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Democrats Tout Federal Patent Take-Backs for Lowering Drug Costs

Dec. 16, 2019, 9:46 AM

Several Democratic candidates for president have been touting a method for reclaiming drug patents as a silver bullet approach they would use to lower the cost of medication, but lawyers in the field say the tactic is more cumbersome and challenging than promised.

Sens. Elizabeth Warren and Bernie Sanders, as well as South Bend, Ind., Mayor Pete Buttigieg have all said that, if elected, they would use government authority to take back patents from drug companies to get lower-cost drugs on the market sooner.

The concept is known as “march-in” rights, a provision of the Bayh-Dole Act of 1980, which established rules for when the government has the authority to seize patents for inventions that were created with government funding and then license them to other entities.

No administration has ever used march-in rights, though the process has been initiated a handful of times, with the George W. Bush and Barack Obama administrations declining to pursue the rights.

The term is also often used broadly, and erroneously, to refer to a similar policy created under 28 U.S. Code Section 1498, part of the judiciary and judicial procedure code, which allows the government to authorize the production of cheaper versions of drugs. The section, which applies to all patented inventions, including drugs, includes a provision that would have the government pay the patent-holder royalties.

Together, the two concepts have been hailed by Democrats as a cure-all that would speed affordable medication to Americans most in need.

However, lawyers who specialize in this area say neither option would bring a quick remedy to skyrocketing drug prices.

“March-in rights are not a panacea, and neither is 1498,” said John R. Thomas, a professor at Georgetown Law. “March-in rights have been this paper tiger that we haven’t employed. But it might make drugmakers pause.”

Many say it’s a laudable goal and an approach that could work over time to combat the rising cost of products like insulin—which increased to an average of $5,705 per year in 2016, compared with $2,864 annually in 2012, according to the nonprofit Health Care Cost Institute.

“March-in rights hasn’t been used before, so it’s hard to know what it would look like in practice,” said Rachel Sachs, a professor at Washington University School of Law in St. Louis. “But march-in rights is something that the government can use today, whereas what we’re seeing now is that the [Trump] administration is trying to finalize a whole lot of regulations that may or may not lower prices.”

In 2004, the National Institutes of Health publicly opposed using march-in rights to lower drug prices, writing that “the extraordinary remedy of march-in is not an appropriate means of controlling prices. The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively.”

A new administration could always reverse that position, as Sanders, Warren, and Buttigieg have pledged to do.

Unsurprisingly, the pharmaceutical industry has lobbied heavily against using either Bayh-Dole or 1498 to take over patent and licensing rights.

Mechanism of March-In

March-in rights were interpreted by the Department of Commerce via a regulatory regime that intentionally makes it difficult to use in a timely fashion, said Arti Rai, a professor at Duke Law.

“The idea is that it should be used expeditiously, yet the machinery of how the process works is extremely clunky,” she said. “You have to go through multiple appeals before you implement march-in. That’s a practical concern, but a concern that tends to be overlooked in the discussion.”

Currently, the process would start with a federal agency declaring it was pursuing march-in rights. In the case of drugs, that would likely involve the NIH, which funds a great deal of drug research.

The patent owner then gets an opportunity to contest the agency’s attempt during a series of hearings, with the head of the agency making a final decision.

However, any decision in favor of march-in rights would then be appealable to the Court of Federal Claims—which then could be appealed to the U.S. Court of Appeals for the Federal Circuit. Any effort to take over a patent would be stayed while the dispute worked its way through the administrative system and the courts, according to Commerce regulations.

“The hearings at the agency typically take years—and that’s even before the appeal to the court,” Rai said.

“A president could presumably change those regulations and make the march-in procedure much more speedy, but he or she would have to do that first and that would take some time because changing regulations does take a while,” she added.

It’s not to say that trying to use executive branch authority is the wrong approach, it’s just important to separate political rhetoric from red-tape reality, Rai said.

Eligibility of March-In Rights

Another issue with march-in that’s often misunderstood is that under Bayh-Dole, those rights would only apply to roughly 9% of drugs on the market, according to research by Bhaven N. Sampat, of Columbia University, and Frank R. Lichtenberg, of Columbia Business School.

That’s because Bayh-Dole only applies when government funding contributed to the conception of the patent claim. In other words, the government must have funded research when the inventor was thinking about the idea behind the patent claim, Rai said.

Therefore, march-in rights wouldn’t apply in every case in which the government funded clinical testing or other research—a concept poorly understood by many.

“It’s not easy to use the rule of law with march-in rights,” Rai said.

In addition, “there’s a big hole,” when it comes to biologic medications—which includes insulin, as it’s consider a small biologic, she said.

The reason comes down to the difference between generic drugs, which are identical copies of a brand-name version of a relatively simple, small-molecule drug, and biosimilars, which are close but not identical versions of brand-name biologics—highly-complex molecules derived from living cells or tissue.

Because it’s not a duplicate of an existing drug, it typically costs a lot more to make a biosimilar and get it approved by the Food and Drug Administration than it does a generic, making it more difficult for the government to force down prices via Bayh-Dole on those kinds of treatments.

Section 1498

Some believe the solution to Bayh-Dole’s limitations is U.S.C. 1498, which would apply to a much wider range of drugs—covering virtually all those that could be needed for government use—and could be implemented more quickly with fewer regulatory and administrative hurdles, Sachs said.

“1498 is much stronger in the sense that it doesn’t require you to do this tracing of all the patents in a product,” she said. “It’s also very clear in that it provides a remedy for the owner of a patent, and their only remedy is that they get to sue the United States in the Court of Federal Claims, but they don’t have the authority to challenge the United States’ rights to take the patent in the first place.”

However, 1498 still comes with its own challenges. Even if the government obtains the right to license drug patents to generic companies, those drugmakers still have to clear FDA hurdles, which can take many months or years before the cheaper medication makes it to market.

In some cases that process could be sped up—for instance when a generic version or biosimilar is already available in other countries that have different patent laws and terms. However, in most cases it’s not an overnight solution.

That doesn’t mean that the Democratic presidential candidates shouldn’t pursue that approach, said Peter Maybarduk, director of Access to Medicines for nonprofit Public Citizen.

“It’s a much needed development for political leaders to recognize monopoly power as the root problem of high drug prices,” he said. “Greed is out of control, so our elected leaders have to have better answers now.”

The use of 1498 to date has primarily been as a threat to drug companies that is leveraged to force down drug prices. This was most notably done in 2001, following fears of widespread anthrax attacks.

In that case, the government posed the possibility of using 1498, which ultimately led to Bayer cutting the cost of the antibiotic ciprofloxacin roughly in half in a matter of days.

The threat of using 1498 and march-in rights could be more expedient that the actual legal and administrative tools themselves, Rai said.

(Michael Bloomberg is also seeking the Democratic presidential nomination. Bloomberg Law is operated by entities controlled by Bloomberg.)

To contact the reporter on this story: Valerie Bauman in Washington at vbauman@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Randy Kubetin at rkubetin@bloomberglaw.com

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