Passed in 1980 and codified in 35 U.S.C. §§200 – 212, the Bayh-Dole Act (Act) allows contractors the option to own inventions made with government funding under government contracts and other agreements. Within the Department of Defense (DOD), this aspect of the Act is implemented by including Federal Acquisition Regulation (FAR) 52.227-11 in contracts with small businesses, universities, and other nonprofit entities and Defense FAR Supplement (DFARS) 252.227-7038 in contracts with large businesses.
When a contractor makes a federally funded invention, the invention is referred to as a “subject invention.” Provided the contractor follows the procedural steps in the FAR and DFARS clauses, they have first dibs on owning a subject invention. However, the Government also has certain rights to the invention, including non-exclusive, irrevocable, paid-up, worldwide license rights to use the invention and authorize others to do the same on behalf of the Government.
While there are slight differences between these two clauses, one common feature is a provision on “march-in rights.” Based on 35 U.S.C.§203, these are unique rights the Government has in subject inventions that the contractor chooses to own. The Government can exercise these rights to ensure the practical application of the subject invention in the appropriate field of use or commercialization for the benefit of the public. “Practical application” is defined in 35 U.S.C. §201(f) as:
“…to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.”
One can think of these rights as the Government’s right to “march in” to take action to make a subject invention available for licensing and the resulting products available for use when the contractor is not doing enough to achieve practical application of the invention. The Government, in essence, can take the idle invention off the shelf and make it available for public use on reasonable terms.
Before marching in, the Government must give the contractor a chance to work toward a practical application of the invention by requiring it to grant a license (exclusive, partially exclusive, or nonexclusive) to a responsible applicant. However, suppose the contractor fails to license the invention to a willing licensee or insists on unreasonable terms. In that case, even though the Government does not have ownership of the invention, the Government can grant such a license, even to a competitor of the patent owner.
Several circumstances listed in 35 U.S.C. §203 justify the Government’s exercise of march-in rights. For example, march-in rights can be exercised when it is “necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee or their licensees;…” (35 U.S.C. §203(a)(2)).
In government contracting, march-in rights in subject inventions are rarely spotlighted. One reason is that despite spending billions of dollars each year in funding research efforts, the Government has never exercised them. However, from time to time, the topic of march-in rights has popped up in the Congressional Research Service’s analyses and at academic meetings. Various calls have also been made urging the Government to exercise the rights in particular cases. Yet, these events and calls did not gain much public attention.
However, recently there have been a few high-profile cases related to the federal Government's march-in rights. They concern health-related inventions made with funding from the National Institutes of Health (N.I.H.), a part of the U.S. Department of Health and Human Services (H.H.S.).
In 2004, members of Congress and the public requested that the Government exercise its march-in rights regarding Norvir®, a drug for treating HIV/AIDS, marketed by Abbott Laboratories and covered by patents owned by Abbott. Abbott developed the drug, at least in part, with federal funding. The requests were based largely on the high price of the drug. However, N.I.H. declined to exercise march-in rights, concluding that Abbott met the standard of practical application by producing and making the drug widely available to the public.
In late 2021, Knowledge Ecology International and three other entities made a petition to the H.H.S. that the Government exercise its march-in rights to reduce the price of Xtandi, a prostate cancer drug from Pfizer, Inc., and Astellas Pharma Inc. Xtandi costs up to six times more in the U.S. than in other high-income countries. Again, the Government declined to exercise march-in rights, stating its analyses found that the drug treatment was widely available to the public. In effect, it concluded that there was a practical application of the invented drug, as required by law. In its statement in March 2023, H.H.S. said that the practical application of Xtandi is “evidenced by the manufacture, practice and operation of the invention and the invention’s availability to and use by the public.” It further cited the (short) remaining patent life and the lengthy administrative process involved in a march-in proceeding as reasons for not starting any march-in proceedings. There was no mention of the drug’s availability (or lack thereof) on “reasonable terms” as a factor in consideration of the march-in decision.
Moderna, Inc.’s COVID vaccine
Another case, one that affects a greater number of people, concerns the COVID vaccine from Moderna, Inc. The Government spent over $10 billion to support the vaccine's research and development and to procure it for the public. In March 2023, Moderna declared its intention to quadruple the price of its vaccine after the Government ended the COVID-19 national emergency and public health order and stopped buying it in the 10-dose vials that gave the pharmaceutical company economies of scale. Afterward, the vaccine would be sold in single-dose vials in the commercial market. Moderna cited the loss of economies of scale and other reasons, such as the expectation of reduced demand, as justification for the price increase.
Regardless of the startling increase in price, the chances of the vaccine coming under march-in rights are practically zero. This is despite the public’s interest in lowering the cost of vaccines in the commercial market. Additionally, there is a sense of unfairness in the vastly increased wealth of Moderna executives resulting from the success of a product developed with substantial funding from the Government. However, as long as the product is widely available to the public, it appears the Government considers that march-in rights are not, and should not be, used to achieve price control. It is puzzling that “…available to the public on reasonable terms” in 35 U.S.C. §201(f)’‘s definition of “practical application” is not given effect (emphasis supplied). Some may wonder what is a more pertinent aspect of the availability of a drug or vaccine to the public on reasonable terms than its affordability. However, N.I.H. takes the stance that Congress should address the issue of drug pricing.
Nonetheless, the Government’s and the public’s dissatisfaction with the eye-popping price increase of the vaccine developed with federal funding assistance may be drawing new attention to the Act’s march-in provisions. On March 21, 2023, H.H.S. and the DoC (Department of Commerce) announced an interagency working group that would take a fresh look at this issue and create guiding criteria for government agencies, including DOD, to determine whether to institute march-in proceedings in a given situation, taking into consideration many factors, including reasonable pricing. The working group will seek input from patient groups, universities, and other nonprofit organizations, along with commercial industry and the public as it evaluates when the use of march-in rights would be consistent with the goals of the Act to make government-funded inventions available to the public upon reasonable terms.
One can draw from these examples that, even though the march-in rights have not been exercised by the Government so far, the rights have not been erased from the books. They remain available to the Government. Further, although these and other cases on which the Government has been requested to exercise its march-in rights concern the results of biomedical research, these rights under the Act can apply to subject inventions in any field made with government funding. The Government’s renewed attention means that a government contractor receiving funding assistance for its research and development efforts should not assume the Government will stay ad infinitum on the path of not exercising its march-in rights. Instead, government contractors should make all efforts to comply with the requirements of the Act implemented by FAR 252.227-11 and DFARS 252.227-7038.