By 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 cost 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—

(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 bone 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 if the NIH did not grant CellPro's march-in petition.

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 no
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. 4,359,353) 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 where the NIH has made a determination 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 [] 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 [regarding the effects of higher drug costs on the economy], 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 are higher than 7 of 10 comparison countries,
among "high income" countries as determined by the World Bank, or prices for U.S. residents, 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 licenses
(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 asserted in 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.