October 21, 1999 letter from Dr. Varmus rejecting “standardized transfer of manufacturing and distribution rights to the WHO or any other nonprofit organization”

On September 3, 1999, Ralph Nader, James Love and Robert Weisman wrote to Dr. Harold Varmus, then the Director of the NIH, proposing the NIH enter into an agreement with the World Health Organization (WHO), giving the WHO the right to use health care patents that the US government has rights to under 35 USC Sec 202 (c)(4) of the Bayh-Dole Act or under 37 CFR 404.7, for government owned inventions. (Copy here).

On October 21, 1999, Dr. Varmus wrote back to Nader, Love and Weissman, in separate but identical letters, rejecting the proposals for “standardized transfer of manufacturing and distribution rights to the WHO or any other nonprofit organization,” but leaving the door open for “further discussions with WHO on what can be done to assist developing countries with health care needs,” and “directed my technology transfer staff to engage WHO on the intellectual property aspects of this matter,” and noted that “discussions between my staff and WHO representatives are currently being facilitated by Dr. Stuart Nightingale of the Food and Drug Administration.”

The text of the Dr. Varmus letter follows:

On October 21, 1999

Dear. ______________

Thank you for your recommendation on how the National Institutes of Health (NIH) could interact with the World Health Organization (WHO) to provide it with commerical development rights to NIH-owned and -funded health care patents. As we are both aware, the licensing of Government inventions has received much attention in recent months from Members of Congress, patient advocacy groups, representatives of industry and the press. The public debate has been galvanized by concerns about the AIDS crisis in developing countries and the role of anti-AIDS therapeutic drugs in addressing that crisis.

This proposal, if implemented, would have powerful repercussions on the current framework for drug development arising from federally supported basic research. I am concerned that your proposal that the NIH employ its “Government use” license authorities to grant WHO standing authority to contract for the production of Government-supported inventions so as to make anti-AIDS drugs available for less cost than offered by pharmaceutical manufacturers would put the current system at risk without necessarily resulting in greater accessibility to these drugs. I am also troubled by the implications of the NIH intervening on behalf of sovereign foreign governments in a situation in which many of those governments have the authority to achieve the same result and in which U.S. intervention on this matter has not been requested.

Moreover, the AIDS crisis in developing countries is a public health problem involving much broader issues than access to anti-viral drugs. The question of the supply of drug products must be considered in the context of the equally important issues of medical infrastructure, public health programs, treatment monitoring and compliance, and emergence of drug-resistant HIV strains. Unilateral action by NIH with regard to NIH-supported patent rights would consequently be ill-advised and unlikely to succeed.

My specific thoughts on the intellectual property aspects of this matter follow.

Programmatic Background

In the early 1980s, Congress enacted the Bayh-Dole Act and the Stevenson-Wydler Technology Innovation Act (with later amendments, including the Federal Technology Transfer Act of 1986) to encourage the transfer of basic research findings to the marketplace. The primary purpose of these laws is economic development: specifically, to provide appropriate and necessary incentives to the private sector to invest in federally funded discoveries and to enhance U.S. global competitiveness. To implement these mandates, the Department of Health and Human Services (DHHS) has designated NIH as lead agency for technology transfer for the Public Health Service (PHS).

While NIH respects and is sensitive to the economic development intent of the authorizing legislation, it carries out this mandate in accordance with its public health mission. For inventions developed within PHS laboratories, NIH (and PHS) Patent and Licensing policies consider public health needs as well as financial and market forces. For example, the PHS Patent Policy states that patent protection should be sought where further research and development is necessary to realize a technology’s primary use and future therapeutic, diagnostic, or preventive uses. It is well documented that technologies with potential as therapeutics are rarely developed into products without some form of exclusivity, given the large development costs associated with bringing the product to the market. No benefit accrues to the public if the technology is left to languish and no product reaches the marketplace.

In conjunction with the patent strategy, the PHS licensing strategy gives preference to nonexclusive licenses so that market competition and broad distribution are fostered. Exclusive licenses are granted when such rights are believed to be necessary to ensure product development. As to inventions developed with NIH funding, the Bayh-Dole Act gives NIH grantees and contractors authority to retain title patents and to license inventions that arise from the NIH funding.

As you have pointed out, the Government has a royalty-free license to practice and have practiced an invention it owns or has funded on behalf of the United States and on behalf of a foreign government or international organization pursuant to a treaty or other agreement with the United States. This royalty-free license provides the Government with no-cost use of a technology it invented or funded. It does not provide rights or access to a licensee’s final product. The Government use contemplated by this provision has been interpreted generally to include research use, although its full scope has not been determined. Providing the owner of the technology (licensor) freedom to do further research is a common and reasonable provision of exclusive licenses. To our knowledge, the Government use license has never been employed as you propose, as a blanket measure to facilitate direct competition with a commercial licensee.

Granting Rights to WHO

In principle, the U.S. Government can license patent rights to the WHO. Even if the doubts regarding WHO’s authority to practice inventions under the Government use license could be overcome, I do not believe that the lack of such a license from the NIH is inhibiting developing countries from addressing their needs. As you stated, many of these countries can issue compulsory licenses, and those that not enacted that authority to date can do so if they choose. The economies of scale you mention could be achieved by cooperation among these countries or direct interaction with WHO. The role of NIH in these sovereign matters is, appropriately, extremely limited.

NIH can only license or otherwise grant rights to patents in countries where the agency or its grantees have sought and obtained patent protection. Presently, NIH holds patent rights in selected countries to technologies that have contributed to the development of drugs reported as AIDS/HIV-related treatments. In those countries where NIH or its grantees have neither sought nor obtained patent protection, NIH has no intellectual property rights to be licensed or otherwise granted.

In addition, there is an important distinction between having rights to a compound and having rights to the fully developed product. NIH does not license drugs that are ready for marketing. NIH biomedical technologies are early stage and, in almost all cases, require further research, development, and testing, usually in combination with other proprietary technologies, to bring a product to market. To achieve this, NIH and its grantees license the early technology to companies that are able to embark in the developmental and regulatory aspects of drug development. Without patent protection it is unlikely that the companies would invest the resources needed to commercialize these technologies.

The distinction between final product and “raw technology” is important because others may well have filed for patents on non-NIH technologies that are required for the production of the final product. Therefore, even with NIH-granted rights, WHO or a contract manufacturer of such products may infringe patents belonging to others. Because it is the rule rather than the exception that multiple patents cover final drug products, NIH’s granting of rights to the early compound or invention would be unlikely to significantly improve access to drugs.

Finally, I am concerned that granting rights to WHO for manufacture and distribution does not address the aforementioned requirement that a commercial entity develop early-stage compounds into safe and efficacious drugs. As a practical matter, it is reasonable to assume that companies will not undertake the development costs of these inventions if they believe the Government will readily allow third parties to practice the inventions.

On balance, I am not convinced of the benefit of the standardized transfer of manufacturing and distribution rights to the WHO or any other nonprofit organization. Critical to successful technology transfer is the assurance that the Government will exercise its intellectual property rights in a responsible, prudent, and consistent manner. Undermining licensed intellectual property rights would, I believe, unnecessarily jeopardize the development of important therapeutic drugs.

NIH and WHO Interaction

Not all technologies that would be of use to developing countries are currently licensed. In the past, the NIH and WHO have worked together on licensing joint inventions and in negotiating with third parties. In one notable instance, NIH approached WHO with the possibility of manufacturing certain vaccines important ot developing countries. Unfortunately, limitations of resources did not permit WHO to take advantage of such an offer. NIH welcomes, and is pursuing, further discussions with WHO on what can be done to assist developing countries with health care needs. I have directed my technology transfer staff to engage WHO on the intellectual property aspects of this matter. Discussions between my staff and WHO representatives are currently being facilitated by Dr. Stuart Nightingale of the Food and Drug Administration.

I appreciate the opportunity to explain our position on this issue.


Harold Varmus, M.D.