Government Refuses to March-In Under Bayh-Dole—Again

The Bayh-Dole Act was in the news at the end of 2010. Three patients suffering from Fabry disease, a rare genetic condition that impairs the victim’s ability to metabolize fat and can lead to kidney failure and heart disease, petitioned the National Institutes of Health (NIH) to exercise the government’s “march-in” rights under Bayh-Dole (pdf) and compel the holder of the patent on the only FDA-approved Fabry treatment to grant licenses to other manufacturers. Just as it has in response to every previous march-in petition, the NIH refused the march-in request (pdf).

Bayh-Dole, From the Beginning. Enacted in 1980, Bayh-Dole was intended to promote the commercialization of government-funded research by allowing universities and other non-profits that receive federal grants—rather than the government itself—to own any resulting patents. This then-radical change in the law gave rise to the practice of technology transfer, whereby universities conduct sponsored research, patent the results, and then license the use of the patented inventions to spin-offs (which often involve the faculty inventors as principals) and other private companies.

Bayh-Dole contains two significant reservations of government rights, both intended to ensure that the patent owners actually do make use of government-sponsored inventions for the benefit of the public. First, the federal government retains a non-exclusive, non-transferable, royalty-free license to use the invention, a provision intended to permit further research by federal agencies. Second, and much more controversially, the federal agency that funded the research can “march in” and compel the granting of a license (or grant one itself) to “a responsible applicant or applicants” if the patent owner is not holding up its end of the agreement to use the invention for the benefit of the public.

Under Bayh-Dole and the accompanying regulations, there are several sets of circumstances that can trigger the agency’s march-in rights:

(1) The patentee and its licensees have not taken effective steps to achieve practical application of the invention and are not expected to do so within a reasonable time;

(2) The march-in license “is necessary to alleviate health or safety needs which are not [being] reasonably satisfied” by the rights-holders;

(3) March-in licensing is necessary to meet public use requirements specified by federal regulations; or

(4) Because the rights-holders have violated U.S. manufacturing preference rules, if applicable.

At first blush, the scope of possible march-in circumstances may seem reasonably broad. However, in more than three decades since its enactment, the NIH has only received march-in petitions four times (including Fabrazyme), and not once has the NIH exercised its march-in rights.

The Fabrazyme Petition and the NIH’s Response. In August 2010, a petition filed on behalf of three Fabry patients demanded that the NIH exercise these rights. Currently, the only effective, FDA-approved treatment for U.S. Fabry victims is Fabrazyme (agalsidase beta), an enzyme replacement produced from a recombinant mammalian cell line (i.e., a biologic). Fabrazyme—developed with NIH support—is manufactured by Genzyme under an exclusive license from Mount Sinai School of Medicine of New York University, which holds two patents, one of which is relevant to the petition. The petitioners pointed out that production was interrupted at Genzyme’s only manufacturing facility in mid-2009 because of contamination and other problems and that full production is not expected to resume until early 2011, with an increase in production possible only with the opening of a new plant projected for the end 2011. In the meantime, they and other Fabry patients have faced severe rationing, with their doses reduced by 70%; this is especially problematic because symptoms become worse if the dosage is reduced. Moreover, newly diagnosed patients are unable to get any Fabrazyme. This shortage, the patients argue, means that a compulsory license—what they call a non-exclusive “open” license—“is necessary to alleviate health or safety needs which are not being reasonably satisfied” by the rights-holders.

The NIH disagreed, and denied the petition (pdf) in a lengthy decision issued on December 2, 2010. The agency seemed to agree with all of the petitioners’ factual contentions about the shortage and its health impact. Nonetheless, it concluded that “a march-in proceeding under [Bayh-Dole] is not warranted at the present time because any licensing plan that might result from such a proceeding would not, in our judgment, address the problem identified by the Requestors.”

The primary basis for the NIH’s conclusion was that no competitor would be able to get a product to market before Genzyme solved the shortage itself. Specifically, “years of clinical studies and regulatory approval would be required before another manufacturer’s product could become available.” As evidence that there was no need for NIH-induced licensing, the NIH cited alternative Fabry drugs under development in Europe, Asia, and the U.S., none of which seems to hold much promise of alleviating the current acute shortage, and noted that a company seeking U.S. approval for a Fabry drug could take advantage of the Hatch-Waxman Act’s safe harbor from patent infringement for using a drug to prepare a government filing.

Finally, the NIH offered a practical rationale for its decision: “the information available shows that no supplier of an alternative enzyme replacement therapy has approached Mount Sinai or Genzyme to seek a license to supply such a therapy during the duration of the shortage.” If nobody has approached the rights-holders to request a license, the NIH reasoned, why should the government forcibly create one?

Will the NIH Ever March-In? On the one hand, the NIH’s position does make at least superficial sense: the odds are that no newly-licensed competitor could beat Genzyme in resolving the immediate supply problem. It is also consistent with the stance the agency has taken in denying three previous petitions where, in each case, it expressed concern about distorting the pharmaceuticals market. In decisions in 1997 (Baxter Healthcare/CellPro) and 2004 (Abbot Labs/Norvir and Pfizer/Xalatan), the NIH repeatedly stressed that intervention would upset investors’ settled expectations and thereby threaten future investment in university inventions. This, too, makes sense, at least as an abstract economic proposition.

But there are at least a couple of dubious aspects of the NIH’s decision in this case. The first problem is logical. Yes, no one is lined up to get a Fabrazyme substitute to market anytime soon. But no company will ever invest in developing a substitute for a patented drug until the patent runs out or it has a guarantee of a license (upon reasonable commercial terms). So the NIH’s logic has an element of self-fulfilling prophecy.

Second, has the NIH—so concerned about market distortion in its earlier decisions—now distorted the market in the other direction? That is, does the Fabrazyme decision, along with the NIH’s previous decisions, send a signal that there is no case in which the government would march in? If so, does that tell rights-holders that they can do whatever they want, ignoring their duty of reasonable satisfaction of health or safety needs?

By creating the march-in right, Congress expressed concern about the dark side of granting proprietary rights in publicly-funded technology. Does the NIH’s track record amount to a rejection of that concern?

Regardless of the topic, our readers are always curious about a possible Myriad connection. There is one here, but it is speculative at best. First, remember that the original genetic research that led to Myriad’s BRCA gene patents was government-supported. Next, suppose that the Federal Circuit reverses the district court and upholds Myriad’s gene patents, that the Supreme Court either agrees with the Federal Circuit (or declines to hear the case), and that Myriad continues to refuse to license its patents.

In that scenario, the current concerns about the cost of Myriad’s tests and patients’ inability to get second opinions would continue, and the issue would be even more politicized than it is now. It seems possible that the present plaintiffs, or people like them, would petition the government to march in and issue licenses to other testing companies. What would the government do? On the one hand, compulsory licensing would distort the market—especially from Myriad’s point of view. But on the other, the main practical reason the NIH gave for denying the Fabrazyme petition—the lack of ready, willing, and able licensee candidates—would go away. On the contrary, diagnostic testing companies would probably line up to take immediate licenses.

With much of the Myriad litigation still before us, a march-in scenario remains an extreme long shot. But should it some day arise, it could place an unprecedented degree of political pressure on the government to dust off Bayh-Dole and finally march in and exercise its rights.