Using Bayh-Dole To Control Drug Prices Would Skew Statute

August 18, 2022Articles

Using Bayh-Dole To Control Drug Prices Would Skew Statute

As all court cases do, the Supreme Court's landmark decision in West Virginia v. EPA last month addressed a specific question: whether the Environmental Protection Agency had the statutory authority to shut down power plants and reshape significant parts of the energy sector in its effort to reduce emissions. The answer was a plain and simple no.

Equally clear was the court's argument, which has implications for administrative actions well beyond this case. The court delivered a sharp rebuke to executive branch officials for rummaging through the U.S. Code in search of hitherto unknown authority for a sweeping enhancement of their powers.

It's almost as if Chief Justice Roberts was responding to a recent letter from a group of 100 Congressional lawmakers to Health and Human Services Secretary Xavier Becerra urging him to do just that.

No doubt they would try to distinguish the two situations. But the 6-3 West Virginia holding is an indication of the rough legal waters Sec. Becerra would be sailing into if he follows the lawmakers' proposal.

They are asking him to re-interpret a plainly worded provision of a 1980 law known as the Bayh-Dole Act to impose price controls on certain drugs by administrative fiat. In their letter, lawmakers led by Senator Elizabeth Warren (D-MA) and Representative Lloyd Doggett (D-TX) insist that a provision of Bayh-Dole known as "march-in" has always allowed the federal government to unilaterally alter agreements for the purpose of cutting drug prices.

While Bayh-Dole's march-in provision gives the federal government the option to march in on a license to a discovery that was at least partially federally funded, that option prevails only in very limited circumstances. Notably, to remedy the rare situation where an exclusive licensee fails to make a good faith effort to commercialize the invention. There is no support for the proposition that the law permits the government to relicense patents to undercut the original licensee.

The law's principal architects, Senators Birch Bayh and Bob Dole, said so in 2002: "Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional…."

Using Bayh-Dole as a tool for manipulating drug prices requires a distortion of the plain language of the statute, and that is why previous administrations of both parties have consistently and without exception rejected requests such as Warren and Doggett are now making.

And it's a good thing, too. While the Warren-Doggett letter is directed at drug prices, acceding to it would jeopardize the robust American innovation ecosystem that Bayh-Dole so dramatically enhanced over the past four decades.

Before Bayh-Dole, government took an open commons approach to federally funded research. It either did not patent, or would not exclusively license, the results of that research. The government owned the intellectual property in those discoveries, but it had no incentive to out-license it; and the private sector, without property rights to protect its subsequent development work, had no incentive to invest in bringing those discoveries to market. Fewer than 5% of the 28,000 patents the government held when Congress enacted Bayh-Dole had been licensed for commercialization. Valuable discoveries sat undeveloped on the academic shelf, and taxpayer dollars funding the underlying research went to waste.

Bayh-Dole provided the missing incentive -- it granted universities and small companies title to discoveries that are made despite the support of federal funding. Universities could then license those discoveries to private firms in exchange for royalty payments that would flow back into the university to fund still more research and to reward their inventors.

By now, every major research university in the U.S. has a tech transfer office that moves discoveries from proof-of-concept to useful commercial products. The result has not only been the development of new wonder drugs, but the creation of remarkable new and useful products in diverse fields including agriculture, alternative energy, computers, advanced materials, and many more.

The development of discoveries into useful commercial products is not trivial. It often requires enormous investment and years of additional research. Taking into account the complexities of medical intervention, and the high rate of failure, it takes about $3 billion and ten years of development to bring a new pharmaceutical from lab to FDA approval to clinical application for patient benefit.

History has already shown us that the private sector will not put up that kind of investment if the government is withholding the corresponding property rights, or is reserving the right to revoke those rights, at any time and under circumstances of its own choosing.

Fortunately, the plain language of Bayh-Dole precludes that outcome. If the Biden administration argues otherwise, it's easy to imagine the Supreme Court using the same language it did in West Virginia: HHS "claimed to discover an unheralded power representing a transformative expansion of its regulatory authority in the vague language of a long-extant, but rarely used, statute…. That discovery allowed it to adopt a regulatory program that Congress had conspicuously declined to enact itself."

Lowering the cost of health care is a worthy goal, as is reducing carbon emissions. But if lawmakers want the executive branch to have price-setting authority in exchange for licensing federally funded research, they will have to do something they have not yet chosen to do - pass a law that conspicuously grants it.

Brian O'Shaughnessy is chair of the IP Transactions and Licensing Group and a past president of the Licensing Executives Society (USA & Canada), Inc. He also serves as chair of the Bayh-Dole Coalition Board of Directors.