Will the government go marching in?

In this week’s Art of Supply interview, I take a few steps outside of my comfort zone to discuss some fascinating and potentially concerning developments in the world of patents with return guest Wen Xie, a patent attorney and a Partner at Global IP Counselors, LLP in Washington D.C.

To learn more about the basics of patent applications and enforcement, as well as some winds of change that are starting to blow, check out Proposed Patent Rule Changes and their Impact on Innovation on Art of Procurement.

Paying to Play

Companies in the pharmaceutical industry are often cast as evil corporate behemoths, throwing their weight around to get what they want. And while they are among the most profitable industries globally, it is an extremely expensive business to be in. R&D costs are high and the approval process is lengthy. Once a drug is approved, they owe it to their shareholders to protect their investment.

That seemingly sensible business decision is often characterized as greed, in part because healthcare is such a personal business. Patents often enter that conversation, especially with regard to how they are awarded and defended. The resulting debate can feel as much like philosophy as business.?

“Not that many years ago, patents were a bipartisan issue,” Wen observed. “They were not that controversial.” With patents, the trade off is exclusivity for disclosure. Companies make an investment and accept risk in order to innovate. They get a period of exclusivity in exchange for disclosing their invention, and everyone else benefits through the disclosure of details in their patent application.

But now, despite its long established history, the patent process is being challenged - and the pharmaceutical industry is among the first targets.?

Are we buying Bayh-Dole?

One of the most interesting parts of my conversation with Wen had to do with the Bayh-Dole Act. She started by explaining the history before getting into some significant proposed changes.

After World War II, during the Truman administration, when the private sector and the government collaborated and invented something new, the government owned the patents. They realized at some point the patents weren't really being commercialized. So the Bayh-Dole Act was passed in 1980. To distill it down to its basics, they found a way to handle it when the private sector and the government were collaborating and they invented something new.?

The private sector would own the patents and the downstream benefits of those patents, but they have to commercialize them. The government retains what's called ‘march in’ rights. If they feel like that invention is not being implemented to its practical applicability, they can ‘march in’ and force the private sector company to license the invention covered by the patent. It's sort of like a forced technology transfer in that sense when they feel certain criteria have been met, the government needs to march in.

Today, the march in criteria are being looked at for expansion. The government is planning to include availability and affordability as reasons to march in on a patent. Neither is easy to measure in a legal sense, which has left many intellectual property experts feeling uncomfortable, relying upon a “nebulous standard” as Wen described it to decide when marching in is appropriate and permissible. “How do you define when something is not publicly accessible enough?” she asked.

First they came for the pharmaceutical companies…

Going back to my initial point about the ‘big bad’ pharma industry, they may be the target today, but any private company that takes government funding and innovates where a patent results can be subject.

Wen used the example of COVID-19 vaccine patents to illustrate the point.?

The greatest example of how this is being applied is actually with the COVID vaccine patents. So much of the foundational technology that ultimately led to the COVID vaccines was associated with government funding. This is especially pertinent to universities who would get a lot of NIH funding for their research.

Some people want to say that there are march in rights for the government to march in on the companies who own the patents to the COVID vaccines.

The government would like them to be more widely disseminated, I guess, even though there's no shortage. I believe everybody who's wanted one in this country has been able to get one. Or maybe they think that it's too expensive. Both of those are subject to debate, but it's all on a scale. What is expensive? What is a shortage? It all depends on the context. it's a blurry line no matter where you draw it.?

They’re going to set a precedent along a blurry line and it might be applied on a broad scale. It's just the sort of thing you shouldn't proceed into lightly.?

...then they came for me

Although Wen and I discussed the potential expansion of march in rights in the context of the pharmaceutical industry and, more specifically, the COVID vaccine, it could affect any industry. Think of the government spending associated with the CHIPS & Science Act. We should all hope that this enormous government investment leads to innovation and patents. But expanding march in rights brings the ROI of such an arrangement into question. What semiconductor company would want to be forced to license their latest technology to a competitor because it was arbitrarily deemed not 'available' or 'affordable' enough?

The same could be said of government investment in EVs or EV batteries and charging stations. Federal funds are especially needed in cases where innovation is desirable but expensive to achieve at scale, where it borders on infrastructure. If the cost of receiving that funding has the potential to make a patentable technology widely available, then companies are likely to change how they approach the patent process.

Any time a precedent is established in one industry, we can't say it won't be applied in other industries where the conditions or dynamics look similar. The biggest unanswered question of all goes back to the foundational intent of the patent system: exclusivity in exchange for disclosure. Will the general public continue to benefit from the developments associated with disclosure? That shouldn't be arbitrary either.

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