“HHS should consider using march-in rights when drugs face limited competition or market practices have failed to ensure an affordable price, ensuring that prescription drugs invented with taxpayer dollars are reasonably priced and affordable.”
This is a classic Washington story: a deep-in-the-weeds battle over the meaning of a few words in a 40-year-old law, with implications that could upend the pharmaceutical industry.
The Bayh-Dole Act of 1980 was originally aimed at allowing universities and small companies to profit from government-funded research that might have commercial value; previously, it was unclear whether a patent resided with the U.S. government, which rarely commercialized breakthrough inventions. After Bayh-Dole, hundreds of successful products emerged, ranging from Honeycrisp apples (University of Minnesota) to Google (Stanford University). Universities earn millions of dollars a year from royalties on patents they license to private companies.
But there’s a section of the law that gives the federal government, under certain conditions, the power to “march in” and license patent rights to another manufacturer.
Some lawyers, health care experts and lawmakers believe this provision offers a mechanism for the federal government to act to lower the cost of expensive drugs originally created with federal funds.
But the co-sponsors of the bill, senators Birch E. Bayh (D-Ind.) and Robert J. Dole (R-Kan.), declared 19 years ago that this was never the law’s intention. Advocates of “march-in” mutter darkly that both men were in the pay of the pharmaceutical industry at the time.
The Trump administration sought to settle the dispute with a last-minute regulation, issued in January, that reaffirmed the interpretation advanced by Bayh and Dole. President Biden, in a July 9 executive order, told the Commerce Department to set the regulation aside.
So now the advocates voice hope that Biden — who as a senator supported the Bayh-Dole Act more than four decades ago — will back the idea of using the law to cut drug prices. Becerra, when he was California attorney general, urged that march-in rights be invoked to increase the supply of remdesivir during the coronavirus pandemic.
A reader suggested The Fact Checker should adjudicate this. So let’s explain what’s going on here.
The appeal of march-in rights is easy to understand: If the government already has the power to cut drug prices, then no new legislation is needed. In today’s climate, it would be virtually impossible to pass a bill that would newly grant these powers.
But whenever a petition has been filed to invoke the march-in rights, the government has rejected the idea — no matter whether it was a Republican or Democratic administration.
Let’s start our story with Joseph P. Allen, a quintessential Washington insider. He helped draft the law as a Judiciary Committee aide to Bayh in 1980. Then he helped implement it for many years as an official at the Commerce Department. Now he is executive director of an industry group called the Bayh-Dole Coalition that says it is dedicated to “protecting” the law.
“I never thought that this would be my career path, but here we are,” Allen said.
Allen says he laughed when he first read a paper in the Tulane Law Review, published in 2001, making the case that the “unrecognized and unenforced” march-in rights in the law could be used to lower drug prices. He believes the article, written by epidemiologist Peter S. Arno and law professor Michael H. Davis, twisted the words of the statute to make the case for a new interpretation. The article noted the “astonishing and virtually unbelievable fact that the government does not understand, let alone acknowledge, the nature of its march-in rights.”
It’s not a laughing matter now. The Arno-Davis argument has become increasingly accepted as plausible. Judges, after all, tend to look at the plain meaning of a statute, ignoring the legislative history except when text appears ambiguous.
“The plain text of the law in my view clearly allows march-ins, including to ensure fair prices,” said Yale law professor Amy Kapczynski. “March-ins to address overpricing are fully consistent with the purpose of Bayh-Dole as I understand it, and I think any good economist would — including to prevent price gouging, where the government has already paid substantially for an invention.”
The Bayh-Dole Act listed four circumstances under which the government could march in. But only the first one — a failure to take, within “a reasonable time,” effective steps to achieve “practical application” of the subject invention — really matters in this discussion.
What does “practical application” mean? The law says that includes “benefits [that] are to the extent permitted by law or Government regulations available to the public on reasonable terms.”
That phrase, “reasonable terms,” is central to the debate. Arno and Davis cited numerous legal rulings in which judges said “reasonable terms” referred to price. In the context of Bayh-Dole, they argued, “there was never any doubt that this meant the control of profits, prices, and competitive conditions.”
Adam Mossoff, a patent-law professor at Antonin Scalia Law School of George Mason University, is scornful of Arno and Davis’s reasoning. “It is very revealing that, if this legislation was so clear, why did it take 20 years for a professor, of all people, to discover this?” Mossoff said. “They are trying to twist and warp legislation to produce an outcome they seek. That is classic Washington.”
It’s worth noting that President Ronald Reagan, in a 1983 memorandum on patent policy and a 1987 executive order, expanded the Bayh-Dole law — aimed at universities and small companies — to include large for-profit corporations. So people are arguing over text written in a different context — which did not include the possibility of a profit-driven motivation to keep drug prices high. (The previous limitation had kept liberals in support of the bill.)
In 2002, Arno and Davis published an opinion article in The Washington Post summarizing their lengthy paper and making the case that there was an existing law on the books — Bayh-Dole — that could make drugs more affordable but that “no one is enforcing it.”
In a letter to the editor a few weeks later, Bayh and Dole said that was bunk. “Bayh-Dole did not intend that government set prices on resulting products,” they wrote, saying the government’s ability to revoke a patent was not tied to price or profitability. “The law instructs the government to revoke such licenses only when the private industry collaborator has not successfully commercialized the invention as a product.”
Though Bayh and Dole were co-authors of the bill, they are viewed by march-in advocates as imperfect experts. Neither was in the Senate anymore, and post-enactment statements carry little weight with the judiciary. Dole had famously earned huge sums as a pitchman for Viagra, the Pfizer erectile-dysfunction drug. Both Dole and Bayh have been listed as lobbyists or affiliated with law firms with pharmaceutical developers and distributors as key clients, according to OpenSecrets.org.
Allen dismisses such connections as irrelevant. “I know for a fact that the allegations that both senators are taking a dive are untrue because I’m the one who got both of them involved in pushing back on the misleading revisionist history,” he said.
Five years earlier, Bayh had supported a march-in application made by a company called CellPro, which was being sued by Johns Hopkins University for allegedly violating a patent granted to another company for a bone-marrow cancer product. CellPro argued that since the other company did not have a product on the market, the government should step in and force Johns Hopkins to issue a license. This was not, however, a case regarding pricing, but health and safety — and even then, the U.S. government declined to intervene. CellPro lost the lawsuit and filed for bankruptcy protection.
The CellPro case was just the first of about 10 cases in which a march-in petition was rejected or set aside, including many that argued the government should intervene to lower the price of a drug. Before a National Institutes of Health petition panel in 2004, Bayh himself testified against granting march-in to reduce the price of an HIV antiviral drug marketed by Abbott Laboratories.
“The quotations in the petition flagrantly misrepresent the legislative history supporting Bayh-Dole,” he argued. In one case, he noted, a petition twisted a question he had raised, quoting critics, and made it appear as if that was his opinion.
After the hearing, NIH rejected that petition. “The NIH agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices,” said then-NIH Director Elias A. Zerhouni. “The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively.”
Still, in an indication that the petition may have had some impact, Abbott exempted some government purchasers from a planned price increase and expanded eligibility for a charity program for the drug.
In 2016, the Obama administration’s NIH — headed then, as now, by Francis S. Collins — and the Defense Department similarly dismissed a petition to use march-in authority to lower the price of a prostate cancer drug, then with a wholesale price of $129,269 per year. Both agencies had funded research that led to the creation of the drug, enzalutamide.
This year, yet another march-in petition for enzalutamide has been filed. The Senate Armed Services Committee in 2017, as part of a spending bill, directed the Defense Department to exercise its march-in rights “whenever the price of a drug, vaccine, or other medical technology is higher in the United States than the median price charged in the seven largest economies that have a per capita income at least half the per capita income of the United States.” The Trump administration had ignored a similar enzalutamide petition filed in 2019. But the Biden administration may be more receptive.
The first step would be a public hearing. But if march-in is granted, the patent holder can appeal administratively and at the courts, all the way to the Supreme Court. Under Bayh-Dole, the granting of march-in rights would be deferred until all of the litigation is settled — potentially years from now.
Aaron S. Kesselheim, a professor of medicine at Harvard Medical School who has closely studied the history of Bayh-Dole, agreed that it would be “a long administrative process.” But he said the threat of a successful petition could “force companies to think twice about an increase in prices.”
Lawmakers defended their statements in the July 2021 letter to Becerra.
“President Biden took the right action in preserving this taxpayer protection tool in his July order, even though it has not previously been employed,” Doggett, the House Democrat from Texas, said in a statement to The Fact Checker. “The underlying law speaks for itself, not one of its sponsors, after departing Congress and doing Viagra ads for Pfizer.”
“Millions of Americans are suffering the dire health consequences of obscenely high costs for vital prescription drugs,” Warren said in a statement to The Fact Checker. “Congress should act, and the President should also use every legal tool already at his disposal — including those that our nation’s top legal experts have said grant him clear and broad authority to act to ensure the health and safety of the American people and guarantee that crucial medication is truly available to the public.”
The Pinocchio Test
In the two decades since march-in was identified as a way to control drug prices, advocates of this approach have struck out every time they have sought to advance it. No administration or court has ever accepted this reasoning. For now, it remains just a theory, not a tool that has ever been used in this way by the federal government.
Strikingly, the co-sponsors of the law being invoked have opposed using it in this manner. But that may not matter in the end. If the Biden administration embraces march-in, ultimately the debate over whether “reasonable terms” refers to prices will be settled by federal judges.
For that reason, despite the dismal track record, we are not going to offer a Pinocchio ruling. The lawmakers’ position falls in the realm of opinion. It will be up to the courts to decide whether it is half-baked.
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