March-in to glory

In January this year, over 50 US Congressmen wrote to Sylvia Burwell, the US Secretary of Health and Human Services, asking her to consider using so-called government march-in rights as a way of reducing the price of pharmaceutical drugs. In February, Secretary Burwell is reported to have responded positively to this suggestion, or at least not dismissed it out of hand.

The rights in question arise under the Bayh-Dole Act 1980. Other aspects of this Act have been discussed on this blog here. The relevant sub-sections of the Act (35 USC 203) read as follows:

(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such—

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;

(3) action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or

(4) action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.

The Congressmen’s letter proposed that action should be taken under sub-section (a)(2), quoted above. It seems that these march-in rights are rarely used, and that the US government has previously refused to use them as a general means of applying pressure on drug prices, regarding this as a subject that would require primary legislation.

This is consistent with what IP Draughts has previously been told by US lawyers, eg when doing due diligence on a company that had entered into an IP licence agreement that included a clause that specifically referred to these march-in rights. In the past, he has been told that many companies consider the risk of a US government march-in to be theoretical rather than real. Whether this is still a common understanding in light of Secretary Burwell’s recent comments is less clear.

IP Draughts has noticed a rash of march-in rights recently. A kind-of-march-in-right features in national patent laws. For example, section 22 of the UK Patents Act 1977 allows the government to step in if a patent application contains information that might be prejudicial to the defence of the realm. The section enables compensation to be paid to the applicant in certain circumstances.

There is no direct equivalent to the Bayh-Dole provisions in UK law, but the standard contract terms of several UK government departments contain analogous provisions. IP Draughts sees these terms in research collaboration agreements to which a government department is a party, or where a government department has funded research done by others.

For example, such terms exist in certain research funding conditions of the UK Department of Health. An example sometimes used is that if there were a major outbreak of influenza, this might be a national emergency. If private companies were not able to meet the demand for drugs to treat the condition, the government might need to make very urgent arrangements to do so.

IP Draughts has also seen such terms in UK Department of Defence contracts. For example, Defcon 705, which is an often-used contract term on intellectual property rights, includes several provisions that could be viewed as march-in rights.

These and other provisions have the potential to devalue the IP assets of private companies and other organisations. If the government can march-in and license the IP to someone else, the rights of an IP owner or exclusive licensee may be prejudiced. But is this risk real, or are the government’s rights more honoured in the breach than the observance?

So far, it seems that march-in rights are rarely used. They probably fall into the category of very small risk of a major event. Plenty of other risks fall into that category. IP Draughts wonders whether it is possible to insure against this risk at a reasonable price; he hasn’t heard of any such insurance.