Is the National Institute of Standards and Technology’s New Proposal on March-in a Price-Control Vehicle?

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The Biden Administration recently proposed new regulatory guidelines that would permit agencies to impose price controls on products based on inventions derived from upstream federally funded research. The new regulations would affect such price controls by expanding the “march-in” power of the Bayh-Dole Act.

In addition to its core function allowing universities and other contractors to retain ownership of inventions created with federal funds, this law authorizes, under very specific circumstances, the funding agency (e.g., the National Institutes of Health (NIH) or the Department of Energy) to grant licenses, without authorization of the patent owner, to any inventions made with funding provided by the agency. The proposed new guidelines would add the price of the end-product derived from those early-stage inventions to the list of specific circumstances.

Since its enactment in 1980, the march-in power of the Bayh-Dole Act has never been used. When asked about using the price of the end product as one of the circumstances, the law’s namesake Senators, Birch Bayh and Bob Dole, stated the text of their law did not authorize price-based march-in. Importantly, the NIH has rejected numerous petitions over the past several decades to use the march-in power to lower the prices of patented drugs or medical devices. Proponents of the new regulatory guidelines, however, argue that the statute does authorize an agency to consider price as a march-in trigger and the Biden Administration argues that march-in is a key tool to lower drug prices. This panel will discuss the regulatory proposal for price controls under the Bayh-Dole Act and other vehicles (e.g., the IRA and reasonable/reference pricing clauses in licenses or collaborative research agreements), whether they represent regulatory overreach by the Executive Branch, and whether it is wise policy to implement price controls on drugs and other products or services in the U.S. innovation economy.

Featuring:

  • Dr. Walt Copan, Vice President for Research and Technology Transfer, Colorado School of Mines; Former Director, National Institute of Standards and Technology
  • Dr. Shubha Ghosh, Crandall Melvin Professor of Law, Director, Syracuse Intellectual Property Law Institute, Syracuse University College of Law
  • Hon. Andrei Iancu, Partner, Sullivan & Cromwell LLP
  • Brian O’Shaughnessy, Partner, Dinsmore & Shohl LLP
  • (Moderator) Jeffrey Depp, Policy Consultant, Center for Strategic and International Studies (CSIS)

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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

Event Transcript

Emily Manning: Hello everyone and welcome to this Federalist Society virtual event. My name is Emily Manning and I'm the Deputy Director of Strategic Partnerships with the Federalist Society. Today we're excited to host a discussion titled "Is The National Institute of Standards and Technologies, new Proposal on March-In a Price Control Vehicle?" We have an excellent panel today moderated by Jeffrey Depp, who I will introduce to you briefly. Jeff is a policy consultant at the Center for Strategic and International Studies and a PhD candidate at the University of Pittsburgh Graduate School of Public and International Affairs. Jeff is a registered patent attorney and an intellectual property and innovation policy professional with a unique combination of training and real-world experience. He has done policy work for trade organizations, professional societies, and other organizations. He has also worked at a university, technology transfer, the pharmaceutical industry, the law, and the federal courts. After our speakers give their opening remarks, we will turn to you, the audience, for questions. If you have a question, please enter it into the Q&A function at the bottom of your Zoom window, and we'll do our best to answer as many as we can. Finally, I'll note that as always, all expressions of opinion today are those of our guest speakers, not the Federalist Society. With that, thank you for joining us today and Jeff, the floor is yours.

 

Jeffrey Depp: Thank you, Emily. Welcome everyone. I will echo Emily's sentiments. We have a tremendous panel for you today, a truly august panel, people that I am privileged to work with and call friends, and we're eager to share their insights with you on this important topic. So without further ado, I'm just going to give a brief introduction to everyone. First, we have Professor Shubha Ghosh, he's the Crandall Melvin Professor of Law at the Syracuse University College of Law. He earned his JD from Stanford and prior to that, he earned a PhD in economics from the University of Michigan. And we are excited for him to share his insights here as we're talking about prices and price controls. Those insights will be invaluable in this discussion. Brian O'Shaughnessy is a partner with Dinsmore & Shohl here in Washington DC. He is the firm-wide chair of their intellectual property transactions and licensing group.

 

He is a practicing registered patent attorney. He's been practicing for over 30 years. He's a true expert in the field and in addition to serving his clients, he has spent many years working with the Licensing Executive Society, which is the leading professional society devoted to commercial transactions and intellectual property licensing. He has been the President, and today he serves as the Senior Vice President for Public Policy. So Brian's, again, combination of real-world work on the ground with clients and his work in the policy space is going to be a tremendous asset in our discussion today. Walter Copan is the Vice President of Research and Technology Transfer at the Colorado School of Mines. Walt is a legend in the tech transfer community. He has been in this field for decades. He doesn't look anywhere old enough to be in it for as long as he has, but he is truly a wealth of knowledge and experience on tech transfer matters.

 

Prior to joining the Colorado School of Mines, he was the Undersecretary for Standards and Technology during the Trump administration, which made him the director of NIST. As you know, NIST is the sort of agency that implements the Bayh–Dole Act and its regulations. So Walt's, again, experience in tech transfer and having worked at a key agency here is going to be a phenomenal addition to our discussion today and we thank him for joining us. And also, as I should mention, in Washington DC he works with the Center for Strategic and International Studies. He's one of the co-founders of the Renewing American Innovation Project, which is a very important working group on policy matters related to American innovation. And finally, last but not least, Andre Iancu is a partner with the law firm of Sullivan and Cromwell. He's based in Los Angeles, but he also does work in DC. Prior to joining Sullivan and Cromwell, we all know him as also an Under Secretary of Commerce, this time for intellectual property, as he was the director of the Patent Office in the Trump administration. A phenomenal tenure and we're all very grateful for all the great things that he did there to strengthen the patent system. And in addition to his work with his clients, he's also heavily involved in policy and advocacy here in DC. He works as with Walt, the Center for Strategic and International Studies on their Renewing American Innovation Project. He's also involved in the Council for Innovation Promotion, another group in town that does excellent work in this space. And he also, again, helps with his alma mater at UCLA and their technology development group. So again, Andre, with his experience in the private sector and in government, we're just thrilled to have him as part of this discussion. So that is our panel and we have a lot of wood to chop, so we're going to just jump right into it here. I'm going to just set up sort of a level field here for everybody, in case you're not all in the weeds and as familiar with this issue as the panelists are.

But we're talking about the Bayh–Dole Act here. Enacted in 1980, late in 1980, it gave birth to academic technology transfer. It was enacted to solve the massive problem that existed at the time of most, if not all, of the many, many early-stage technologies - that was funded in part with federal monies - that was just sitting on the shelves wasting away because the government asserted ownership of them, and were not in a position - were not capable, or were not willing - to form the partnerships necessary to further develop and commercialize these exciting, potentially disruptive early stage technologies. And in my view, this assertion of ownership was completely ultra vires. The genius of the US patent system - at least as originally founded - was that the ownership follows the inventor. This concept traces back to John Locke - probably the most influential political philosopher for the Founders and the Framers - and his labor theory of property, again, which simply put the property right, is a natural right wherein ownership interest vests upon the application of one's physical or intellectual labor funding has nothing to do with it, it's the labor that generates the ownership interest. And that's why ownership - simply put, ownership follows inventorship. This is why Clause Eight of the Constitution talks about securing, not granting these rights anyway. The problem arose from the government doing what they always do, overreach. For some reason, they asserted ownership and new grant recipients allowed them to get away with this. And over time this sort of approach failed miserably as we talked about the technologies were wasting away on the shelf, and it needed to be corrected. Thankfully, in the late seventies, Senators Bayh and Dole - Birch Bayh and Bob Dole - recognized this problem and set about to correct it via statute. They wanted to stop this wasting away of technology. So the Bayh-Dole Act allowed grant recipients contractors in the name of the statute and the language of the statute to elect title to the inventions created on their campuses.

 

They were sort of reverting back to the system we designed, so that ownership now was invested in the university and allowed them to develop the asset, not let it waste away, and to allow technology transfer and technology commercialization to proceed, and that's where the industry was born. Now, as part of that statute, the drafters were smart enough to include what I like to call a pressure relief valve or a "Break glass in case of emergency" provisions, where if in fact, these technologies still remained on the shelf despite incentives that were created, they would have the ability, the funding agency would have the ability to what we call "march-in" and re-license the technology to another partner to make sure that it wasn't being wasted, wasn't being held up, wasn't being allowed to waste away on the shelf. But there were very specific provisions under which this could occur. And given the incentives that were in place and these very specific provisions, despite having multiple requests for this march-in over the years, it was never enacted. It was never triggered. And these requests typically involved drugs. And the argument was that the prices were too high and that's why we needed to march-in and make these available to somebody else. And again, all of those requests were rejected, and after the latest rejection in 2023, the Biden Administration set about to revise the procedure and the triggers and the criteria for march-in. And that really led us here today - led to the creation of this draft inter-agency guidance framework for considering the exercise of march-in rights. We're going to call it "the framework" throughout the discussion today. And again, that sort of is the setup and what sort of brings us here to this discussion. So without further ado, Brian O'Shaughnessy, let's jump right into it here. Is this framework a backdoor price control mechanism? Why or why not? And if so, how does it go about doing that?

 

Brian O'Shaughnessy: Thanks, Jeff. Yeah, I think without question, it is an attempt at a price control mechanism. It is not a price-setting mechanism, but it's clearly an effort by the federal government to give itself the authority to march-in as you've described it, when the government feels that the price of a resulting product is not reasonable. Now, of course, as you identified, certain provisions are in the statute that provide for the government to exercise its march-in authority. Price is not among them. In fact, in 2003, Senators Bayh and Dole wrote an op-ed in the Washington Post specifically saying that it was never their intention that the act should have a march-in provision based on price.

 

Now, I would say to my esteemed colleague and good friend Walt Copan, that Walt Coan tried to establish that and memorialize that fact in regulation at the end of his term, which unfortunately did not get through the review and comment period properly and sufficiently in time, and so it was withdrawn by the new administration as a result and partly as a result of I think the denial or rejection of the most recent request on Xtandi to march-in. The Biden administration, as you say, came forth with this proposal, this framework for exercising march-in based upon price. That I think is beyond the wording of the statute. It's not within the authority of the administration to do this without an act of Congress. So I think it is a poorly reasoned approach, but more importantly, it's going to be an entirely ineffective approach. It will not succeed in controlling prices simply because between the time of the federally-funded basic research, identifying perhaps a mechanism of action, and later development of an actually efficacious molecule, for example, there is a great deal of research, a great deal of invention and a great deal of intellectual property resulting. The feds cannot reach that far on intellectual property, simply because it's not generally federally-funded. So this will have a tremendous negative impact on the innovation economy and it won't do what the government hopes to do, which is give themselves the authority to control the prices of drugs.

 

Jeffrey Depp: Thank you, Brian. Walt? Brian mentioned you're heavily involved in this, so please share your thoughts on this question.

 

Walter Copan: Thanks so much, and Brian, really appreciate your comments and insights. Indeed, my work during the time that I was NIST director was focused on regulatory clarity for the implementation of the Bayh-Dole Act, and it was clear that certain dimensions needed to be modernized to link with the changes in the law following the America Invents Act and other legislative as well as policy decisions. And so those actually did go forward, but the clarification that we sought on this matter resulted in a firestorm of inputs from the community, from citizen groups who had been misled to believe that the Bayh-Dole Act actually authorized march-in for the purpose of price control. The way in which the framework for - the guidance on how to implement the march-in framework actually creates less clarity and certainly with regard to legal interpretation creates ambiguities that would make it a very, very challenging set of provisions to deploy.

 

But the fact that several of the scenarios actually specifically invoke product pricing is a very worrisome development after many, many decades of clear recognition by all who are engaged in the actual practice of the Bayh-Dole Act, that would actually stifle US innovation. That would create a lack of certainty for investors, especially in new technologies or in early-stage companies that were built around - at least in part - technologies that came from federal funding. And so we should also realize that not only are universities affected by this, but small companies who are working on projects that are funded by the federal government and lead to intellectual properties as well as federally funded research and development centers. So the majority of the Department of Energy Federal Labs, by way of example, operate under the Bayh-Dole Act. And so the other piece of clarity that comes from the proposed framework is that this is not just about drug pricing, that the Bayh-Dole Act affects all technologies in all markets that are connected in some way with federal funding of research and development that leads to the creation of intellectual properties. And that is the other very worrying aspect of this is that by focusing on the drug pricing issue within the current administration and trying to misuse the law for purposes of price control, it actually opens the door for government overreach in every marketplace for any technology platform that has some connection with federal funding and intellectual property arising.

 

Jeffrey Depp: Thank you. Well, Andrei, you've written about this. You've spoken many times on this topic, please share your thoughts. Is this a price control mechanism?

 

Andrei Iancu: Yeah, this is absolutely a price control mechanism, a government functionary in an agency that is not named. It'll depend on what the technology at issue is in the future and where the application is being made. So some government agency and some functionaries within that government agency will review a petition at some undefined period of time in the future and will decide whether the price that the patent owner has established is reasonable, whatever that might mean in their minds. And if it is not so reasonable according to that unknown government functionary's decision, then the government will march-in pursuant to this proposed framework. So absolutely it's a price control because companies in the private sector will try to achieve whatever they believe government reasonableness might dictate, so that's very problematic. I do want to make a very important observation here at the start, and that is that NIST's proposal is meant to cover every single area of technology.

 

There is some public discourse that this is a measure to control drug pricing and there's a lot of rhetoric surrounding that, but whatever the public rhetoric is, the proposal itself is crystal clear that it's meant to address every single area of technology. So for example, towards the very beginning of the proposal, if you look at the federal register, it says that NIST is interested in receiving input and has a number of questions. And the premise to question five is, and I'll quote the framework, is not meant to apply to just one type of technology or product. It's really meant to apply to everything. And the examples at the back of the proposal go into many areas of technologies such as water filtration, traffic technologies, telecommunications and so on that have nothing to do with drugs. The second point I want to make, Jeff, is that while the focus of the public commentary has been on price controls, and certainly this NIST proposal does talk about price controls and introduces them for the first time in the last 40 years since the statute was passed, the framework adds many additional levers on which the government can march-in, in addition to price controls, the proposal gives the government functionary of the day - whoever's in charge of the petition for march-in - wide latitude to use all sorts of criteria including whatever the flavor-of-the-day social policy might be when the application is made, to exercise march-in rights beyond price control. And we can go through some examples of that at the back at the appropriate time. But if you look at the examples at the back, there are eight of them, you'll see that the analysis deals with significantly more than just price controls.

 

Jeffrey Depp: Fantastic. Thank you. I want to give everybody a chance to weigh in on this important sort of foundational question. So Professor, what are your thoughts? Is this a price control mechanism?

 

Shubha Ghosh: No, in the sense that when you think about traditional price control, it is, as Brian said, price setting. You think about price controls during the Nixon administration, you think about price controls during World War II, price stabilization boards, and things like that. What it is trying to do, and this is the intention, well-intentioned - and I'm using the phrase "well-intentioned" in the way we think about it - is to try to inject some competition into the system. One reason why I wouldn't call it price control is that the mechanism is very different from traditional price control mechanisms. It's about licensing, it's compulsory licensing. In other words, we're trying to have individuals who want to get access to the patent of technology to work through the agency to get a license. And so as a price control mechanism, it's fairly obtuse in terms of using a licensing scheme to do that.

 

So I think price control is good rhetoric, and government overreach is good rhetoric, but I want to get into the reality of what this proposal is, and that is it is about trying to inject competition, but it is trying to do it in a way that's probably not very effective. I think I should point out that the FTC did comment on it. I mean this FTC, which is very much a pro-enforcement FTC, did comment on it, with a mixed blessing. I mean, they said, "Okay, there might be some reason to think about competition in the patent sphere, but this may not be the most effective or meaningful way of getting to that goal." So I think the intention is to try to have competition in the system. Price control is good rhetoric, but the way in which they're trying to have competition in the system is not very effective. I mean, we just had hearings earlier this week from the Senate Judiciary Committee about access to drugs and focused specifically on drugs. And Professor Mossoff is very critical about this - this proposal, and other commentators such as Professor Rai or Dr. Ulrich talking from a public health perspective talked about other ways in which we could inject competition in the patent system, such as dealing with regulation in the FDA space, dealing with orange book issues. And those are things that may be outside the scope of this panel. Maybe we can have a sequel to this panel. It can be like a Marvel universe-type thing where we can have subsequent panels that talk about those issues. But that's the way I would phrase it, and that's probably the best way to think about it in my opinion, that isn't just boiled up out of rhetoric.

 

Jeffrey Depp: Okay. So that's great. Regardless of what we call it, whether it's price  control, price setting, or trying to inject competition, it sounds like the panel here thinks that it's probably not going to work. As Brian talked about - sort of at a granular level - very few of the patents that cover medications, actually are Bayh-Dole patents - that are ones that were funded in the early stages with federal funds. So even if this were to theoretically work, it is not going to work as a practical matter. And we've heard that it may impact investors' ability and willingness to invest to develop. So, you talked about, professor, about how it's trying to inject competition, but you didn't think that it would do that very well. So how do we then bring about the competition that it sounds like is the way to go about lowering drug prices or any prices, as Andre said, this is agnostic too. How do we go about it?

 

Shubha Ghosh: Yeah, this is a big question. As I said, it's worthy of a panel of itself, but very, very quickly, I think a lot of the proposals are about lowering barriers to entry to the marketplace. I mean, you think about the COVID-19 vaccine, whatever you think about the vaccine, we had several vaccines that came out on the market at once, and they all were subject to patents. There's obviously litigation going on, there's always going to be those types of issues. But the reason why that occurred is that there was science that had been developed, there had been low barriers to access to that basic fundamental science, and the companies were able to take that particular crisis as an opportunity to get funding and move forward. So I guess I'm not saying crisis is the answer to competition, but the point is there are competitive forces that can exist within the patent system that can lower these types of barriers to entry. And I think within the area of drugs, the FDA and coordinating activities between the USPTO and the FDA have been a fruitful source and there's just more work to be done in that particular area.

 

Jeffrey Depp: So is it safe to say, Brian, - I'll put this to you then - Is it safe to say that based on what professors said about the multiple products with each better, more patented, is it safe to say then that more patents can lead to more innovation and more competition?

 

Brian O'Shaughnessy: Well, certainly I think I agree with that statement, but let me go back for a moment, to Shubha 's remarks, and I want to agree with him in the sense that, yeah, maybe this isn't a pure price control mechanism. If it is, it's a remarkably poor and naive one because as Andrei said, the problem with this system and this notion that price should be a factor is it puts decisions in the hands of ill-informed bureaucrats who don't know the market, they don't know the science, they're just apparently charged - or would be charged - with the oversight and the review of what constitutes a reasonable price. The problem I foresee with that is - particularly if we confine ourselves for the moment to pharmaceuticals - it takes about 10 years to get a pharmaceutical product from the lab to the marketplace, what with clinical trials, further development, finding the efficacious drug, et cetera, et cetera.

 

So you're talking about something where the rights have been contracted in year one and then in year 10, 11, or 12, it might actually get to the market. Well, nobody really knows what constitutes a "reasonable price", certainly at the time of licensing. I mean, it's certainly going to be much more complicated 10 years down the pike when somebody has to decide what constitutes a reasonable price, and by the way, it should be noted that the framework nowhere defines "reasonable price." The market sets the reasonable price and the beauty of the patent system, as you say, Jeff, more patents probably lead to more innovation because patents reveal information as opposed to covering it up. So if we want more competition, we want more patents, because patents promote the disclosure of information. They set the metes and bounds of what constitutes the rights of a particular inventor, and then it encourages others to design around those rights and to come up with alternative medicines.

 

And as Shubha properly noted, there were lots of different kinds of vaccines that were invented all in a very short period of time. Now, nothing, of course, was patented by the time when those vaccines were coming out, because none of them had worked their way through the patent system. But nonetheless, the technology that led to the mRNA vaccines had been developed 10 or 15 years earlier. And in fact, it had been very, very difficult to license that technology. But it had been picked up by a small biopharma startup and had been developed, and ultimately the biopharma startup got acquired by bigger companies. And fortunately for all of us, it was acquired by companies that had the wherewithal and the wisdom to develop that technology into a drug, - a vaccine that could go into the arms of patients and probably save multitudes and millions and millions of lives.

 

But that was all made possible because of the Bayh-Dole Act. And if it had been for price control mechanisms, whether it's in the form of price control framework or otherwise, that technology probably would never have been licensed because it would've been owned by the feds and nobody - there was a saying that was commonly used prior to Bayh-Dole, which is "tainted by federal funding." And if anything that came out of a university lab had an ounce of federal funding behind it, nobody would license it because they knew that the feds would be complicating those agreements and probably imposing all kinds of conditions that would make it impossible for them to effectively develop and market that product. I'll stop.

 

Jeffrey Depp: Thank you. No, that's great. So we've talked a lot about patents here. So Andrei, as the former Director of the Patent Office, I'll turn it to you. Do you think that more patents are what can drive innovation and competition and lower prices? Is that the way to go?

 

Andrei Iancu: Well, if done appropriately and in a balanced fashion, yes, I do think that strengthening the patent system in order to incentivize inventors and investors to devote more resources towards innovation and be protected by additional patents that are good patents, then that would provide the additional facilities to spur on more innovation in the United States. A misconception about patents driven by loose rhetoric is that patents are monopolies, and therefore if they're monopolies, the natural reaction is, well, geez, then they must be monopolistic and have anti-competitive tendencies. The reality is that patents are not monopolies. All that patents do is prevent others from implementing your specific solution to a particular problem. It does not preclude entry into the market space at all. And because of that, patents are actually pro-competitive because what you do with patents is you are publicly telling the rest of the world what your particular solution is, and what the boundaries are surrounding your solution.

 

And if it's a good market, others will be incentivized to come in and do something else - provide a different solution to compete in the same market space - and now the public benefits from multiple solutions to the same problem. You see, in almost every other area of industry, you usually have multiple solutions to the same problem. Everything, right? Automobiles, there are so many different brands and types of automobiles helping to drive prices towards a reasonable place. Even headache medicines. So for headache medicines, you have Tylenol, Motrin, and Excedrin, and these are all different formulations to attack the same physical condition. However, because it is so expensive to innovate and the risks are so high to bring a drug to market as Brian said - it costs on average about $2 billion to do that successfully - then in the drugs space, for any particular medical condition to be treated, there is at best one single solution.

By the way, most physical conditions have no drugs to address them at all. And for the ones that we do have, you have one solution usually. If patents in general - and also in the drug space - were stronger and people felt more comfortable in the rule of law that their investment would be protected on average or on the margins, you would have more investment and therefore more particular drug solutions to a particular condition creating competition as in every other space of the economy and driving price down. That is the real answer here, not artificially limiting intellectual property protections.

 

Jeffrey Depp: Fantastic. Professor, Andrei has been very eloquent talking about the role of competition and the multiple substitute products, and he mentioned monopoly in the beginning, and you had mentioned the hearing earlier this week on drug pricing, and I just want to point out another example from that hearing that I think makes Andre's point, but I want your thoughts on this: they talked about the Hep C medications that were new about 10 years ago and how when they first were introduced they were astronomically expensive, but within a matter of months because multiple companies had come out with similar substitute products, all of a sudden that price came down dramatically. So talk about that. Is that the way to go about solving this problem to get where we want to go?

 

Shubha Ghosh: Well, I dunno if there's one solution, and I'm not in favor of the term patent monopoly, that's old blackstonian language. And in fact, just give a shout out, there's an interesting conference I think at GW next week about the stature of monopolies. I think it's having some centennial anniversary now, and I have some colleagues including colleagues from my law school presenting there. So I recommend people think about that. Yeah, it's not a monopoly in an economic sense either, if you're trying to fit it into some sort of market structure or look at it from that perspective, it's more like an oligopoly. But yeah, I mean there are lots of forces of competition and certainly the race to get a patent or to race to be the first to have innovation is part of the competitive process, which is not just simply a price matter, but just simply also a matter of qualitative competition, not just simply price competition.

 

So yes, but I'm not sure how that responds to the point of this panel, Jeff. I agree there are lots of forces of competition out there. Patents do play a role. I guess part of this, and this may get to Brian's point a little bit about the - I think he made some comment about the vaccines that the patents had not been obtained yet when many of the COVID vaccines were being developed and out there - but they had been obtained, they were in process. So I guess at some level we go back and forth in our discussion between having a specific patent and having a patent system that works. And so we go back and forth in that discussion. Yeah, I think having a patent system that's robust and healthy supports competition. Can there be bad patents that are granted that can adversely affect competition? Yes. And that's why the antitrust laws are there.

 

That's why we have something called the Walker Process Doctrine. That's why we have actually within the antitrust system some remedies of compulsory licensing. They're not used that readily, but they were used in the AT&T case. They were used in the IBM case, they used to a certain extent in the Microsoft case. So I think we're sort of going back and forth between actually having a patent and a reward, which obviously that's part of the issue of the system, but also thinking about the system as a whole. So I think I'm not disagreeing with Dr. Iancu here that yes, there are competitive forces there, we just need to identify them and channel them the right way. And I think we're in agreement that this particular missed proposal and the use of march-in rights, which is a compulsory licensing regime. I love this panel, I love the title, I likely would've called it, "compulsory licensing", with relation to drug pricing. And I think the answer to that would be "no" from all of us, and I would more readily say no to th than trying to characterize it as price control. Sorry, I had to put that in.

 

Jeffrey Depp:

Haha. So Walt, as someone who's worked in tech transfer for as long as you have, what are your thoughts on compulsory licensing? Is that a better way to go?

 

Shubha Ghosh: Are you asking me or asking Walter? Oh -

 

Walter Copan: Yeah, I think Jeff, the redefinition here that Dr. Ghosh is advocating for is the right one. I mean, we are looking at the use of march-in rights as the wrong tool to accomplish a stated goal, namely more affordable healthcare for the people in the United States and also for other parts of the world that are affected by these systems. Compulsory licensing regimes in general have been problematic as we look around the world. There are other examples where they're attempting to achieve a certain result in the marketplace by forcing an owner of intellectual properties or of a particular invention into a market position - a market access position - that they did not intend to address. And in some ways I think that as we look at the role of government here and the role of policy in the public interest, that we need to be looking at the proper tools to accomplish the desired outcomes. And I think here that to the point of having a robust and trustworthy intellectual property system, it is absolutely essential for market economies to work and ultimately to avoid the action of marching in - to try to force a licensing relationship. And as we look at the need for greater certainty in the investment marketplace, whether it's for an early stage technology or even one that has matured and has intellectual property protections behind it, the uncertainty that's created in the marketplace by a march in action or by a compulsory license, it has been shown time and again, that investor confidence then is eroded and the investments will not follow.

 

Jeffrey Depp: Thank you. No, that's fantastic. So I think just to summarize, I think what we're saying here is that sort of government involvement - overreach - or whether again, it's sort of going beyond the statute and marching in where march-in is not permitted, or compulsive - forcing licenses where the individual parties are not ready to go is not the solution. It's not going to get us where we want to go, and we need to let the market do that. We've heard that patents, more patents, stronger patents can actually drive market competition. And that can actually, again, will be the way to get to where we want to go. And whether it's drug pricing or anything else, again, we don't want to lose sight of what Andre pointed out in the beginning, that this is beyond just drugs. This will affect every product that's out there, and we all want to pay less for things, but we need to make sure that we have them, and if this sort of government overreach happens, it will likely end up in less things being available to us. So back to the hearing on Tuesday, we heard a lot about patent abuses, you know, too many patents. So we've been talking here that patents are a good thing and more of them are better. Yet, we often hear rhetoric right now in the debate about "over-patenting" - too many patents on agents and things like that. So let's talk a little bit about that. Is there patent abuse or do we have too many patents? Are the pharmaceutical companies, for example, gaining too many patents on their agents and delaying generic competition? And is that really a problem in the current debate? Brian, I'll start with you. (silence) You might've froze there. Andrei, I'll turn to you while we try to recover Brian. As a former Director of the Patent Office, you could speak to this quite well - patent abuses, evergreening, and "patent thickets" as the terms are often put out there in the debate.

 

Andrei Iancu: Well, let me start with the premise that somehow patents - or some type of misuse of the patent system by the pharmaceutical companies is delaying entry of generics into the marketplace. Let's look at the actual numbers and the actual statistics. As it so happens, 90% of prescriptions in the United States are filled by generics. So nine out of 10 are filled with generic prescriptions, not with the patented brand. Okay? This is significantly higher than the OECD average, and it's significantly higher than every single other developed country in the world. Generic penetration in the United States, as a result of our balanced legislation - Hatch-Waxman, Bayh-Dole and the like - is remarkable. Let's look at the second point, which is how much more can we squeeze out of this? Let's assume the maximum - a hundred percent generic penetration, which is not possible because if it's a hundred percent generic penetration, then you have no innovative drugs and therefore nothing for the generics to emulate. But the best case scenario in some fantasy world is a hundred percent penetration, so therefore only 10% more filled by generics. How much do we think the additional extra percentage point is going to help here with drug pricing? The reality here is that the drug prices are high in the United States, but they're driven by many factors that go well beyond patents. And the government should really look at those factors, such as insurance regulation such as PBMs, the middlemen that add tremendous pricing for, I don't frankly know what particular reason, but let me also address the patenting point. And there are issues that are brought up about evergreening or about "patent thickets" and the like. Those terms were being bandied about at the hearing earlier this week. 

 

Look, the reality is in every system of laws, some people will misbehave and abuse those laws and those will need to be addressed and are being addressed in every system of law.

But you don't throw out the baby with the bathwater. Let me talk about those two abuses that the senators were mentioning at the hearing the other day. Evergreening, which means that companies have a product out there that has a patent on it, and then potentially when the patent is about to expire, they improve on that product and introduce a new version with a new innovation that adds another patent and therefore another patent term to it. Well, geez, isn't that a good thing? Don't we want to improve technology? And by the way, it also happens in every other industry. I don't even walk out of the Apple store with a brand new iPhone, whatever the version is, and by the time I get to my car, they are out with yet another version that I should upgrade to. The "evergreening" in the technology world, the non-pharma world happens at a far higher rate than it happens in the pharmaceutical world.

 

And then the second point about "thickets", well geez, do we want more innovation or less innovation? If we want more innovation, you're going to have more patents. And isn't that a good thing? So for example, Senator Welch was complaining that a lot of the patents on a particular drug were not for the actual formulation - the chemical compound that is in the drug - but for other things, like the delivery mechanisms. Do you know how important that is to a patient? So some patients, for example, cannot tolerate the drug at all in a particular format, whether it's a pill for example, and then a new formulation, a new delivery mechanism - such as a liquid form - needs to be provided. That's not easy to do. And sometimes it works, sometimes it doesn't. It takes a lot of innovation and new investment to create that. Why would we not want to incentivize that additional follow-up innovation? So I know that it's popular to use these catchphrases and derogatory terms, but what is really important for the public and the legislators to do is to look beyond it and really understand what are these companies actually doing and why? And isn't it good for the public or is it good for the public or not? And then just focus on the actual facts, not politically catchy phrases.

 

Jeffrey Depp: Thank you. That's fantastic. And as someone who has spent many years in the pharmaceutical industry talking to and educating doctors about how to use the new developments, the new advancements that come out, I can tell you that they are invariably so grateful to have those alternate, those innovations that make it easier for patients to administer and take and comply with their medication because there's nothing more expensive than a medication that isn't taken. So you're absolutely right about that. And I lived that for many years. And again, so Brian, I want to come to you as someone who, again, has worked with clients on strategies about this, and I think we've illustrated this point really well, and I want to sort of nail it down here about the two aspects of competition. I think what we heard during the hearing was way too focused on generic competition. We have illustrated here, Andre has done it beautifully that there are two components to it. There is competition from generics, but there's also competition from innovative products, substitute products that compete, and those require more patents. I think we've established that quite clearly here. So it seems to me that the abuses in the thickets really are just too narrowly focused on this idea of generic competition. So give us your thoughts on the patent abuses that we heard about during the hearing. Are they real and should we be concerned about them or what?

 

Brian O'Shaughnessy: Well, I'm not sure I could add much to what Andrei said. I think Andrei said it perfectly well and very, very well. The fact of the matter is the generic industry lives off the innovative drug industry, and if it isn't for the innovative drug industry, they don't have anything to copy, so to speak. And in fact, the Generic Drug Industry Trade Association came out publicly with remarks in opposition to the margin framework. So we've already heard from the generic industry that they don't want to see this, they don't see it as helping their industry any, and let's face it, the patent system, the beauty of the patent system is that it puts the incentives in the marketplace. It encourages people to invest their time, treasure and talent toward innovating new and wonderful things that will improve the lives of millions of people around the world, not just within the United States.

 

And so the balance and the trade off, if you will, liquid pro quo of the patent system is we're going to give you the opportunity to charge a little bit more during the term of your patent in exchange for disclosure. So that at the end of the term of your patent, everybody can practice the patents, is that generics can come in and of course they can come in early thanks to the Hatch-Waxman Act, but certainly at the end of the term, anybody can come in and use your patented product and commercialize it. And so consequently what we're saying in the healthcare sector anyway is would you rather have an expensive drug today - an expensive drug today, which will be very inexpensive tomorrow, or would you rather have no cure at all? Because without the incentives, people just aren't going to take the risk and make the investment.

 

And yeah, sure, of course some will, but it won't be as robust and it won't happen as frequently or as dynamically as it does today. So I think the great danger of the framework is that it puts a cloud on the title of that basic research that taxpayers have funded, which makes it that much less appealing for investors to take the deal, license the technology, take basic research and turn it into something that can go into the market and into the arms of patients. And so the very existence of the framework as it exists today is already having an anti-competitive effect. It's having an anti innovative effect. People don't know whether it's going to be implemented, but I can tell you from anecdotal evidence that I've heard from numerous tech transfer officers from universities around the country that have said, "Well, there are a lot of people that are nervous about this framework and they're not willing to move forward on a license negotiation that we've been working on." And so the harm is very, very real. It's happening now even before implementation takes place. And I think the only thing that can be done that will be beneficial to the innovation economy at this point is for the administration to withdraw the framework immediately and look for some other mechanism to do what they want to do.

 

Jeffrey Depp: That's terrific. That's a great segue. So in the last few minutes that we have here, let's consider, we know that drug pricing - it is a campaign year, it's a presidential campaign year - drug pricing is in the news. We had a hearing, it's important to Americans, this administration appears to believe that this is a way that they can lower drug prices. So let's assume that they pull the trigger and implement this new framework. Professor, I'll come to you. What happens next? Does it get litigated? What does that litigation look like?

 

Shubha Ghosh: Well, I imagine it would get litigated. I mean, first of all, I think the scenario that's it's going to get passed is pretty remote, but that's not just - I won't fight the hypothetical as they say - I think it gets litigated. I mean, it's a fairly big administrative move for the many reasons we've said. It goes beyond drug pricing. I think that's an important point to talk about here. It may potentially even go beyond the buy doll framework. I mean there's talk about having this framework being applied to privately sponsored research as well. So I think those would be the basis for challenges given the general tenor of litigation and administrative law right now. I think it would be very rip. I think I'm sure there are people who are salivating to bring this case to challenge, to challenge this if it passes. I think it does raise some interesting questions, and I know we've talked privately about the major questions doctrine and how might that apply here? And without opening up that can of worms, I think I want to kind of endorse the approach that I've talked about, which is Justice Barrett's approach in Biden v. Nebraska, which cautions the use of the major question doctrine as sort of a tool of judicial activism, if you will.

 

We've talked about government overreach. Let's also keep in mind judicial overreach and Justice Barrett does caution against that under the major question doctrine and does adopt an approach that looks more to the reasonableness of - sort of the major questions doctrine is an "interpretive tool of reasonableness." I'll just summarize it that way quickly. I think under that standard, this proposal, if passed as is, probably would not survive it. I think what's interesting to me about this is whoever drafted this was very careful - I think they had the major question doctrine in mind - because if you read the proposal and they just simply say, this is a three-step test, we just basically look to see whether this falls under Bayh-Dole. We then look to see whether it falls within the statute, and then we look to see whether it does affect innovation. So if you just look at it on the surface, oh, okay, that just seems to be following the statutory guidelines. It's not overreach, if you will, or it's sort of reasonable, but if you go into the actual application, and that's where the litigation gets a little bit more complicated, right? Does there actually have to be a case where march-in rights are exercised before the court will act? But I think it would probably fail. But I do think it's interesting that the agency has, I think, did have the major questions doctrine in mind in the way it drafted this proposal. They did try to stay very close to the text so that a very quick analysis suggests they're not going beyond the text, even though I think there are areas where we can say that they are

 

Jeffrey Depp: Interesting. Thank you. Andrei, as our resident litigator, your thoughts on potential litigation if the framework is actually implemented?

 

Andrei Iancu: Yeah, I'm quite confident that there will be litigation, it will be challenged. The major questions doctrine, as Professor Ghosh mentions, is one path, but there are lots of other bases. At the highest level, there is a longstanding premise that you basically don't fit an elephant into a mouse hole, in other words - or you don't hide an elephant in a mouse hole - In other words, if Congress really meant to include a price control measure into the Bayh-Dole Act, it would've said so something that important would not stay silent. So clearly this proposal is nonstatutory and it's a violation of the law, and I do suspect various - either companies that are affected or industry groups or both - will likely challenge it promptly upon implementation.

 

Jeffrey Depp: Fantastic. Thank you. So I have us at essentially the hour. Emily, I don't see any questions from the audience, so I guess I'll turn it back over to you, I guess, to give us a wrap.

 

Emily Manning: Absolutely. So on behalf of the Federal Society, thank you all for joining us for this great discussion today. Thank you also to our audience for joining us. We greatly appreciate your participation. Check out our website fedsoc.org or follow us on all major social media platforms @FedSoc to stay up to date with announcements and upcoming webinars. Thank you once more for tuning in and we are adjourned.