Drug patent seizures would would immediately chill innovation across the economy, dealing a major blow to small businesses in particular.
A dozen members of Congress called on Health and Human Services Secretary Xavier Becerra to seize the patent for Xtandi, a popular prostate cancer drug earlier this year. They say it costs too much.
What they seek is unprecedented. Yielding to this demand would amount to an announcement that the U.S. government can invalidate patents and other intellectual property whenever it pleases. Such an action would immediately chill innovation across the economy, dealing a major blow to small businesses in particular.
The principal authority asserted for the government to “march in” in this manner is a provision of the 1980 Bayh-Dole Act, a law designed to ensure that federally-backed basic research wouldn’t just languish in laboratory archives, as much of it did before 1980, but instead move forward into commercial development.
To that end, the law established a system whereby universities and non-profits hold the patent rights to federally-funded discoveries and can license them for commercial development to private companies — with 68 percent of licenses going to small businesses or start-ups, often backed by venture capital. These companies then set about the hard work of transforming the underlying science into a useful product or process. In the case of biotech and medical treatments, that can mean the lengthy and expensive navigation of federal approval procedures before taking the product to market. Such investments are very risky; many fail to pan out.
The system created by Bayh-Dole has worked exactly as planned. Since its enactment, the law has supported the creation of more than 15,000 new start-ups — many of them small businesses — while contributing an estimated $1.3 trillion to the US economy.
The so-called march-in rights created under Bayh-Dole were conceived as an emergency provision should the development of an important technology stall. In cases where a company was either unable or unwilling to turn a licensed patent into a practical product, the government could revoke that license and reissue it to another firm better equipped to do the job. The circumstances justifying “march-in” were so limited that the government has never once done so on a private firm in the more than 40 years Bayh-Dole has been on the books.
Should the Biden administration ignore this clear intent and march in, the costs for America’s economy, especially small businesses, would be calamitous.
Once it’s established that the government is free to revoke a company’s IP rights even after a product has reached the market, the economic incentive to translate federally-funded science into commercial technologies will evaporate. Start-ups and investors won’t waste their time and money developing state-of-the-art products if federal officials can cancel their IP rights at will and leave them helpless to recoup their investment.
The result will be a return to the pre-Bayh-Dole norm in which most federally-funded basic research never found its way into real-life products — because the government held the patents from research it funded and had little incentive to license them for development.
Administrations from both parties have without exception refused to use march-in rights to meddle in prices. A previous, nearly identical petition calling for march-in on Xtandi met with rejection out-of-hand in 2016, while Barack Obama was president, and again in 2017, when Donald Trump was in office.
It’s up to the Biden administration to uphold this critical precedent and ensure that the future of American innovation is at least as bright as its recent past.
Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council. Originally published by RealClearHealth. Republished with permission.
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