“While the United States currently leads the world in biotechnology, that dominance is not guaranteed. Just as the United States leapfrogged over Europe in this sector in the 1980s, today we face serious challenges from other countries willing to invest and protect those investments. We cannot afford to sacrifice this successful formula.”
The Biotechnology Innovation Organization (BIO) recently submitted comments in support of a National Institute of Standards and Technology [NIST] rulemaking on “Rights to Federally Funded Inventions and Licensing of Government Owned Inventions.” The proposed rule caps a nearly three-year effort by NIST, through engagement with stakeholders, to improve federal technology transfer and the commercialization of federally funded inventions. That effort resulted in a comprehensive Green Paper, “Unleashing American Innovation” in April 2019, which reviewed federal research efforts and made detailed recommendations to maximize the taxpayers’ return on investment.
The final recommendations of the Return on Investment Initiative reaffirmed the successful policy of the historic Bayh-Dole Act of 1980, which has been called “[p]ossibly the most inspired piece of legislation to be enacted in America over the past half-century.” The robust pipeline from the government’s investment in basic research to revolutionary cures developed by innovative companies has placed the United States in the forefront of the global biotechnology sector. Reaffirming that success is of vital national importance.
Bayh-Dole Led the Way
The Bayh-Dole Act was a response to a very particular problem: although the federal government invested heavily in basic research, that research did not produce the expected new products and industries. In short, the taxpayers were getting a poor return on their investment.
In 1980, prior to the enactment of the Bayh-Dole Act, less than 5% of the federal government’s nearly 30,000 patents had been licensed for commercial development. By empowering federally-supported universities and small businesses to hold and license patents, the Bayh-Dole Act fueled a vibrant innovation sector that, between 1996 and 2017, led to the development of more than 200 new drugs and vaccines, 13,000 startups, $865 billion in added GDP, 5.9 million jobs, and more than 13,000 startups.
Clear and enforceable patent rights are the key to this success. Investors evaluate the strength of intellectual property rights before investing in a pre-revenue company proposing to do important but costly and high-risk research. This investment is critical to the nation because in the biotechnology sector, these small companies produce a majority of the innovation. Seventy percent of the current clinical pipeline programs originate from small emerging bioharma companies. As a result, in 2017, biopharmaceutical companies invested nearly $165 billion in research and development compared with the NIH budget of just $33 billion. This robust investment would not be possible without secure intellectual property rights. As U.S. innovators lead the way out of the COVID-19 pandemic, the value of that policy is being demonstrated on a daily basis. Of the more than 900 unique compounds under development since the start of the pandemic, approximately half have been developed by U.S. innovators. BIO’s COVID Therapeutic Development Tracker documents the impact of this work and is updated weekly.
Price Cannot and Should Not be the Basis for March-In
One issue that has drawn a great deal of attention is whether the government should be able to exercise so-called “march-in rights” on intellectual property developed with federal funds as a price control mechanism. The argument goes that, in order to control prices, the government should be able to grant a license to a third party who would compete with the original contractor or licensee. The proposed NIST regulation, consistent with the plain language of the statute, the intent of Congress, and the sound policy behind the law, declined to adopt this atextual interpretation. BIO supports this recommendation.
NIST’s proposed rule reflects the intent of the law’s authors, Senators Birch Bayh and Bob Dole. As they observed, “Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional; the primary purpose of the act was to entice the private sector to seek public-private research collaboration rather than focusing on its own proprietary research.” Administrations of both parties have consistently interpreted the law this way in the 40 years since its enactment.
It is not necessary to speculate what would happen to the investment environment for these types of inventions if the government were to use march-in rights as a means of price control. When the National Institutes of Health imposed a “reasonable pricing clause” on its Cooperative Research and Development Agreements, interest in such agreements declined so precipitously that NIH withdrew the requirement. Rescinding the rule in 1995, NIH Director Dr. Harold Varmus, observed, “[o]ne has to have a product to price before one can worry about how to price it, and this clause is a restraint on the new product development that the public identified as an important return on their research investment.”
Some in Congress have attempted to mischaracterize the proposed rule as a last minute attempt by the outgoing Trump administration to change the law by barring the use of march-in as a price control mechanism. This rewrites history in an attempt to rewrite a law they do not like. The mistaken belief that we can wipe out intellectual property rights without also sacrificing a robust innovation ecosystem is an exercise in magical thinking. While the United States currently leads the world in biotechnology, that dominance is not guaranteed. Just as the United States leapfrogged over Europe in this sector in the 1980s, today we face serious challenges from other countries willing to invest and protect those investments. We cannot afford to sacrifice this successful formula.
A Partnership that Pays
The taxpayers have benefitted immeasurably from the Bayh-Dole Act in the form of new therapies, vaccines, as well as whole industries. The partnership between the government’s investment in basic research and the private sector’s more substantial investment in developing those discoveries into practical applications has yielded a significant return on the taxpayer’s investment and promoted improved public health and economic growth. Strong and enforceable patent rights have been the key to making this policy a success. BIO supports NIST’s reaffirmation of this important policy.
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