The Federal Trade Commission (FTC) has now gone on record in comments to the National Institute of Standards and Technology (NIST) that it supports expanded “march-in rights” under the Bayh-Dole Act (Act). But if NIST takes the FTC’s (unexpected, but ultimately unsurprising) contribution seriously, such an expansion could lead to overregulation that would ultimately hurt consumers and destroy the incentives that firms have to develop and commercialize lifesaving medicines.
Enacted in 1980, the Bayh-Dole Act fundamentally altered the landscape of American innovation by allowing universities, small businesses, and nonprofits to own and commercialize patents on inventions that resulted from federally funded research. The legislation has been instrumental in catalyzing the commercialization of research, leading to the development of new drugs, technologies, and industries that have bolstered the U.S. economy and improved global well-being.
“March-in rights” are a provision of the original Bayh-Dole Act—in essence, an exemption from the law’s overall thrust—that allows the federal government to intervene and grant licenses to other parties to use a patented invention in exceptional circumstances where the original patent holder has not made the invention available to the public on reasonable terms, or where public health or safety needs are not being met. The mechanism is intended to ensure that inventions that arise from federally funded research are accessible to the public and serve the public interest.
The FTC, however, advocates that march-in rights be used to intervene when prices for drugs developed from federally funded research are deemed “too high.” Apart from the fact that price controls like those proposed by the FTC never work out well and typically guarantee an undersupply of the goods in question, the proposed march-in rights expansion would not just be limited to pharmaceuticals. The law covers any patented invention that received some federal funding at any point in its development. Thus, it implicates technology in general, biomedical devices, and just about any other patented discovery that relied to any extent on government-funded research.
Bayh-Dole was not designed as a tool for price controls, but as a mechanism to foster innovation and ensure that inventions arising from federal funding reach the public. By securing patent rights for inventors and small businesses, the law created incentives for the private sector to invest in the high-risk process of transforming basic research into marketable products. This incentive to commercialize is especially needed in sectors where development costs are exorbitant and the risk of failure is high. And that framework has proven pivotal in making the United States a global leader in patent-reliant industries generally, and biotechnology and pharmaceuticals, in particular.
Price controls of the sort the FTC advocates would completely undermine the law’s goals, and would almost certainly deter investment in drug commercialization. The prospect of march-in rights being exercised based on drug pricing could inject uncertainty into the drug-development lifecycle, making it less attractive to investors. The development of new drugs is a resource-intensive process, often requiring billions of dollars and taking more than a decade to come to fruition. Investors’ willingness to fund this risky endeavor is predicated on exclusive rights to commercialize successful products (and most drugs in-development are not ultimately successful). Introducing the risk that these rights could be revoked or undermined over pricing concerns would lead to a decrease in available capital for research and development, thereby slowing innovation and limiting the introduction of new treatments.
Further, liberalizing the use of march-in rights will encourage firms in patent-reliant industries to invest more in regulatory gamesmanship, such as by complaining to regulators about their competitors’ pricing strategies. Even if such moves are unsuccessful, this dynamic would become a drag on production and commercialization and ultimately harm consumers.
The potential economic implications of expanded march-in rights extend beyond the pharmaceutical industry. By setting a precedent for government intervention in patent rights based on product pricing, it could discourage private-sector investment in all sectors of innovation that benefit from federal research funding. This shift could stifle American innovation, impacting economic growth and job creation.
Moreover, while it is understandable that consumers would desire lower drug prices, access to innovative new treatments is equally important. The use of march-in rights as a tool for price controls could lead to fewer new drugs entering the market, ultimately harming consumers who depend on medical innovation for improved health outcomes.
The FTC’s preference for price controls should not become federal policy. Federal agencies are simply not well-positioned to adequately second-guess the incredibly complex set of factors that firms must balance in order to commercialize products. Even if one could point to isolated examples of patented drugs that appear to be priced “too high,” there are far too many pieces of data that go into deciding which products to commercialize, and on what terms, for it to be reasonable to expect that federal agencies could outperform the wisdom of markets. Positioning agencies as centralized price setters would mean arbitrarily choosing winners and losers. And ultimately, we should expect that the process will be guided by regulatory capture, leading to outcomes that are even worse than arbitrary.
The Bayh-Dole Act’s legacy is a testament to the power of policy to drive innovation and economic growth. Misinterpreting its intent, or applying its provisions in ways that threaten the delicate balance of incentives that fuel the biopharmaceutical-innovation ecosystem, could have far-reaching negative consequences.
While it is crucial that lifesaving drugs are made affordable, it would serve no one to achieve that outcome by undermining the foundational principles that have made the United States a leader in innovation. Ensuring access to lifesaving medications requires a nuanced understanding of the innovation process and a commitment to fostering an environment in which new and effective treatments can be developed and brought to market. Policymakers should tread carefully, considering the long-term impacts of regulatory changes on innovation, economic growth, and consumer welfare.
