The Biden administration is quietly advancing a proposal that could devastate America’s high-tech economy. The White House says the plan is about “beating Big Pharma.” But in reality, it would decimate investment across a variety of sectors.
The proposal functionally rewrites a 1980 law known as the Bayh-Dole Act, which allows universities to patent promising discoveries they make with the support of federal grant funding and then exclusively license those patents to a private sector partner for further development and commercialization.
Prior to Bayh-Dole, the government retained patent rights on federally funded research and did not grant exclusive licenses for those patents. In practice, few companies were willing to risk millions of dollars to commercialize early-stage technologies if they did not hold exclusive licenses. As a result, very few inventions made it from the lab to the marketplace.
After Bayh-Dole, innovation took off. The law has added around $1.9 trillion to U.S. output over the last three decades and has led to the creation of thousands of inspiring start-up firms. Hundreds of products — ranging from medicines and vaccines to battery technologies and electronics — are available to consumers thanks to Bayh-Dole.
The law’s authors included a minor failsafe provision called “march in” allowing the government to step in and relicense federally funded patents if a university is making no effort to license the patent, or if a licensee is making no effort to bring the discovery to market.
It is this never-used march-in clause that the White House now says can be used as a magic wand to slash the cost of prescription medicines and other consumer goods. The administration’s new guidance encourages agencies to revoke exclusive patent licenses if bureaucrats think the resulting products are too expensive.
As someone who spent over 20 years on the federal bench adjudicating patent cases, I can assure you that these bureaucrats are mistaken. March-in was intended as a protection against exceptional cases, not as a broad tool for government intervention.
Sens. Birch Bayh (D-Ind.) and Bob Dole (R-Kansas) clearly stated that their legislation does not permit government price setting for products that are widely available on the market. Every president since Jimmy Carter has deferred to Bayh and Dole’s interpretation of their own law, but President Biden evidently believes that his predecessors were mistaken.
Yet the Biden administration’s efforts to twist decades-old laws to achieve political wins may not end with Bayh-Dole. Legal filings suggest that the administration is also advancing a radical reinterpretation of Section 1498, a World War I-era statute meant to provide patent owners with reasonable compensation if the government infringes on their technology during a war or other direct government responsibility.
In recent years, a few activists and lawmakers have claimed that the government can invoke Section 1498 to confiscate patents and authorize generic drug manufacturers to produce cheap copies of patented brand-name drugs, which would then be sold to the public under insurance programs like Medicare and Medicaid.
Like the new march-in guidance, this course of action has absolutely no sound basis in law. First, 1498 only applies when a product is produced directly for government use: courts have repeatedly said so. Bulletproof helmets or no-puncture tires for military vehicles may qualify, but prescription drugs merely purchased by government programs for consumer use most definitely do not.
More importantly, the text of Section 1498 clearly says that patent owners are due “reasonable and entire compensation” in cases of infringement, meaning taxpayers would be on the hook for any temporary “savings” misuse of the law generates.
Zooming out from the legal minutia, there is a bigger problem with calls to twist both Bayh-Dole and Section 1498. These proposals would essentially establish government-run patent licensing, with politicians and bureaucrats, not markets, deciding which prices are “reasonable” and which are not, and which companies will produce them.
In the face of such uncertainty, many companies will lose faith in patent protections. This will chill innovation, slow economic growth and, ironically, lead to reduced access in the long run as fewer new technologies are developed. And it is not just pharmaceuticals at risk; both proposals would apply equally to consumer products across every high-tech, patent-intensive sector.
Already, there is good reason to think that the administration’s march-in proposal, and its apparent willingness to misuse Section 1498, are impacting companies’ investment decisions and reducing their willingness to partner with universities. Their investors will likewise be deterred.
Upsetting our delicately balanced patent system to score political points is shortsighted and dangerous, especially as America’s technological edge faces growing threats from competitors like China. The Biden administration should focus on strengthening, not undermining, the foundations of American innovation and prosperity.
Judge Paul R. Michel (ret.) served on the United States Court of Appeals for the Federal Circuit from 1988 to 2010. He is a board member of the Council for Innovation Promotion.