NIST’s Proposed Framework for a New Approach to Bayh-Dole March-in: What You Need to Know

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Emily Manning:  Hello, everyone, and welcome to this Federalist Society virtual event. My name is Emily Manning, and I’m an associate director of practice groups with The Federalist Society. Today, we’re excited to host a discussion on the “NIST’s Proposed Framework for New Approach to Bayh-Dole March-In: What You Need to Know.” We’re joined today by Professor Jorge Contreras, Charles Crain, Jeffrey Depp, Chris Israel, and our moderator today is Judge Susan Braden, former Chief Judge for the U.S. Court of Federal Claims. If you’d like to learn more about today’s speakers, their full bios can be viewed on our website, fedsoc.org.

 

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 will 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 Judge Braden, the floor is yours.

 

Hon. Susan G. Braden:  Thank you very much. I’m delighted to be here, and I appreciate The Federalist Society making this webinar possible. We’re here today to discuss proposed framework guidelines that have been put out concerning the Bayh-Dole Act march-in rights. And frankly, this is probably the most important -- it’s really a frontal assault on property rights that has really gone under the radar screen. And so this is a really important opportunity for you to learn and to become better educated about these proposed guidelines.

 

I’m going to briefly introduce each of our speakers in the order that they will participate, and then we’ll get right into it. I’m Judge Braden, and I’m retired from the federal bench, having served for over 17 years. Prior to that, I was in private practice with litigation experience in all three levels of appellate practice, both in the federal and state courts, and before that, I was in the Justice Department’s Antitrust Division as I tried the first felony case many, many years ago. And I served in the Reagan administration for two different chairmen of the Federal Trade Commission as a counsel.

 

Our first participant will be Chris Israel. He’s a senior partner in the ACG Advocacy Group and co-leader of the firm’s technology and intellectual property group. Prior to that, he worked at Time Warner where he focused on international policy issues and global IP enforcement, and prior to that, he worked on Capitol Hill for members of the Appropriation and Small Business Committees, which is a very important assignment.

 

Charles (sic) Crain is currently Vice President of the Domestic Policy at the National Association of Manufacturers where he works on economic policy issues that are critical to the success of manufacturing in the United States. Prior to this position, he worked in NAM’s corporate finance policy portfolio group, and prior to that he worked in the Senate Finance and House Financial Services Committee and for BIO.

 

Professor -- excuse me, Jeffrey Depp is a registered patent attorney in intellectual property and innovation policy professional and scholar. He spent several years at the Tech Transfer Office of the University of Pittsburgh where he is now working on an advanced degree. And while he’s doing that, he’s working also doing policy work for AUTM, which is the Association of University Technology Managers which you’ll learn more about today as well.

 

And finally, Professor Contreras who comes to us from Utah. He is the James T. Jensen Endowed Professor for Transactional Law and the Director of Program on Intellectual Property and Technology Law at the University of Utah’s Quinney College of Law. He is the editor of over 12 books and 150 articles in the intellectual property area, which is mind boggling to me.

 

So my job as moderator is I’m going to tell you just briefly a little bit about the Bayh-Dole Act itself, and then we’re going to talk about these guidelines. The bill’s official name was the University and Small Business Patent Procedures Act. As the name implies, one major objective was to encourage entrepreneurial small companies to accept government research contracts and to license federally funded innovations.

 

The act has been known basically as the Bayh-Dole Act. It’s two prominent senators who sponsored it and had it enacted. It was signed by Ronald Reagan in 1980. It is really the sponsoring act for the overwhelming majority of discoveries that have been facilitated by federal funding. Prior to its enactment, very few patents that came out of universities wound up in the public domain as products.

 

In fact, only 5 percent of the federally owned patents were ever licensed for commercialization before this act. In contrast, today 60 percent of the technologies arising from federal funding have been licensed for commercial development. At its core, the law reflected a central truth in the United States economy that it’s the private, not the public, sector that drives most innovation. And this is the theme that we’re going to come back to over and over again today.

 

Let me turn first to Chris Israel. First of all, can you share with us a little bit why these guidelines have popped up? Many of you may not even know about this, but they were published in the federal register right before Christmas. And even though the holidays ensued and we had the Martin Luther King birthday, the agencies involved with this refused to extend the comment period past the beginning of February, which was quite unusual. And you tell us what was the motivation behind best as you know why have these guidelines come out and who was sponsoring these things.

 

Chris Israel:  Well, thank you, Judge, and thanks to The Federalist Society for the opportunity to join the panel today and this great group of additional experts that they’ve pulled together. I think at least in my mind, Judge, the honest answer for me is we’re still unclear. This notion -- just to back up a bit broader, certainly the U.S. federal government contributes significantly to technology and scientific advancement, and billions of dollars are spent at great research institutions. Lots of resources are sent to great research universities.

 

And what the Bayh-Dole Act really did, as you mentioned, over 40 years ago is just catalyze that entire contribution and all that scientific and technological energy and brain power and fused it with the entrepreneurial capabilities of great American startups, resources and investments coming from our venture community, and provided this 40 year baseline that’s created thousands of new businesses, spawned entire industries, helped small startup companies, the types of companies and investors that we work with, become large, great companies that are now part of Charles’ organization. And they all strive to become big prominent American manufacturers.

 

So the idea now that kind of seemingly out of left field and based on this theory that just because the federal government has a research function that anything or any company that’s built and leveraged and has a license and has worked with a university or research institution of the federal government, that now the U.S. government somehow has the ability to expropriate those products or lay price controls on top of them which is really at the heart of this proposal just struck us, I think struck everyone you’re going to hear from today, as just an absolute mind boggling proposition that would take us backwards not just years or months but decades potentially. So we don’t quite know the precise genesis of this, but that’s kind of the theory that’s at the root of it, Judge.

 

Hon. Susan G. Braden:  I understand there’s a congressional letter that came out with about -- I think it’s got over 100 signatures on it. But the two primary leaders were both Senator Warren and Senator Sanders.

 

Chris Israel:  Yeah. No, they have raised this concern -- they and others to be fair have raised this issue and concept from a number of years that the federal government should be much more aggressive in expropriating commercial products that have some type of a licensing relationship to the federal government or exerting price controls on them. There was a letter from about 40 members of the progressive caucus that endorse what NIST has proposed here that we’re talking about today and actually encouraged the administration to go much, much further. And really just to add kind of a data point to that, the rhetoric doesn’t match the facts as it rarely does in Washington.

 

If you actually look at the contribution of private investment, even when there are patented technologies, particularly if you look, for instance, in the drug sector where you have a situation that a drug has gained FDA approval and it also has some type of a funding relationship to NIH, 98.5 percent of the investment that went into those products and got them through FDA approval comes from the private sector. So where there may be a small, small kernel and a spark that you could trace to some work that the federal government does, you’re looking at a situation where 98 percent of the massive investment just in that one industry that goes to bring it to commercialization comes from the private sector. And we’re talking about now coming in and stripping that away and just destroying that.

 

Hon. Susan G. Braden:  I’m glad you raised that point because the fig leaf for these proposed guidelines is that presumably the idea is that it’s going to lower pharma prices, which is basically a joke because as I understand it there is it maybe only eight drug or maybe fewer than that in the United States that could even be affected by this proposed march-in. Is that correct, Chris? Do you remember?

 

Chris Israel:  That’s my understanding. Others -- maybe bring others into the conversation at this moment.

 

Hon. Susan G. Braden:  And so what’s important about this is maybe this is a political stunt of some sort, but these proposed guidelines are going to affect all American industry, everything including semiconductors, energy, a lot of the new technologies that this administration presumably is intending to promote. And it’s almost like -- they’re going to have these innovation centers. Who is going to show up at these places? Who is going to put money behind this if the federal government is going to march in basically and just say I don’t really like the price of your product, so I’m going to come and take your ability to manufacture that through this patent away? I’ll come back to the remedy in a minute. Charles, help us understand the full breadth of this proposal.

 

Charles Crain:  Absolutely. Thank you, Judge Braden. Great to be here with everybody. I think frankly you framed it exactly correctly the breadth and depth of the potential impacts here across industries and throughout the manufacturing sector. This really is a full frontal assault on the underlying idea of intellectual property, and it’s an across industry effort to impose price controls and undermine intellectual property in doing so. And so I think in practice it would be incredibly damaging to a wide range of types of companies, as Judge Braden just laide out: semiconductors, lifesaving medicines from biopharmaceutical products, advanced batteries, electric vehicles, solar panels.

 

Many of these types of products were at some point involved in some way with federal funding: a research grant at a leading research institution, a professor who has a great idea, an entrepreneur who spun that research out into a small startup company. Many of those entities or individuals or universities may well have received a few hundred thousand dollars, a million dollars in federal funding, but then the private sector as Chris indicated then spent tens of millions of dollars on top of that to develop and commercialize a product. So that is really what is under threat here is throughout multiple industries and multiple sizes and types of companies. Because if you think about who’s really impacted here, there’s going to be a disproportionate impact on small businesses, entrepreneurs, and startups.

 

Many of these small businesses only have one patent or a small handful of patents, so if the federal government is threatening their patent rights, that’s going to have a disproportionate impact on you as a small business rather than a large company who has a full suite of dozens and dozens and dozens of patents. Not that those folks aren’t concerned here, obviously. But if you’re a small company whose livelihood, whose whole existence as a business depends on the sanctity of the intellectual property rights that you hold, then this is a real threat to you. And so what that does is it undermines the innovation of our economy writ large.

 

Because if you think about how that company operates, it has to be able to license technology from a university, from a professor. They’re going to be less willing to do that if this can’t be commercialized at the end of the day. They have to use that intellectual property to attract capital from venture capitalists who aren’t going to invest in that entrepreneur if there can’t be commercialization down the line. And then potentially once they’ve done more research, this small business is going to want to license out through a larger business to ultimately commercialize and manufacture because you don’t have that capability as a small business. And again, that large company isn’t going to take that step if the federal government is going to march in at the end of the day and prevent them from commercializing the product.

 

So it really would return us to this pre-1980 time where any project, any idea, any patent that was associated with federal funds is contaminated by those federal funds. And so it really would result in extreme difficulties in taking these fantastic innovative, groundbreaking ideas that the government has seen fit to fund at the early stages of research from ever having them become a lifesaving medicine, a world changing product, a new development to combat climate change. It really would break down the fiber of the innovation ecosystem in the United States at all of these steps, from research to funding to entrepreneurship to manufacturing. All of those individual steps would be threatened here, and that’s why we at NAM view this as such an existential threat to so many different types of companies.

 

Hon. Susan G. Braden:  Give us an overview just a bit about the reach of the National Association of Manufacturers.

 

Charles Crain:  Absolutely. And frankly, I probably should’ve led with that. We have 14,000 members in all sectors of the economy from biopharmaceutical to clean energy to sort of what you might call traditional manufacturing.

 

Hon. Susan G. Braden:  Steel.

 

Charles Crain:  Steel, exactly. Automotive. It really is if you make something, you can be a member of the NAM. You can probably get my email address and come apply if you want to.

 

And it also is a really wide range of sizes of companies. So we do have obviously the large industrial companies that are in the Fortune 100 that we could all name off the top of our heads as sort of leading titans in manufacturing. But 85, 90 percent of our members are small manufacturers. So if you’re a small manufacturer in an innovative industry, in particular if you’re developing new technology, if you’ve licensed a patent from a university or from an entrepreneur, from a researcher, then this proposal really impacts you directly.

 

And more broadly, the idea that the government can undermine intellectual property and patent rights which are guaranteed by the Constitution, the idea that the government can impose price controls on these types of products -- and sort of in practice, the price control imposing people are going to be the people making the grants at NIH or the National Science Foundation or the SVA. These aren’t economists. Not that we would support price controls if they were set by economists. But in this case, they’re set by folks making research grants at NIH. Their expertise is how to make great research grants and what type of molecule shows promise and what type of entrepreneur deserves that funding, not setting price controls. If you read the text of the proposal, there’s not even criteria of what the price control should be.

 

Hon. Susan G. Braden:  Right.

 

Charles Crain:  It’s just generally if the bureaucrats at NIH --

 

Hon. Susan G. Braden:  Reasonable. Whatever that is.

 

Charles Crain:  Right. Exactly. If someone at NIH who isn’t an economist decides that your price is not “reasonable,” then there’s the potential that you don’t have intellectual property rights to this technology that you’ve developed.

 

Hon. Susan G. Braden:  One of the things -- excuse me, but one of the things --

 

Charles Crain:  Please.

 

Hon. Susan G. Braden:  -- I think we really need to emphasize to our audience is the fact that these guidelines excluded the government agencies that have the most expertise in this area: the Patent Office, NIH, the National Academy of Sciences. And I could go on and on. The people that really know about this stuff, including the Department of Education were excluded from this process. They were not part of this working group.

 

Charles Crain:  Right. It just came out of NIST. That’s exactly right.

 

Hon. Susan G. Braden:  It came out of the National Standards -- I don’t even know what they’re called.

 

Chris Israel:  Institute of Standards and Technology.

 

Charles Crain:  Yeah, yeah, yeah.

 

Hon. Susan G. Braden:  Which is kind of like a homeless little agency that’s been stuck underneath the Commerce Department.

 

Chris Israel:  They do good work at NIST, but this is just not what they do.

Charles Crain:  Yeah. They do good work, it’s just not this.

 

Chris Israel:  If you need an industrial standard set or they have a nuclear lab -- if you have a federal lab or you need an industrial standard set, they’re your guys. If you want a price control set on a patent --

 

Hon. Susan G. Braden:  They don’t know anything about this area. That’s the point. Why were they charged with doing this? I’m sorry, Charles.

 

Charles Crain:  It’s interesting that you mention that. No, I think it’s exactly right. The lead sponsors you mentioned earlier, Senators Bayh and Dole who were real innovators in this space and wanting to be sure that all the money the federal government was spending on early stage research wasn’t just stuck in a lab somewhere as you and Chris outlined earlier, they had been explicit on the record that price was never intended to be a component in the government’s march-in --

 

Hon. Susan G. Braden:  Thank you.

 

Charles Crain:  -- analysis. There is language, just so the audience knows, in the Bayh-Dole Act about march-in. It’s not just NIST inventing it today. It’s supposed to be in times of true national crisis. If a manufacturer is refusing to produce something in a time of national crisis and that there’s a tie to Bayh-Dole funded research, then the government has since 1980 had the ability to march in and ensure that the American people have access to whatever that product is, given this sort of heightened need in time of crisis and a manufacturer in this theoretical refusing to produce it. That’s the scenario that Senators Bayh and Dole were contemplating.

 

Hon. Susan G. Braden:  And we didn’t have that during COVID.

 

Charles Crain:  Right. Exactly.

 

Hon. Susan G. Braden:  No one needed to march in.

 

Charles Crain:  Never once -- and I know my fellow panelists will talk about this. People have been asking the government to march in for 40 years since Bayh-Dole was enacted, and every single time the government has said no. This is not appropriate authority to undermine intellectual property rights because we aren’t in that crisis scenario, break glass in case of emergency scenario that’s actually contemplated by the statutory text. And so now what NIST is doing is throwing the statutory text in the dust bin and saying no, we want to consider price, which Bayh and Dole said was never intended. It’s not in the statutory text, and it undermines the entire system of innovation in the United States.

 

Hon. Susan G. Braden:  Thank you. Jeff, I want to focus now or segue into the import of this to the research university community where you have a lot of expertise. Maybe we can back up a little bit and explain how all this happens at a university.

 

Jeffrey E. Depp:  Sure. Yeah. I have sort of a unique perspective here of having worked both in tech transfer and in the pharmaceutical industry, so I’ve seen this sort of from the front end and the back end. And I’ll just note from my tech transfer experience NIST I think is responsible for this document because they’re the ones that are in charge of administering Bayh-Dole. They administer iEdison, the system where all the universities report their invention disclosures. And I think that’s why -- right, wrong, or indifferent that’s probably why they take the lead on this proposal for better or for worse.

 

So at the university you deal a lot with NIST when you’re reporting and communicating and sharing information about new technologies that were invented with federal funds. And again, that basically is the beginning of the process where technologies come out of laboratories and they’re disclosed to the tech transfer office and picked up by a licensing professional typically to assess the technology and to determine its current state. Is it ready for protection? Does it need more development at this point before it’s ready for protection?

 

And so you make that decision. And then regardless it’s always going to need further development before it’s ready for the marketplace, and then you’re responsible for finding partners, which we’ve been talking about, in order to help bring that early stage, that seed, that potential and turning it into something that’s actually usable, actually salable in the marketplace. And that is a difficult process.

 

And I’ll just say as we’ve talked about this expanded march-in proposal -- because that’s really what it is. As we’ve said, march-in’s been around, but now we’re expanding it into areas that it’s never been considered based on price. As we’ve said, it’s not in the statute. We’ve never had to consider that before.

 

Again, as Charles said, it’s always been typically in a university setting. The place where it does get used is when a startup, which they often do -- they fail. And that’s when the university has to step in and pull it back and find another partner for it. But that’s really the primary time that march-in gets used, and it’s entirely legitimate in those cases.

 

To do it under this scenario in this current proposal is just another -- frankly, it’s another assault on the patent system. It’s a further weakening of the patent right. It makes it more unreliable in a patent system that’s already experiencing significant unreliability as a result of things like inter partes review and the inability to obtain injunctions. These things -- this unreliability makes investors, makes entrepreneurs, makes our partners very skittish. It makes them more skittish than they already are about raising that money and introducing -- and trying to bring these -- investing these dollars and bringing these technologies forward because they know or they’re very concerned at least that when the time comes for the product to enter the marketplace and you’re going to begin to recoup the revenue, recoup the investment so that you can provide some return to your investors and have resources to do it again because that’s what these guys love -- they’re in it to continue to do it. They want to keep doing it.

 

And when they know all of a sudden when they’re ready at that critical time it could go away because somebody doesn’t like the price or a competitor out there is big and strong and can challenge them in an IPR and they can’t get an injunction, they’re just less likely to do that. And we have a difficult time then executing that license because we have a lot of questions. Well, what if? What about this? And then they don’t want to -- so then we have -- the negotiations are much more difficult because they don’t want to bring the resources.

 

It makes a much more difficult license negotiation because they’re not willing to provide as much -- they’re worried about how much royalty payment they’re going to be able -- or their milestone payments, then, that we would typically use. They’re saying that’s too much because look at this uncertainty, look at this unreliability. I don’t know that I can do that. So it just gums up the process. That’s the issue. It really just bogs down our ability to move these potentially breakthrough technologies from the university out into the marketplace, and we don’t need --

 

Hon. Susan G. Braden:  One of the things --

 

Jeffrey E. Depp:  -- anymore of that. We need to be doing more of that, not less of it, and we need to make it easier. We need to grease the skids and make it more fluid and get these technologies out because we have lots of great technologies that we’re sitting on the shelves as we saw pre Bayh-Dole. And now with Bayh-Dole and with the ability of the universities to take ownership and drive that process, the statistics are clear. We’ve moved so much more forward to the benefit of all of us, and now we’re just sort of reversing course.

 

Hon. Susan G. Braden:  One of the things as a judge I thought was shocking about this is anybody can file a petition to start an investigation into whether the march-in right should be executed. Now, that could be a Chinese company that doesn’t like a new startup. They can do that. It could be a huge competitor that says, oh, I see that you have something there that I didn’t think of. My, my, let’s investigate that. Let’s have the AC look into see -- and by the way, let’s find out all we can about how they priced the product.

 

And guess who’s going to have to bear the brunt of that? The universities. They’re going to spend resources that are not going to educate, which is their purpose, but basically to try to defend the process that their researchers are going through. It’s going to turn into a mini judicial process that could go on for quite some period of time and basically destroy the market of whatever product we’re looking at.

 

It doesn’t have to be pharma. It can be tires or engine parts or anything. And a competitor can use this process basically to beat a new technology into the ground. Forget about the IPR process. They can do it in this march-in context.

 

Now, we have a very good question in the chat about is this a taking, and yes, it will be. But I’ll get back to all of that in a minute. But I wanted to emphasize that this is going to put a huge financial burden on the institutions to defend all of this for no reason. And the Department of Education wasn’t even consulted about this.

 

Let’s turn to Professor Contreras. I know that you have followed -- we have a question in the chat about haven’t there always been march-in rights, and there’ve been numerous petitions over the years. Perhaps you can comment a bit on that, including that more recent one that has happened. And it’s been denied. Professor.

 

Prof. Jorge Contreras:  Great. Yeah. Thank you. Thanks for having me as part of this panel. So I’ll focus on sort of the pharmaceutical industry and drug pricing because that’s really what is driving this notice and proposal. And as you mentioned, this is not a new issue. This issue has been around for decades. The first march-in petition around drug pricing was filed 20 years ago in 2004.

 

Actually, two of them were filed in 2004 around AbbVie’s Norvir and Pfizer’s Xalatan. But there have been numerous other ones in the intervening years and most recently Xtandi, another unsuccessful petition that was filed just a couple of years ago and was just very recently denied by NIH. Most of these petitions -- in fact all the petitions are filed against NIH or one of its institutes like the National Cancer Institute. So I fully agree with the comments that this proposal is broad and affects agencies and inventions that no one has really complained about in this same way that they have with drugs.

 

So just limiting this to drugs just to prove a bit of counterpoint, it is kind of undeniable that U.S. patients pay higher prices for prescription drugs than any other patients in the world for the same drugs. And the really sad thing is that the U.S. government helped to fund the development of many of these drugs. But in other countries, like almost every other country, some national body regulates drug pricing so that the same drugs that Americans pay X dollars for, Germans, British, French, you name it, they’re paying 0.5 X or 0.7 X. And that has led to much of the dissatisfaction with the way prices are developed here.

 

Now, do I think that this proposal is a great way to address that problem? No. I don’t, and I’ll talk about why. But I do think that with the language of Bayh-Dole Section 203 of the Act says that these march-in rights can be exercised by the Agency if necessary to alleviate health or safety needs, which are not reasonably satisfied by the contractor, basically the licensee, the company that has the patent rights. That’s noticeably broad language. I think that that probably covers this, and then if there’s a license granted, it does need to be at some reasonable royalty. But that’s it.

 

One of the problems that I had with this proposal, even in the drug context, is that as Charles mentioned it doesn’t really provide any process for how this determination is made. And it really is situated at the moment in the wrong agencies. We’ve had in this country and many countries government price regulation and government rate setting in a wide variety of industries over the last century, everything from interstate transport, rails, trucks, pipelines, public utilities, gas, electric.

 

In the copywrite area, there’s a special copywrite tribunal that deals with certain music licensing rates, broadcast rates. All of those exist. This is not alien to the United States. But in all of those settings there is a rate setting board or body that abides by the Administrative Procedures Act. It has hearings. There’s evidentiary procedures, evidence gathering, and adjudicatory procedures with an appellate pathway. And everybody gets to be heard, whether it’s broadcasters and record labels or oil companies or public utilities. Citizens get to be heard as well, and I think that’s a good thing -- people who are paying these prices.

 

But there’s no structure at all built into the Bayh-Dole march-in scenario. By design or not, to have a serious march-in procedure you would need something like that. And I do think that the cross-industry scope of this gets way beyond the immediate drug pricing problem, which is what all of the senators and congresspeople who have written letters and complained about -- they’ve all been focusing on drug prices.

 

There are many other ways in this country that are probably better to control drug prices if that’s something that the people want to happen. That can be anything from reforms in the reimbursement setting, CMS which manages Medicare and Medicaid to procurement. Operation Warp Speed, for example, could have had more stringent procurement requirements when it funded and acquired all of the COVID vaccines. You could have more funding conditions from the research agencies themselves.

 

Universities, if they were concerned about these issues -- I know that Jeff has dealt with this day and night, but universities could include conditions in their licensing agreements with the private sector. Some universities do that already, assure that pharmaceutical companies who get a license to what will be a lifesaving drug somebody will have to make some of that available to people in the developing world at cost or low prices. Oxford University did this in its partnerships around its COVID-19 vaccines, and we have a paper on Oxford’s program that just came out just this week on how they did that.

 

So there are lots of ways to address drug pricing. This to me just seems like not a great way to do it. It seems like it could end up being a pretty arbitrary and then will take pressure off of other more rational ways to address drug pricing through these other mechanisms, which is where I think policymakers ought to be focusing their efforts.

 

Hon. Susan G. Braden:  Let me go circle back around among our experts here, and then I want to make a comment about the question that was raised on takings. Chris, do you have any comments that you’d like to add?

 

Chris Israel:  Yeah. To kind of take it back a little bit to the early stages and one of the points that I didn’t get a chance really to make, the group that we spend the most time working with, our venture capitalist startups, almost all are very patent intensive in disruptive industries: clean energy, artificial intelligence, life sciences, medical devices. And I think Jeff made a point when he was talking about some of the other parts of the patent system, and I think if you look at some of the comments that have come in and the expertise and the viewpoints you’re getting from the venture community and the startup community -- the National Venture Capital Association sent a letter to President Biden in January, I believe, and said “March-in will destroy the remaining venture capital trust in the patent system.” That’s a strong statement, but that’s --

 

Hon. Susan G. Braden:  It is a really strong statement. People ought to wake up --

 

Chris Israel:  And that’s a very precious --

 

Hon. Susan G. Braden:  -- and listen to this, yeah.

 

Chris Israel:  That’s a very precious thing. The folks we work with -- we had a venture capitalist in town a couple weeks ago. We testified in the Senate judiciary committee. We did some meetings on the hill.

 

When he looks at a company, he’s looking at $100 to $200 million of capital that needs to be raised and invested and in his words about ten years of his life, and this is in the medical technology space, medical devices. And he said it’s a light switch. If you tell me that the federal government at some point, if this march-in proposal at some point in the lifecycle of that arduous journey where maybe it’s a 10 or 20 percent chance that that product gets through FDA approval and gets commercialized after several hundred million dollars and a decade of time spent, it’s a light switch.

 

They just won’t do it. You will see venture capital leave patent intensive disruptive industries if there is a realistic threat, which this document being in existence frankly is already starting to have this effect -- you will see significant venture capital leave the industries where we need it the most, quite frankly, where we’re talking about as a country needing money in semiconductors, artificial intelligence, cybersecurity. These are really expensive things to do. They’re really complicated things to do.

 

They almost invariably have some type of a relationship with one of the world class universities in the United States, and they’ve got a patent relationship at some point probably with most of those universities. You can’t put this level of uncertainty into that very fragile and difficult process and not expect it to have a massive impact, and that’s exactly what we’re heading for if this goes through the way it’s intended and the way it’s designed.

 

Hon. Susan G. Braden:  One of the things I think that people fail to really realize or really focus on is that people who have capital to invest can invest anywhere in the world. They don’t have to stay in the United States. If they can find a better place to get a return on their cash based on anything, they can go there. They’re not wedded necessarily to the medical device industry or any other industry. Capital is fluid, and it’s really important that we keep it in the United States for our own security.

 

Chris Israel:  Absolutely. And the venture community, we’ve got -- it’s not an accident that the United States has the largest, strongest, and most robust and durable venture system in the world. And everyone else is trying to copy it. They’re smart to try to do so, and it’s competitive.

 

You’re right. There’s a lot of competition for that capital. It can largely go just about anywhere in the world. There’s a variety of different venture capital models. Some are long term; a lot are very short term. If you’re looking for a short term investment, you’re probably not going to invest in a biotech company. That’s a special disciplined distinct type of venture investor. And there’s a lot of them, and they do a great job of it.

 

But we need to make it easier and more accessible for that capital to reach these types of investment and find these entrepreneurs in America that might be sitting at Pitt or Carnegie Mellon or the University of Chicago, wherever they’re at, University of Utah. Great institution. We need to make that capital accessible and efficient for those entrepreneurs in those startups, and putting this toxic risk on top of it through this proposal just has the absolute opposite effect.

 

Hon. Susan G. Braden:  Charles.

 

Charles Crain:  I really would echo that. The degree to which this has a chilling effect is the phrase that I’ve been using on all steps of the innovation ecosystem. We talked quite a lot about the broad array of industries that are impacted here, anything that’s patent dependent, artificial intelligence, green energy, etc.

 

I don’t want to lose the fact that it also poses a threat to biopharmaceutical innovation. If you think about lifechanging, lifesaving medicines, government price controls and the undermining of those companies’ intellectual property rights will make it more difficult to develop lifesaving medicines here in the United States and get them to patients. So even though I think it’s important for attendees to understand that the threat is much broader than the life sciences industries and that the messaging around this has sort of been incorrectly focused only on “drug pricing,” it is still a threat in the biopharmaceutical space.

 

That is one of the many industries that would be impacted here. And so I think as folks are thinking about what are next steps here, what we are saying is that the administration needs to unequivocally disclaim this proposal. I know we’ve all seen plenty of government efforts that sort of die on the vine, and they’re sort of out there. And it maybe never gets signed or finalized, or they do an ANPRM but not an NPRM. Like D.C. people know, there’s a lot of ways for things to kind of go away in a period of days or weeks or months or years. Things live on forever and sort of are zombie ideas.

 

This as a zombie idea has an almost as bad chilling effect as it actually being an implemented idea, not quite as bad obviously. We don’t want them to implement this. But if this just lives out forever as a potential thing the government might pick up off the shelf in a future administration in a couple of years, the next time there’s a bad headline about drug pricing, then you have the same chilling effect that Chris was just describing where venture capitalists won’t invest in this space because it takes a decade to do this. So even if this administration this month doesn’t finalize this, if you’re a VC looking at 10, 12, 15 year time horizon, you’re going to be really worried about the next administration or the next bad headline or whatever it is in year two or five or seven or ten of your 15 year timeline.

 

So we really need policymakers in the administration, whether it's at NIST or in the White House and in Congress, to specifically disclaim this type of government taking of patent rights and imposing of price controls. That’s the only way to maintain the innovation ecosystem, the innovation economy that’s so critical to all the folks here on the panel and in attendance as well, I’m sure.

 

Hon. Susan G. Braden:  Charles, one of our participants—then I’ll go to Jeff asked maybe it just means that the people that are venture capitalist just won’t invest in university research, but they’ll invest in other places.

 

Chris Israel:  That takes so much off the table. I saw that comment too. We spoke to one of the VC firms we work with, and they did kind of an informal poll when they saw this come out.

 

56 percent of their portfolio companies that work in the healthcare space have Bayh-Dole patents. Their startups have patents associated with Bayh-Dole that they’ve licensed from universities, and 17 percent of their other portfolio companies have Bayh-Dole licensed patents. So you’re taking so much off the table.

 

That first tranche of the 56 percent of the portfolio companies that work in the healthcare space, those companies had a combined valuation of about $3 billion. Most of them are pre-IPO. They haven’t gone public yet. But I saw that question too. It’s true. I guess you could just decide not to work with any startups that have Bayh-Dole patents, but you’re --

 

Charles Crain:  But then to me that raises the question of what’s the point of all this government funding. We saw this pre-1980 where the government has all these fantastic funding programs who are there to spur innovation. But if there are great discoveries that are stuck in a lab because they can never be out-licensed and never commercialized, then what’s the point of spending all this money on government funded research if it can’t ever go anywhere? If it’s a great idea that’s going to cure cancer one day but it’s just stuck on the shelf --

 

Chris Israel:  And let’s just face it. The best stuff’s coming out of the universities, too.

 

Charles Crain:  Yeah. And Jeff can speak about more than --

 

Chris Israel:  Think about what you’re taking off the table; right?

 

Charles Crain:  Yeah. Jeff can speak to this more than we can, but I don’t want those university researchers taken off the field here. I want them on the 50 yard line doing amazing research and then being able to license that to a company that’d actually bring that to market to help the American people. That’s what I want.

 

Hon. Susan G. Braden:  Well, the universities are not commercializers. That’s the point.

 

Charles Crain:  Exactly. They’re researchers. They’re fantastic researchers.

 

Hon. Susan G. Braden:  Jeff, talk about that a bit. How the whole technology transfer group came into being and explain what AUTM is for people so they know.

 

Jeffrey E. Depp:  Well, sure. I think Bayh-Dole, the statute really gave birth to the tech transfer industry. It gave birth to the professionals that do it so well every day, and AUTM grew up around them to support their work.

 

Hon. Susan G. Braden:  But explain what AUTM is.

 

Jeffrey E. Depp:  Yeah. So AUTM stands for the Association of University Technology Managers, so it’s the professional society for tech transfer professionals. So most of the -- it’s a group of individuals. It’s not a group of universities. It’s a group of individuals, but the great majority of them work at universities in the tech transfer offices. Membership is not limited to that, but that is the bulk of the membership. And that is the bulk of the focus of the organization is to promote technology transfer for the benefit of the members, their employees, their livelihoods, and of course all the great things that come from moving early stage technologies developed at a university out into the marketplace. So that’s what AUTM does.

 

To the point about risk, when we’re sitting around a table with VCs pitching them a number of great technologies, they have way more opportunities than they could ever possibly fund, so they have their pick of the litter. And to your point, Judge, about the risk, again, for any given return they’re going to pick the ones with the lowest risks. And this proposal, among the other things that I talked about, does nothing but add risk to that analysis.

 

And they’re just going to move away from the ones that are the most patent intensive. And they have the ability to do that. At the end of the day, they don’t really care what technologies they’re investing in. They want a return that they can count on and they can turn back to their investors because that’s where their money comes from, and they need to bring in new investors. And in order to do that, they need to show a return. So the whole system falls apart when you inject this unreliability from all of these assaults on the patent system into the process.

 

And to the professor’s point about other ways to manage pricing, again, having been on both sides of this in the pharmaceutical industry and as a tech transfer professional, that is a nonstarter. If you try to put anything in a licensing agreement that is going to talk about the future control of the price of a product, that’s the first thing that’ll get red lined out. You’ll get laughed out of the room. They will not do it because at that point when you’re licensing an early stage technology, they have no earthly idea what it’s going to take to bring that product to market.

 

So they’re not going to hamstring themselves to any sort of pricing rule because, again, they -- again, just like everybody else in the system, they have to get a return, a reasonable return, one that they can predict and rely on so the projections and the business models -- so that everything continues to work. The system, it's a big cycle. And as I said before, this proposal and the other problems that we face right now does nothing but just -- it’s just like throwing sand in the gears.

 

And it’s the last thing we need when we’re talking about our national security and our ability to compete with China. We need to be eliminating these things and oiling the gears so that it can spin even faster than it has. And again, I would say this issue about the drug pricing -- again, I just don’t see -- I think we talked about it. It’s not going to really accomplish the objective for a number of reasons. There are too many patents on these drugs that came from the private sector, so they’re just not march-in-able, if I can make up that term.

 

And the other thing of course is the real -- if you really want to lower drug prices, you need more innovation. You need more innovation. You need substantive products, products that are a better mousetrap, that are the next generation that are going to make the prior generation, again, just drive the price down because the newer, better mousetrap is now available.

 

And that’s the way the system works. That’s what we should be trying to accomplish because that will bring prices down sooner and more substantively than waiting around for generics. That’s not the way to do it. That’s not the way Americans have ever done things. We’re going to go out and innovate our problems away, and we do that by, again, supporting, strengthening the patent rights, greasing the system, and letting innovation be the solution to the problem.

 

Hon. Susan G. Braden:  Professor, one of our participants said isn’t this a taking.

 

Prof. Jorge Contreras:  Yeah. So a couple of things, clearly back in 1945 the Supreme Court in the Hartford Empire case said that mandatory, compulsory licensing of a patent was a taking. So we’ve got that out there.

 

It’s been diluted a little bit by the Oil States decision a few years ago, but let’s say it’s a taking. It certainly seems to look like it’s what we consider to be a taking. But taking, the government can do takings as long as they’re compensated. And so in this case there is compensation. Nobody, not NIST, not the senators who are writing these letters are saying that these patent rights should be expropriated without payment. There’s supposed to be reasonable compensation.

 

If there’s reasonable compensation, then the fight just becomes what is that compensation from a takings standpoint. And that’s something that ultimately the courts will decide, and the Supreme Court has heard lots of takings cases. So technically, it’s a taking, but it’s not an uncompensated taking. So it’s not an illegal taking. I think ultimately if this happened it would be a matter of what the dollars are that were associated with the right.

 

Hon. Susan G. Braden:  So that brings me to some of my expertise. My old court, the Court of Federal Claims, has exclusive jurisdiction over money claims against the federal government. And so let’s play this out a little bit. Let’s assume that I make a special type of tire. I got my research money. I got my patent from whatever, but somebody doesn’t like the price of my patents. So they’re going to say you can’t manufacture your patents. You can’t manufacture your tires anymore, and so the tire manufacturer would come to my old court and file a claim.

 

Now, the statute’s called U.S. 1498(a), and two or three years ago I wrote an article—it turns out to be I was a little bit ahead of myself—but a little bit explaining how that statute has worked. It came into being really after World War I where the government wanted to basically immunize people who basically violated patents in the process of doing work during the war for the war machine. And so that’s how the statute came into being. It’s only been used maybe about 38 times, at least the last time that I looked.

 

But assuming that you went through the whole process, which would be probably four to five years in my court and then through the federal circuit. Let’s assume for the moment that you are compensated. Guess who pays for that compensation. The taxpayers. It doesn’t come out of a leprechaun pot of gold sitting at the end of a rainbow. So what we’re going to do with this whole scheme now is we’re going to have a GS11 decide that prices are unreasonable, and we’re going to basically expropriate your property. But you can go to the Court of Federal Claims, and Judge Braden is going to give you reasonable compensation. Except the taxpayers are going to pay for the privilege of us doing all this.

 

Now, if that makes any common sense to you, I would like to spend an hour or two explaining to you why that’s an insane way of running any type of government policy. Very few times that it’s been used. It really has been extraordinary situations, and I might add that there is federal circuit precedent that says doing that to lower Medicare or Medicaid costs is not -- you can’t use 1498(a) to do that. There’s a federal circuit case that says that called Larson. So in order to change that, they would have to take away that precedent. In any event, that’s just buying another case in the Supreme Court, so that’s not an attractive alternative I think for anyone.

 

So let me just see if we have our time if we -- see if we have -- oh, Josh Cresh (sp) put in the thing our article if anybody would like to read it. I’d like to also end by two things. One is that I was surprised to learn that Google really came out of the Bayh-Dole Act through Stanford University if I believe right. That’s a good indication of a company that’s been successful. And the National Cancer Society has filed comments against this, and I was very much taken by that.

 

You may remember that recently we’ve had statistics that our cancer rate in this country has really dropped significantly. And a lot of that has been because of the technology that’s been commercialized from Bayh-Dole. We’re trying very hard to deal with Alzheimer’s in this country. It’s the same type of thing. The amount of money that’s gone into that work is extraordinary, and we don’t have anything that cures it yet. But we don’t want to stop. We don’t want to stop that effort. At least I don’t want to.

 

Jeffrey E. Depp:  And I would just add to that, Judge, you’re right, and that has arisen from innovation, from next generation advanced personalized therapies, not generic versions of older drugs, but truly innovative breakthrough disruptive technologies that have attacked cancer in ways we never thought we could. And that’s really the solution to this problem.

 

Hon. Susan G. Braden:  So there is something called the Bayh-Dole Coalition, and out of disclosure I’m a member of that. It’s been around for a long time, but it’s basically people who’ve wanted to be supportive in the academic and other communities of the Bayh-Dole process. Fortunately, that group exists and became very active when these guidelines came out. But you can go on their website, and you can find everything you need to know about the Bayh-Dole Act. Every single petition is there.

 

It is just a wealth of information, the library that’s there. And they’re accumulating all the comments that have been made on this particular proposal that’s come out. There’s also a letter that I think is -- that The Federalist Society has put up in addition to some of the comments that I thought would be particularly helpful to people, but they’re in the -- remind me. It’s not called the website. Emily, if you’re there, where can someone find this?

 

Emily Manning:  On the FedSoc website on our event page, which I --

 

Hon. Susan G. Braden:  Event page, yes. Thank you very much.

 

Emily Manning: -- am updating right now.

 

Hon. Susan G. Braden:  But there is a bipartisan letter by senators and congressional members to the President of the United States and the Secretary of Commerce saying remove this proposal. We don’t want it just to fade away. We want it removed. And if you care about this issue, be sure to lend your voice. Just a two page note to your congressman or senator would be very, very helpful. They do look at this. Their staff do look at it, and it’s important.

 

I hope I’ve answered all the questions that we have different places, and Emily, I think you -- yeah, you’ve posted the place where they can get information. And with that, we’re at the close of our time. Thank you for your ear in this important issue and I appreciate all of the work that my co-panelists have put into this, which has been very, very helpful. Thank you all and thanks to The Federalist Society.

 

Emily Manning:  On behalf --

 

Hon. Susan G. Braden:  I’ve been a member for 30-some years, can you believe?

 

Emily Manning:  We appreciate your involvement, Judge Braden. And on behalf of The Federalist Society, thank you all for joining us for this great discussion today, and 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.