In 1980, Congress passed the bipartisan Patent and Trademark Law Amendments Act—better known as the Bayh-Dole Act after its sponsors, Senators Birch Bayh (D-IN) and Bob Dole (R-KS). The Act promotes the commercialization of discoveries made by researchers who have received federal funds by allowing those researchers—who are usually at universities, federal labs, small businesses, and nonprofits—to retain the patent rights on their discoveries and license them to industry for development.

Congress passed the Bayh-Dole Act, with the support of then-Senator Joe Biden, to revitalize the U.S. economy and enhance American innovation during a time of increased economic competition on the global stage. While the United States had emerged as the most advanced and innovative industrial economy in the world following World War II, American innovation began to stagnate by 1980. Other countries, notably Japan, had mounted serious efforts to take over the mantle of innovation from the United States, especially in the context of auto manufacturing. To remedy this situation, Congress sought to unlock the commercial potential of federally funded patents that had been sitting on the government’s shelf. This was needed because, prior to the passage of the Act, private-sector participants had no incentive to commercialize the discoveries underlying these patents, since federally funded patents were licensed on a nonexclusive basis. Thus, if a private-sector licensee commercialized a technology or product stemming from a federally funded patent, a competitor could easily copy the technology or product by obtaining its own nonexclusive license from the government. The result of this flawed policy was that fewer than 4 percent of federally funded patents were ever licensed prior to the Act’s passage.

Realizing that “[g]overnment alone has never developed the new advances in medicines and technology that become commercial products,” Congress passed the Bayh-Dole Act, which enabled the grant of exclusive licenses to federally funded patents. These licenses came with one caveat. The government reserved the right to “march in” and reclaim or relicense federally funded patents in egregious scenarios, such as when a licensee unreasonably refused to develop or commercialize a product. Specifically, the Act grants a federal agency the ability to march in only when:

  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 a licensee has not met the Act’s preference for inventions to be “manufactured substantially in the United States.”

These are all hypothetical scenarios that have never materialized. Despite the government’s right to march in, the government has not exercised this right even once in the 44 years since the Bayh-Dole Act’s passage. The government’s restraint has provided to inventors, colleges and universities, investors, and markets the confidence that federally funded patents should be viewed as similar to traditional patents.

As a result, the Bayh-Dole Act has been widely credited with stimulating significant economic growth, creating new industries, and bringing countless innovative products to market—all to the benefit of everyday Americans. Indeed, the dramatic uptick in the licensure of federally funded patents has added nearly $2 trillion to U.S. GDP and sustained over 6 million jobs since the Act’s passage. The Act has also led to the creation of over 11,210 start-ups.

Additionally, most colleges and universities have created technology transfer offices to oversee the licensing of patents to the private sector, which has provided billions of dollars in revenue to these institutions that can be cycled back to support scholarship and additional research. And ubiquitous products and technologies, ranging from the Google search engine algorithm to Honeycrisp apples, have been brought to market because of the Act.

The Biden Administration Threatens to Undo the Effect of Bayh-Dole

A recent Biden administration proposal jeopardizes all of this. The proposal would reinterpret the Bayh-Dole Act and dramatically expand the scope of the government’s march-in rights under the Act.

In December 2023, the Department of Commerce’s National Institute of Standards and Technology (NIST) published a Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights, which would allow federal agencies to invoke march-in rights and relicense patents without the patent owner’s consent if officials conclude that the product is not available to the public at what the officials consider a “reasonable” price. This proposal has significant implications for the interpretation and application of the Bayh-Dole Act and thus, the economy at large, and it has generated considerable debate among policymakers, legal scholars, industry stakeholders, and leaders of colleges and universities.

 The “Reasonable Terms” Debate

At the heart of the debate over the NIST framework lies Section 203 of the Bayh-Dole Act, which grants federal agencies the authority to march in and relicense federally funded patents if the patent owner or licensee has not taken effective steps to achieve “practical application” of the discovery.

Proponents of the NIST proposal point to Section 201(f) of the Bayh-Dole Act, which defines “practical application” to mean that the invention is being utilized and that its benefits are “available to the public on reasonable terms.” They argue that the phrase “reasonable terms” implies an affordable price and therefore permits agencies to consider price when determining whether to invoke march-in rights.

This argument, however, ignores the phrase’s statutory context as well as the Act’s broader goals. A close look at the legislative text makes clear that the “reasonable terms” in question pertain to the obligation of the patent owner—such as a federally funded university—to set reasonable licensing terms to private firms interested in commercializing a discovery. It does not impose any sort of reasonable pricing obligation on firms that successfully turn federally funded research breakthroughs into commercial products sold to consumers.

The Supreme Court has emphasized the importance of looking for the meaning of a statute “not in any single section, but in all the parts together, and in their relation to the end in view.” The Court has also cautioned against finding broad new powers in “vague terms or ancillary provisions,” noting that Congress “does not, one might say, hide elephants in mouseholes.”

Bayh-Dole’s march-in provisions are part of a larger framework designed to incentivize private investment in the development and commercialization of federally funded inventions. The Act achieves this by granting clear, predictable patent rights to federally funded institutions and their licensees. The exercise of march-in rights under Section 203 is meant to be a narrow exception to this general rule. Put simply: there is no price control elephant hidden in Bayh-Dole’s march-in mousehole.

Congressional Intent

Advocates for using the Bayh-Dole Act’s march-in rights to control the price of products—in particular, prescription drugs—argue that the law’s legislative history supports their interpretation. They cite numerous references in congressional hearings and reports to maintaining competitive markets, controlling profits and prices, and protecting the public’s interest.

However, this view is difficult to square with the ultimate outcome of the legislative process—namely, the absence of pricing or affordability language in the Bayh-Dole Act’s final text. If controlling prices had truly been a central concern of Congress, one would expect to see this reflected in the statute itself. Yet the omission of terms like “price” and “cost” from Section 203 suggests that while pricing concerns may have been debated, they were deliberately not incorporated.

The broader regulatory context reinforces this view. In other statutes, such as the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act, Congress addressed drug pricing issues with great specificity, including detailed provisions on costs, exclusivity periods, and generic competition. There, too, if Congress had intended Bayh-Dole’s march-in rights to regulate drug prices, it would have included an explicit grant of this authority and explicit controlling statutory authority for implementation.

In a 2002 letter to the editor, the late Senators Bayh and Dole responded to an op-ed published by the Washington Post, explicitly clarifying that:

Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional; the primary purpose of the act was to entice the private sector to seek public-private research collaboration rather than focusing on its own proprietary research.

The article also mischaracterized the rights retained by the government under Bayh-Dole. The ability of the government to revoke a license granted under the act is not contingent on the pricing of a resulting product or tied to the profitability of a company that has commercialized a product that results in part from government-funded research. The law instructs the government to revoke such licenses only when the private industry collaborator has not successfully commercialized the invention as a product.

As further proof that Congress deliberately did not intend march-in rights to function as a backdoor price control, consider the fact that in the 1990s and early 2000s, lawmakers considered—and ultimately rejected—proposed legislative amendments from then‑Representative Bernie Sanders that would have added pricing as a basis for National Institutes of Health (NIH) patent licenses. Clearly, even proponents of using march-in rights as price controls understood that existing legislation did not give agencies such sweeping discretion, hence the need for amendments.

Forty Years of Agency Interpretation

Given the unambiguous congressional intent, it is hardly surprising that for over four decades, all federal agencies have held they cannot use Bayh-Dole’s march-in authority to impose de facto price controls. Across multiple administrations, the NIH, for example, has repeatedly rejected activists’ petitions to invoke march-in rights on certain prescription drug patents, declaring that the Bayh-Dole Act does not empower federal agencies to march in based on the price of commercially available products.

Administrative State Run Amok

Executive branch agencies have broad discretion to interpret statutes, but that discretion is not unlimited. By interpreting the Bayh-Dole Act in a way that is inconsistent with its plain text, legislative history, and decades of prior agency interpretation, the Biden administration is trying to unilaterally change the law rather than simply enforcing it—and usurping Congress’s legislative authority in the process.

That could put the administration in legal jeopardy. In recent years, the Supreme Court has signaled a willingness to rein in the administrative state when it exceeds its statutory authority. In West Virginia v. EPA, the Court invoked the “major questions doctrine” to strike down an agency action that it deemed a transformative expansion of regulatory authority. Allowing march-in rights to be used as a price control tool would be a similarly transformative change in the government’s power to intervene in private commerce—the kind of change that, per the major questions doctrine, requires explicit authorization from Congress, not just an agency’s unilateral reinterpretation of an old statute.

Expanding march-in rights by administrative fiat could also raise concerns under the nondelegation doctrine, which holds that Congress cannot delegate its legislative powers to agencies without providing an intelligible principle to guide the agency’s discretion. Because the Bayh-Dole Act does not clearly authorize the use of march-in rights to control prices, courts will likely conclude that the administration is essentially claiming unbounded power to set prices and relicense patents without any meaningful guidance from Congress.

The Supreme Court is already reconsidering broad Chevron deference to executive branch interpretation of its authority in instances where the law is unclear or ambiguous—precisely because executive branch officials have repeatedly overreached. The irony is that should the administration move forward with its plan to overreach, the inevitable court challenge is likely to yield a court ruling that reduces deference to the administrative state even further.

All Technologies Are Affected

Although the administration bills this as an effort to reduce drug prices, the proposal on its face applies to all areas of technology. As the proposal explains, it is “not meant to apply to just one type of technology or product.” This constitutes assertion of government pricing authority over a vast swath of the U.S. economy—without explicit congressional direction. Plus, it is unclear what exactly the administration will view as a “reasonable” price for a particular technology, thereby creating uncertainty that will have a chilling effect on America’s entire innovation economy. This comes at precisely the wrong time, as our leadership in the technologies of the future—such as artificial intelligence and quantum computing—is being challenged more than ever, by China and others.

If implemented, the proposal would destroy public-private partnerships between universities and the private sector, as the private sector will no longer be incentivized to commercialize the discoveries underlying federally funded patents, given the uncertainty over when the government might march in. This, in turn, would hurt innovation, job creation, funding for colleges and universities, and everyday Americans as new products and technologies are not brought to market. The result would be a return to “the technological malaise that befell America in the late 1970s” when other countries were “busy snuffing out Pittsburgh’s steel mills, driving Detroit off the road, and . . . assault[ing] . . . Silicon Valley.”

The views expressed herein are personal to Mr. Iancu and Mr. Godfrey, and do not represent the views of Sullivan & Cromwell LLP or its clients.

Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].