March-In Rights: Everything You Need to Know
March-in rights allow the government to grant patent licenses to other parties or to take licenses for themselves if they helped fund the patent owner's research.9 min read
What Are March-In Rights?
March-in rights are rights granted to the federal government. These allow the government to grant patent licenses to other parties or to take licenses for themselves if they helped fund the patent owner's research and development. Such licenses can even be granted to competitors if the government deems it necessary.
Generally speaking, these rights won't be used unless there are some public safety threats that patent owners cannot handle themselves.
March-In Rights: When They're Used
Besides public safety concerns, the government may also grant patent licenses if the patent owner has not taken any practical steps towards executing the patent. They can even remove exclusive patent rights if the patent isn't deemed suitable for public use.
In order to avoid march-in rights, patent holders need to consider a few important things. First, can the patent be used in anti-terror efforts or to make terrorist threats? If so, the government may well use march-in rights to make use of it. Of course, if you avoid using government funding, march-in rights do not apply.
If you do use government funding to develop your patent and you want to avoid march-in rights, it's important to think about an argument you can use to stop it. The government will be required to pay royalties if they choose to use these rights. They can't just take the patent away from you. This forms an important protection under patent law.
It's important to note that the chance of the government using these rights is pretty slim. So far, it has never happened in the history of the U.S. Some experts, however, believe that the chances of this happening are more likely with each passing day. After all, technology is advancing faster than ever, and terrorism is constantly on the rise. Plus, the fact that these rights exist shows an intent to someday use them.
Most requests to exercise march-in rights are rejected. On such case involved Knowledge Ecology International (KEI). Their request to use march-in rights on Xtandi, a prostate cancer drug, was denied by the National Institutes of Health (NIH). Xtandi is a very expensive drug, costing $129,000 per year. KEI asked the government to use its Bayh-Dole Act rights to force the patent holder to grant licenses under reasonable terms. This is specifically used in cases where government action is needed to address health and safety needs that aren't being satisfied. These rights can also be used when the public is not being given reasonable access to the benefits of a patent.
U.S. Code Section 203
March-in rights are outlined in detail under the U.S. Code, Title 35, Part II, Chapter 18, Section 203. This code states that if an invention was created with the help of federal funding, the agency that provided funding can require the granting of licenses to responsible applicants. These licenses can be exclusive, nonexclusive, or partially exclusive.
Reasonable terms must be set for the licenses. If the licensee refuses, the federal agency can grant the license to itself under any of four specific conditions:
- A license is necessary because the patent owner hasn't taken any steps to follow through with the invention.
- The license is necessary because there are public health and safety concerns that the patent owner cannot satisfy on his own.
- The license is needed to allow the invention to become ready for public use, as the patent holder cannot take or has not taken the necessary steps himself.
- A license is required because the patent holder has failed to abide by other aspects of U.S. code or is in breach of the same.
The code specifies that the determination of the need for these rights isn't subject to other sections of U.S. Code. Also, anyone who is adversely affected by the use of these rights can file a petition in Federal Claims courts to reverse, modify, or remand the actions of the federal agency in question. In that case, the use of march-in rights will be delayed until the courts render a final decision.
Early History of March-In
March-in rights have never been successfully used, but it has been tried. Right now, a group is insisting that march-in rights should be used to control costs on products from federally-funded inventions — in particular, prescription drugs. In fact, the history of march-in rights begins with the government having absolute control over all federally-funded inventions.
March-in rights were first established near the end of World War II. President Roosevelt sought solutions to deal with the massive research system that the government created to secure victory in the war. He was advised that the government had a duty to continue supporting important research.
The Attorney General believed the government should own all federally-supported patents unless the contractor could successfully petition for exclusive rights and move towards commercializing the invention. Otherwise, the government would be able to "march in" and issue licenses itself, with a reasonable royalty paid.
Flash forward to the Kennedy administration. Kennedy issued a memorandum stating that contractors should be required to take proper steps within three years of getting a patent to create the invention or begin to license it. It further stated that the government could force the granting of licenses if the invention was essential to meet public health needs.
Later, the Nixon administration expanded the policy further, providing more rights for the government to control inventions if needed. This expansion required contractors to submit commercialization reports. Failure to do so would allow march-in rights.
While each of these policy expansions allowed for exclusive rights petitions, the government didn't look favorably upon such efforts. This stance became a barrier to commercialization of many products.
From Stagnancy to Invention Boom
Research in 1968 showed that very few new drugs had been developed from research supported by the National Institutes of Health (NIH). In fact, not a single drug had been produced using patents taken away from universities. This led to the Institutional Patent Agreement program under the NIH, which allowed universities to own patents they got from agency grants. March-in rights still existed, but the management of the patents stayed in the hands of researchers.
Before this program, less than 5 percent of researched inventions ever came to market. After it, patent applications tripled, resulting in 122 licenses for 329 inventions. The government was advised all departments to adopt the same approach. Unfortunately, this never came to pass.
Government Control and the IPA Program
Things came to a head in 1975 when American Science and Engineering, Inc. (AS&E), produced important inventions related to CAT scanners. The National Cancer Institute, thrilled by the developments, granted the company a contract to produce its inventions. Two were established using NIH funding, and the company applied for exclusive licensure. The review board supported the licensure. However, it was put on hold until Carter took office.
Unfortunately, shortly after the license was approved, a critic in the NIH filed an objection, which sent it back for review. A notice was published that invited comments. As a result, seven competitors filed objections. One, a dominant CAT scan producer even filed a practical plan in opposition. This led to a decision review as well as the canceling of the license.
In turn, an investigation of the IPA program found that the IPA program had too much control over the pace and desirability of innovation. It was also deemed inconsistent with the primary objectives of the patents: commercialization. The plug was pulled on the IPA program, and universities were forced to file case-by-case petitions.
AS&E filed a lawsuit against the government, and the bureaucrat responsible for stopping the IPA program was fired. Promising inventions were trapped in bureaucracy and red tape, with vital treatments delayed. Senators Bayh and Dole, from opposite sides of the aisle, saw the waste of taxpayer dollars. They introduced legislation to formally establish and fund the IPA program. They also made it a mandatory part of all federal agencies.
By the time the legislation as unveiled, no fewer than 30 identified inventions had been delayed. These included revolutionary cancer detection and treatment methods as well as methods for treating arthritis and hepatitis. Thanks to widespread outrage, the bill was passed with overwhelming support in 1980. AS&E won the lawsuit and regained its exclusive license.
The End Result
With this new legislation, Congress recognized that Washington was ill-suited to handle the licensing of inventions, even with federal funding involved. Patent management fell instead to inventors. However, march-in rights remained for those rare times when a patent holder owner take steps to bring an invention to market. Specifically, the Bayh-Doyle Act says that patents have to be actually used and inventions made available to the public via reasonable terms.
Some people claim that "reasonable terms" includes "affordable prices," but the jury is still out on this issue. The stated intent when the bill was introduced was for inventors to make a reasonable effort to sell their products. If they don't, the government can "march in."
The NIH and Fabrazyme
The NIH has never once used march-in rights and to date has denied five petitions that it should use them. In 2010, three patients who suffered from the rare genetic disorder Fabry disease petitioned the agency. They wanted more manufacturers to be able to produce the patented drug needed to treat their disease.
This petition pointed to problems at the Genzyme facility. Due to contamination issues, the company had to stop producing Fabrazyme for a while — perhaps a full year. This led to serious rationing, with dosages reduced by as much as 70 percent. Newly-diagnosed patients were unable to get the Fabrazyme drug at all.
The patients argued that the shortage represented a failure to make the product widely available. The agency denied their petition based on the argument that even issuing new licenses wouldn't solve the problem. It would still take time for any new licensee to ramp up production. Also, no potential new supplier had sought licensure.
The problem with this argument is that it's unlikely that any pharmaceutical company will seek licensure to develop competing drugs before a patent runs out or unless there is a prior guarantee of licensure under reasonable terms.
The Modern Problem
In the modern era, critics insist that cost control is a valid reason for Congress to assume licensing and ownership of patents. Last year, 51 lawmakers issued a call to the NIH to use march-in rights — or at least issue guidelines to when they could be used — to get around drug patents and exercise price controls.
The most recent denied petition pointed to the cost of Norvir®, an HIV treatment drug. The agency argued that price control does not reside under its control or rights. Thus, march-in is not appropriate for this purpose.
The agency also argued that practical application has occurred because the drug is widely available, regardless of the cost. Further, it argued that it did not have unlimited rights to all relevant patents and that the Hatch Waxman Act currently provides the mechanism for drug development.
The Myriad Connection
Myriad is a company that's been in patent news for years now due to a landmark case heard by the Supreme Court regarding the validity of gene patents in the nation. In the end, the courts ruled that naturally-occurring DNA cannot be patented, but cultured DNA can be. This has led to a charged debate on whether the government has the right to use march-in rights to control patents on these cDNA. To date, neither the NIH nor any other agency has taken a stance on this.
The NIH, Congress, and the Courts
Critics have insisted that the NIH should issue solid guidelines as to what circumstances are appropriate for the use of march-in rights. They argue that thanks to high prices, drugs are not available on reasonable terms to the public. The NIH rejected this request as well, arguing that the simple disparity between U.S. health care and that of other nations does not trigger Bayh-Dole march-in rights.
This has caused something of a catch-22. Congress and other Federal agencies seem unable or unwilling to take a position on when march-in rights are appropriate. The rights of the courts to address these issues are in question as well, as it has not yet been determined that pricing is a legal issue.
March-in rights would need to be used and challenged before the courts could step in to rule on the issue. Nobody is willing to use march-in rights yet, and the courts can't rule on march-in rights until somebody uses them.
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