May 18, 2022

Oh when the bureaucrats go marching in

By Dr. Walter G. Copan

Bureaucrats are debating whether to take away patent rights on Xtandi, a prostate cancer drug, from its manufacturer. Activists have complained that the medicine’s price is too high. They argue that because the molecule behind the drug originated in a research lab that received federal funding, the government has the power under the Bayh-Dole Act of 1980 to “march in” and relicense the patent to other drug companies that could create cheaper versions.

That’s not only a misreading of the law — it’s a disastrous idea that could effectively destroy the legal foundation for the public-private research partnerships that bring new products to American consumers.

The Bayh-Dole Act allows universities, research institutes and small businesses to invent, to own and license patents from their research — specifically from research supported by federal funding. Prior to Bayh Dole, the federal government held those patent rights — and bureaucrats rarely licensed any patents to companies capable of turning good inventions into tangible products.

Public-private partnerships nurtured by Bayh-Dole have led to the formation of more than 15,000 startup companies and contributed almost $2 trillion to the U.S. economy. Researchers estimate that the law’s technology transfer provision supports nearly 6 million American jobs.

The law requires any company that licenses these patents to make a good-faith effort to develop them and produce real-world products. If a company licenses a patent, but then just sits on it — rather than investing what’s necessary to bring it to market — the government can “march in” and relicense the patent to a firm that’s willing to do that hard, expensive work.

But activists are now calling on the government to use those march-in rights as a de facto price control, and march in simply because they believe a product costs too much.

However, Bayh-Dole’s march-in power was never intended to be used to micromanage prices from Washington.

Many university inventions come to market through startups, involving significant personal and financial risk. However, if their property rights are not secure, entrepreneurs will eventually fail. If a firm is finally successful and then the government can just strip away their rights over a price dispute, few firms thereafter would ever take the risk of licensing university research that involved even a dime of federal funding.

This isn’t theoretical. In the late 1980s, the National Institutes of Health imposed a so-called “reasonable price clause” for all public-private collaboration agreements. As soon as the rule went into force, the bottom fell out of these partnerships.

The effects of the rule were so disastrous that NIH Director Harold Varmus scrapped the policy in 1995, saying that it had “driven industry away from potentially beneficial scientific collaborations.” The year after this “government price control” provision was repealed, the number of public-private cooperative agreements more than doubled.

We shouldn’t repeat the same mistake, especially on the heels of a pandemic that demonstrated the crucial role that technology transfer plays in developing vaccines and therapeutics as fast as humanly possible. If the Biden administration fails to protect the Bayh-Dole Act, it could spell disaster for American consumers and workers alike.

Walter G. Copan, PhD, is the former director of the National Institute of Standards and Technology. He currently serves as vice president for research and technology transfer at Colorado School of Mines as well as Senior Advisor & Co-Founder at the Renewing American Innovation Project at CSIS.