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 manufacturers.

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 asserted.

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?