[Ip-health] IP-Watch - US perspectives: March-in Rights: A Lost Opportunity To Lower US Drug Prices

Thiru Balasubramaniam thiru at keionline.org
Thu May 18 07:26:31 PDT 2017


March-in Rights: A Lost Opportunity To Lower US Drug Prices


It appears not just unfair, but absurdly so. The US government paid for
research that produced a patented drug, the patents were licensed
exclusively to a Japanese firm, and that firm is now committing price
discrimination against the US. Astellas Pharma is selling its anti-prostate
cancer drug, Xtandi, for over $129,000 per year per patient in the United
States – triple the price of the drug in Japan. Alas, this situation is not
unusual. Many drugs that were financed by US taxpayers are sold in the US
at exorbitant prices, but are much cheaper in other high-income
industrialized nations. This differential price problem could be solved
easily. However, the US government has consistently refused to exercise its
march-in rights in order to lower drug prices.

March-in rights were created in 1980, as part of the Bayh-Dole Act. Prior
to that statute, the US government retained all patent rights resulting
from research it had paid for. This had seemed sensible enough. However,
the government “was not particularly successful” at licensing its rights in
order to bring the patented products onto the market, said Prof. Robin
Feldman, director of the Institute for Innovation Law at University of
California, Hastings Law School.

The Bayh-Dole Act was intended to remedy this and ensure that the fruits of
federally-funded research were actually used. The statute gave research
universities, other nonprofits, and small businesses – the organizations
that at the time carried out federally-financed research – the ability to
obtain patent rights in the inventions they created from federally-financed
research. The idea was that these entities would have a strong incentive to
commercialize the patents, typically by licensing the patents to large

The statute “has been enormously successful,” said Feldman. “The public now
enjoys a wide range of medicines and treatments that have been developed by
licensing … patents that grew out of federally-financed research.”

Bayh-Dole, however, left the government with certain rights in the patented
inventions, just in case the patentee’s commercialization efforts fell
short. Specifically, whichever government agency provided the research
funding could march in and license the patent to a third party if the
patentee (or its licensee) “has not taken, or is not expected to take
within a reasonable time, effective steps to achieve practical application
of the … invention” or when such government “action is necessary to
alleviate health or safety needs which are not reasonably satisfied by the”
patentee (or its licensee).

In other words, “march-in rights are a safeguard when federally-funded
inventions are either not developed, not put on the market on reasonable
terms, or otherwise used in way that has an adverse impact on the public,”
said James Love, director of Knowledge Ecology International, a nonprofit,
social justice organization. Under such circumstances, “the government can
allow third parties to use the invention,” said Love.

Unreasonable Terms

The US government has been extremely reluctant to use its march-in rights.
Since their creation, 37 years ago, the government has not exercised these
rights even once.

Nevertheless, many advocates believe that march-in rights can be a powerful
method to attack the high-prices of federally-funded medicines. These
people note that march-in rights can be asserted when there is no
“practical application of the … invention,” and that “practical
application” is statutorily defined to mean, in part, the invention is
“available to the public on reasonable terms.”

When inventions are priced exorbitantly – particularly in comparison to
prices in other high-income industrialized countries – those inventions are
not available to the public on reasonable terms. So march-in rights can,
and should, be used to allow third parties to make and sell the invention
at lower prices. Or so the argument goes.

The US government, however, has rejected this argument repeatedly. The
government has asserted that march-in rights were not intended to drive
down prices of patented technology; they exist only to ensure that
inventions are made available for public use. So long as an invention is
marketed to the public, regardless of price, march-in rights cannot be

The government offers a policy rationale for this stance: If march-in
rights were used to lower prices, that would decrease the incentive to
create and market new products. The government “doesn’t want to kill the
goose that laid the golden egg,” said Prof. Christopher Holman of the
University of Missouri-Kansas City School of Law.

He thinks the government’s position is reasonable. “You have to make a
decision between having drugs at a high price and having no drugs at all,”
Holman said.

Beyond Innovation

That view is too simplistic, according to some experts. “Drug innovation is
important, but so is the cost of drugs – for patients and for the
sustainability of the healthcare system. We shouldn’t simply try to get
prices as low as possible, but we also shouldn’t set them as high as
possible. We should take a more nuanced view,” said Love.

And by failing to use its march-in rights, the government is encouraging
price gouging. “If you never use these rights, even in egregious cases, you
encourage drug companies to really go for it. It sends a signal on how to
price drugs in general: Companies can do whatever they want,” said Love.

But although march-in rights have never been used, they are far from a
nullity. Petitioning the government to exercise these rights  has
repeatedly pressured drug companies to lower their prices and/or provide
more liberal licensing terms to third parties.

“The leverage of march-in rights has made a big difference in settlements,”
said Love. For instance, he noted, “Abbott agreed to reduce the price of
Norvir by about 80 percent for people on federal health programs.”

Other Nations, Better Rules

The US appears to be the only nation to have march-in rights. And it
appears to be the only nation that would need such rights, because other
nations use simpler and better methods to drive down drug prices.

Other nations, especially those with single-payer healthcare systems,
negotiate aggressively over drug prices. The US doesn’t do that, largely
because of the political power of the pharmaceutical industry. That
industry, for instance, successfully pushed for a federal statute that
specifically forbids the US government from negotiating drug prices for
Medicare (the US healthcare program for senior citizens). The federal
government’s refusal to negotiate is a key reason why drug prices are so
high in the US. March-in rights don’t make up for this failure to
negotiate, but at least these rights can push drug companies to lower the
prices for some federally-financed drugs.

Other nations, moreover, make use of a second, powerful technique for
lowering drug prices. “Other countries don’t need march-in rights because
they have compulsory licenses, and they use those licenses a good deal,”
says Holman.

Typically, a compulsory license can be issued when the supply of a drug is
insufficient to meet demand, when a drug’s price is deemed too high, or
whenever the issuance of such a license would serve the public interest,
according to Love. He noted that in recent years, Germany, Italy, and
Romania have all issued compulsory licenses for medications.

The US can, in theory, issue compulsory patent licenses whenever it wants.
It is empowered to do so by statute, 28 USC §1498(a) [pdf]. But the US has
never exercised this power in order to lower drug prices.

This inaction is hardly surprising. The US refuses to issue compulsory
licenses for high-priced drugs created by federally-funded research. So how
likely is it that the government will issue compulsory licenses for
high-priced drugs created by private entities?

More information about the Ip-health mailing list