Reject Biden's Overreach on March-In Rights

The Biden administration recently unveiled a plan to impose price controls on products whose development can be traced in any way to a federal research grant, a cooperative research and development agreement (CRADA), or other federal funding. The proposal would cover all technologies and all agencies of the federal government. It reflects the fantasies of politicians and bureaucrats who dream of giving the government the power to control the prices of important goods and services, much as the Office of Price Administration did during WWII. 

Were this not an election year, most people would never give serious consideration to this proposal, but unfortunately even the most far-fetched ideas are not off the table right now. It is critical that voters and rational politicians understand why the proposal has such sweeping coverage and what its long-term implications portend for national security and the well-being of Americans. Since the Biden administration has misleadingly described this proposal as focused only on "lowering drug prices," it has garnered tens of thousands of support letters.

The proposal emanates from the National Institute of Standards and Technology (NIST) but is the product of an interagency working group encompassing other departments and agencies as well. The proposal purports to create a "framework" for determining when and how our government should exercise "march-in rights" under the 1980 Bayh-Dole Act. 

In addition to taking aim at National Institutes of Health (NIH) and grant funding for the cutting-edge drug research it supports, the proposal would extend to every conceivable type of federally funded technology. While the rhetoric around the proposal has centered on medications, the authors of the framework itself included a variety of hypothetical march-in "scenarios" related to technologies such as 3-D printing, materials science, and water filtration.

Prior to enactment of the bipartisan Bayh-Dole Act, the federal government funded basic scientific research that was rarely if ever commercialized for the benefit of the public, because the government retained full ownership of any patents to which federal funding contributed even a small portion of the overall cost of the research. Before 1980, fewer than 5% of government-owned patents derived from academic research had been licensed and none had resulted in actual products, because few if any private companies were willing to invest their own time and capital in technology they did not own. Since neither the government nor universities are able to manufacture and sell products, the result was that the vast majority of taxpayer-funded inventions simply went to waste. The Act changed that by allowing universities and research labs to retain the patent rights on breakthrough inventions that their researchers made and to negotiate licenses with private companies that were willing to invest the capital necessary to transform laboratory scale inventions into new products. In many cases, these private companies turned out to be startups founded by entrepreneurs and scientists and backed by venture capitalists having a high tolerance for risk.

By allowing universities to grant private companies exclusive licenses to federally funded technology, the Act incentivized those companies to transform unproven technologies into marketable products. With secure patent rights, company investors knew that if they achieved success, they might earn returns sufficient to cover the risk-adjusted costs of their R&D, which in most cases were orders of magnitude larger than the federal funding involved in the research phase. This alliance of public and private funding sparked hundreds of breakthrough products that have revolutionized everything from medicine to computing. Thanks to the Act, consumers today have cochlear implants, tests for prostate cancer, Honeycrisp apples, the Google search engine, and much more. More than 200 new therapies have been developed as a result of the Act, more than half of them by startup companies backed by venture capital investors.

The march-in provision in the Act was included to ensure that private companies did not take licenses to new technologies merely to shelve or suppress them and to address other obstacles to commercialization. The march-in provision is not triggered by the pricing decisions of the licensee as long as the product is available to the public. Over four decades, the government has never once had cause to exercise its march-in authority. Both Republican and Democratic administrations, including President Biden's, have rejected petitions to do so. With the NIST proposal, however, the administration seeks to "reinterpret" the march-in provision and create a tool for bureaucrats to withdraw patent rights if if an agency or politician views the price of a final product as unreasonable. There are no guardrails as to how an agency should determine that a price is unreasonable. In most cases, the owner of the patents (a university) has no control over the price for which its licensee sells the end product and even less control when a product goes through multiple layers of distribution before reaching the market.

The proposal also invites larger competitors of a startup or young company licensee to step forward, challenge a product's price, and offer to replace the startup. Even the possibility of such an occurrence will destroy any incentive to bring technology from the lab to the market. Larger incumbents with an established infrastructure for manufacturing and marketing and no development costs to recover can always charge lower prices than the smaller innovator that solved all the key problems inherent in commercialization, particularly as to drugs, for which extremely costly FDA approval is required. The unfairness of such an idea put forth by our own government is staggering. It is even more shocking that the proposal is retroactive, putting at risk countless large investments already made by thousands of licensees and developers over the last twenty years, a very large portion of them startups.

The impact of this proposal will be devastating to the formation of public/private partnerships of all kinds. Numerous organizations have responded vigorously in opposition to the proposal, including the National Venture Capital Association (NVCA), Medical Device Manufacturers Association, Biotechnology Innovation Organization, American Association of Universities, Association of University Technology Managers, National Manufacturers Association, and dozens more. In a letter to the White House, NVCA pointed out that the proposal will make "public funding toxic to VCs" and the destruction of trust will be irreparable.

For the sake of everyone who wants lifesaving innovation, the Biden administration needs to withdraw this proposal to reinterpret Bayh-Dole. It is usually politically expedient to trade in tomorrow for today, but that approach does a great disservice to all of our citizens.

Robert P. Taylor is the founder and owner of RPT Legal Strategies PC in San Francisco and Palo Alto, California. He serves on the advisory board of the Bayh-Dole Coalition and as General Counsel to the Alliance of U.S. Startups and Inventors for Jobs.