The Exercise of Bayh-Dole March-in Rights Coming Soon?

The U.S. Department of Commerce, National Institute of Standards and Technology has released a proposed framework for analyzing whether march-in rights under the Bayh-Dole Act should be exercised.  Notably, march-in rights have never been exercised.  A concern is that exercise of the rights could create a disincentive for companies to invest in commercializing government funded inventions.  Additionally, there is a concern that basing the exercise of march-in rights on pricing concerns will be particularly harmful.  The proposed framework can be found, here.  There is a comment period as well.  The proposed framework contains several Scenarios with a sample analysis of the problem.  All of the Scenarios are worth reviewing, but I found 5 and 6 to be particularly interesting.  The following includes the analysis under Scenario 5 and 6:

Scenario 5

Background: A water filtration company has an exclusive license from a government-funded university to patents covering a subject invention for point-of-use water purification technology. The company manufactures a small device, which can be used to remove organic contaminants like pesticides in households that get their drinking water from wells. Ten years ago, a certain pesticide became very popular because it was safe for native U.S. pollinators but effective at combatting an invasive beetle destroying crops nationwide. But recent studies have shown a ten-fold increase in pediatric cancers that is connected to drinking groundwater contaminated with that pesticide. The water filtration company's point-of-use purification device is uniquely able to remove even trace amounts of that pesticide. As a result, demand has spiked. However, the company has not increased its manufacturing pace, so the price of the devices has jumped 1000% in the past three months. The combination of the limited supply and increased prices has resulted in a health emergency that cannot be adequately addressed without expanding capacity. Three other manufacturers and a dozen rural community groups have asked the government funding agency to march-in and issue licenses to increase supply and reduce cost of the specialized filters.

Discussion: Given the pressing need, march-in would be among a range of options the agency would likely consider for resolving this problem promptly and protecting children.

Statutory Criteria —In this scenario, it appears that march-in may alleviate a health or safety need that, at this time, is not reasonably being satisfied by the contractor or its licensee (Statutory Criterion 2). First, the agency would seek to confirm underlying information, including about the health or safety need. For example, the agency would consult with experts and appropriate agencies, seek available information about how the pesticide contributes to pediatric cancer, and investigate how (and how effectively) this purification device removes the pesticide (Statutorily Defined March-In Criteria; Criterion 2; Sections I–III). The agency would also confirm basic facts with the contractor, including whether it is refusing to ramp up manufacturing and how much the price has increased. All of this would be with an eye toward mitigating the risk of pediatric cancer, which in this scenario would appear to require an increased supply and accessible filtration devices (Section IV). The agency would likely assess whether the contractor is in fact exploiting the health or safety need to set a product price that is egregious within the U.S. market and unjustified given the totality of circumstances (Section IV, E). If the evidence suggests this 1000% increase was an intentional act by the company to “cash-in” on this newly discovered health and safety need, that would weigh in favor of march-in. However, if the entire market has seen similar price increases and there is a compelling justification for such a high price, e.g., a shortage of essential raw materials is making increased production impossible, that would weigh against march-in.

Policy & Objectives of Bayh-Dole —The agency would similarly need to assess the practical impact of march-in on the unmet need and carefully evaluate all alternatives (Would March-In Support the Policy & Objective of Bayh-Dole). For example, if the pesticide stays in the water supply long term and there's no indication other solutions will become available very soon, that would weigh in favor of march-in. If farmers are no longer using the pesticide in question and it dissipates quickly, then the demand for filters could subside soon, weighing against march-in. Additionally, the fact that there are already other interested manufacturers suggests march-in could increase production by these entities soon, weighing in favor of march-in. However, the agency would need to examine the capability of the prospective licensees and manufacturers and be comfortable these are “reasonable applicants” that could get a product to market (Section I, E). Here again, the agency would also consider possible alternatives, like other technologies to protect children (Section II). For example, perhaps another agency has already banned the pesticide and that, combined with an alternative filtration technology, could bring the pesticide levels to a safe percentage within the year, weighing against march-in. Finally, the agency would analyze the wider implications of march-in to ensure consistency with Bayh-Dole policy and objectives (Section III). The agency may determine that exercising march-in rights would have a meaningful positive impact on child health, increase confidence that federally funded inventions are available to improve the lives of Americans, result in increased competition, and set an example of actions by contractors or licensees that are “off limits.” The agency may determine those factors outweigh any negative impacts on investments in future federal R&D, given the apparent bad-faith actions of the contractor (Sections III, A, 2; III, 3).

 

Scenario 6

Background: In the early stages of a respiratory virus pandemic, a consumer goods company working under a government contract developed improved face masks that filter out 99% of that virus' particles. The contractor filed for a patent on its mask technology, and it reported the subject invention and associated patent application to the government. During a three-week window, several experts published studies confirming that the virus spreads easily and rapidly through airborne transmission. The following week, the consumer goods company increased the price of its masks 100%, and it continued to raise the price over the course of a month, resulting in a 400% price increase. The company has also sent letters to other mask manufacturers, flagging the pending patent application and promising to file lawsuits against any infringers as soon as the patent issues. Trade associations representing frontline healthcare workers asked the government funding agency to march-in and issue licenses to those other manufacturers to bring down the price of the masks.

Discussion: Given the urgent need, march-in would be among a range of options the agency would likely consider for resolving this problem promptly and protecting frontline workers.

Statutory Criteria —In this scenario, it appears there could be actions that promote nonuse or unreasonable use of the subject invention (Criterion 1) as well as health and safety needs that are not being reasonably satisfied by the contractor (Statutory Criterion 2). The agency would first ask the contractor for information to confirm the basic facts—for example, that the contractor has increased price 400%, how that increase compares to prices for other masks, how that price point compares to the cost of developing and manufacturing the masks, that the contractor has filed for patents, and that it is threatening to file suit against competing manufacturers when a patent issues. Based on that, the agency could continue its inquiry to assess whether march-in would alleviate an unmet health need and/or ensure the benefits of the mask are available to the public on reasonable terms, exploring questions detailed in Statutorily Defined March-In Criteria; Criterion 1 and 2. In this scenario, more affordable masks are needed and it may be that more mask production would bring down the price (Section III; IV, E). The agency would likely need more information to assess whether the contractor is exploiting the health or safety need in setting a product price that is egregious within the U.S. market and unjustified given the totality of circumstances and/or whether the masks are available on reasonable terms (Section IV, E). By rapidly increasing the price of masks and threatening other manufacturers with litigation during an urgent public health need, the contractor seems focused on keeping prices unusually high while not satisfying demand. This could weigh in favor of march-in. But the agency would need additional information, for example, to understand the unmet need, how march-in would impact it, and why the contractor is responding this way. Are other mask manufacturers charging similarly high prices under the circumstances, all to fund facility expansion? If so, that would weigh against march-in (Section IV, E). Is there a strong connection between mask usage (or mask availability) and public health benefit? Does this mask provide unique benefits over others? Stronger evidence the masks resolve a health need could weigh more in favor of march-in, whereas tangential evidence of unique benefits could weigh against march-in (Section III). Is there a legitimate reason not to license other manufacturers for this mask, e.g., they lack capacity or capability? Answers to those questions could justify the contractor's actions and weigh against march-in (Section IV, E).

Policy & Objectives of Bayh-Dole —The first part of this analysis looks at whether march-in would promote utilization and protect against non-use of the subject invention (Would March-In Support The Policy & Objective Of Bayh-Dole Section I). The agency would need to understand whether other manufacturers are “responsible applicants” that would be interested and willing to make the masks in question (Section I, E). The agency would also likely want to understand the impact of the pending patent application and threat of (possible) litigation on the other manufacturers (I, B; II, E). If the other manufacturers are actually deterred from making the product, then that could weigh in favor of march-in. However, if other manufacturers do not believe valid patents are going to issue on this subject invention, and those manufacturers are willing to immediately start manufacturing masks, that could weigh against march-in. The agency would also consider whether other action might be warranted—for example, the agency purchasing or manufacturing the masks itself at a lower price (Section II, A). Whether march-in would protect the public against non-use or unreasonable use of subject inventions more broadly likely depends on similar facts (Section III). However, in a situation of a pressing health or safety need, where a contractor is artificially keeping supply low while demand for a product is high or artificially increasing the price, march-in could deter others from similar actions in the future without impacting contractors and licensees who act in good faith to bring products to market and meet market demand (Section III, A, 2).

U.S. Agencies Release Policy Statement Concerning Remedies and SEPs

The United States Patent and Trademark Office, the U.S. National Institute of Standards and Technology, and the U.S. Department of Justice, Antitrust Division, (collectively, the agencies) have issued a policy statement concerning remedies and standard essential patents.  Importantly, the agencies have rejected the prior 2013 policy statement in favor of a policy statement that expressly recognizes that all remedies, including injunctive relief and exclusion orders at the International Trade Commission, are available for infringement of a standard essential patent.  Notably, the agencies primarily rely on U.S. case law to support its decision and OMB Circular A-119.  The policy statement provides, in part: 

Of course, the particular F/RAND commitment made by a patent owner, the SDO’s intellectual property policies, and the individual circumstances of licensing negotiations between patent owners and implementers all may be relevant in determining remedies for infringing a standards-essential patent, depending on the circumstances of each case.  Further, individual parties may voluntarily contract for or agree to specific dispute resolution mechanisms. 

In the Agencies’ view, courts, the U.S. International Trade Commission, and other decision makers in their discretion should continue to consider all relevant facts, including the conduct of the parties, when evaluating the general principles of law applicable to their remedy determinations involving standards-essential patents, such as the factors enumerated in eBay or 19 U.S.C. § 1337, as appropriate. The courts are “more than capable of considering these factual issues” when deciding whether to award remedies for infringement.20 In the Agencies’ view, courts—and other relevant neutral decision makers—should continue to determine remedies for infringement of standards-essential patents subject to F/RAND licensing commitments pursuant

to the general laws. A balanced, fact-based analysis, taking into account all available remedies, will facilitate, and help to preserve competition and incentives for innovation and for continued participation in voluntary, consensus-based, standards-setting activity.

The policy statement is available, here. 

The U.S. National Institute of Standards and Technology Green Paper on Improving Technology Transfer

The U.S. National Institutes of Standards and Technology has released its Final Green Paper on its Return on Investment: Unleashing American Innovation Project.  Essentially, the ROI project is intended to ensure that the United States receives an improved return on investment with respect to public funding for research and development.  The Green Paper includes stakeholder data identifying potential issues as well as proposals to improve the technology transfer process.  For example, the Green Paper on stakeholder data states:

Return on Investment Initiative – Summary of NIST’s Findings Based on Input from Stakeholders

Strategy 1 Identify regulatory impediments and administrative improvements in  Federal technology transfer policies and practices

Government Use License: According to stakeholders, the scope of the “government use license” is not well defined

March-In Rights: According to stakeholders, the circumstances under which the government may appropriately exercise march-in rights to license further development of an invention to achieve practical application are not clear

Preference for U.S. Manufacturing: According to stakeholders, existing statute supports the preference for U.S. manufacturing but the process to obtain a waiver is confusing 

Copyright of Software: According to stakeholders, the “Government Works” exception to copyright protection for software products of Federal R&D at Government-Owned, Government-Operated Laboratories constrains commercialization

Proprietary Information: According to stakeholders, an expanded protection period for proprietary information under a Cooperative R&D Agreement would encourage greater collaboration with Federal Laboratories Strengthen Technology Transfer at Federal Laboratories: According to stakeholders, updates to policies and practices under the Stevenson-Wydler Act could be simplified

Presumption of Government Rights to Employee Inventions: According to stakeholders, the process to determine a present assignment of invention rights by Federal employees to the Federal Government is overly burdensome

Strategy 2  Increase engagement with private sector technology development experts and investors

Streamlined Partnership Mechanisms: According to stakeholders, improved clarity and use of best practices government wide would streamline agreements and ensure greater transparency for R&D partners 

Expanded Partnership Mechanisms: According to stakeholders, private sector investment for translational R&D and technology maturation could be increased through expanded partnership agreements and nonprofit foundations

Technology Commercialization Incentives: According to stakeholders, recipients of Federal funding could benefit from a limited use of R&D funding awards to enable intellectual property protection 

Strategy 3 Build a more entrepreneurial R&D workforce

Technology Entrepreneurship Programs: According to stakeholders, expanding technology entrepreneurship programs at Federal R&D agencies government-wide will help build a more entrepreneurial workforce

Managing Conflicts of Interest: According to stakeholders, current requirements for managing conflicts of interest pose challenges to build a more entrepreneurial R&D workforce Strategy

Strategy 4 Support innovative tools and services for technology transfer

Federal IP Data Reporting System(s): According to stakeholders, a secure, modern platform is not available for reporting data on intellectual property resulting from Federal R&D

Access to Federal Technologies, Knowledge, and Capabilities: According to stakeholders, a federated data portal is not available to easily access, use, and analyze information on federally funded technologies, knowledge, and capabilities that are available to the public

Strategy 5 Improve understanding of global science and technology trends and benchmarks

Benchmarking and Metrics: According to stakeholders, current metrics to capture, assess, and improve broad technology transfer outcomes and impacts based on federally funded R&D and underpinning operational processes are inadequate

The Green Paper contains discussion and findings on all of the strategies and subpoints.  For example, on the government manufacturing clause:

NIST Finding 1.  According to stakeholders, the scope of the “government use license” is not well defined. Market uncertainty is created by the lack of a clear definition of “government use” that is limited to use directly by the government—or a government contractor in the performance of an agreement with the government—for a government purpose only, including continued use in research and development by the government. The scope of the government use license should not extend to goods and services made, sold, or otherwise distributed by third parties if the government—or a government contractor in the performance of an agreement with the government—does not directly use, provide, or consume those goods and services.

On using “march in rights” as a form of price control, the Green Paper notes:

Stakeholders pointed to potential consequences from using march-in rights as a price control. These reasons include impeding the creation of new drugs and discouraging university and medical school licensees from making the substantial additional investments necessary to develop and commercialize new drug discoveries. A 2019 report from the Information Technology and Innovation Foundation drew similar conclusions, noting that “[m]isusing the “march-in right” provision of the Bayh-Dole Act could negatively impact U.S. life-sciences innovation and result in fewer new drugs.”67 Other responses focused on ensuring that new drugs reach the people that helped fund work through Federal basic research.

The finding on “march in rights” states:

NIST Finding 2. According to stakeholders, the circumstances under which the government may exercise march-in rights are not well-defined. Market uncertainty is created by the lack of a clear definition of the use of march-in rights that is consistent with statute, rather than as a regulatory mechanism for the Federal Government to control the market price of goods and services.  

The Green Paper also notes that stakeholders are very concerned about the inconsistent and poor approach by the Federal Government to the protection of trade secrets, which puts a damper on collaboration between the public and private sectors.  On page 121-125, there is a summary chart of strategies and findings, including an indication whether the solution should be legislation, regulation or both.  The Green Paper is available, here.