prices can be achieved under several different parts of the Bayh-Dole safeguards, including three of the four elements of the March-in rights (35 USC 203(a)(1-3), as well as the federal government royalty free license to “practice or have practiced for or on behalf” of the federal government.
35 USC 202(c)(4). With respect to any invention in which the contractor elects rights, the Federal agency shall have 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 . . . .
In several cases the threat of a march-in or the government’s use of its royalty free right was used to obtain concessions from the patent holder (ritonavir, HER2 FISH patents, WiCell stem cell patents, patents on vaccine manufacturing), but after more than 30 years, the NIH or other federal agencies have yet to grant a march-in request for patents on an invention that it funded, despite compelling reasons to do so (Cellpro, ritonavir, Xalatan, fabrazyme, the HER2 FISH patents). This failure to protect the public interest is not a positive feature for the Bayh-Dole Act itself, and indeed, it is evidence of the corrosive impact of money on politics that right holder interests have been so dominant in the thinking of DHHS over these issues.
* For one view of the 2001 MoU, see: Amy Ligler, Egregious Error or Admirable Advance: The Memorandum of Understanding That Enables Federally Funded Basic Human Embryonic Stem Cell Research, 1 Duke Law & Technology Review 1-10 (2001). Available at: http://scholarship.law.duke.edu/dltr/vol1/iss1/37