Industry experts have voiced concerns over the potential negative impact on American innovation due to the misuse of march-in rights and section 1498, invoking the Bayh-Dole Act. On April 4, 2024, a panel of distinguished thought leaders, spearheaded by Joe Allen, Executive Director of the Bayh-Dole Coalition, gathered in a webinar aptly titled, “American Innovation in Peril: Misuse of the Bayh-Dole Act and Section 1498 Could Be a Knockout Punch.” The event, jointly presented by the Bayh-Dole Coalition and the Licensing Executives Society, delved into how these issues could deal a heavy blow to U.S. taxpayers, businesses, and the broader economy.
The expert panel gave an insightful discussion and contributed thoughtful points about the proposed policies. The panel included:
- Brian O’Shaughnessy, an IP Attorney at Dinsmore;
Adam Mossoff, a Law Professor at Antonin Scalia Law School;
Jennifer G. Young, CEO of the Technology Councils of North America (TECNA);
Robert N. Schmidt, Chair of Cleveland Medical Devices and “inventrapreneur.”
The Problem:
In 1980, the Bayh-Dole Act kickstarted a new era of American innovation by empowering universities, small businesses, and non-profit institutions to patent the federally-funded inventions they created and license them to private companies for further development.
The law includes a “march-in” provision that allows the federal government to mandate the relicensing of federally funded patents under four narrow circumstances, such as if good faith efforts are not being made to develop a product. This provision does not authorize the government to impose price controls on resulting products.
In December 2023, the administration proposed a new framework that would allow government agencies to disregard that long-standing interpretation of Bayh-Dole and grant march-in petitions based on price as a means to lower drug costs. Forced to admit that this alone cannot work, those who urged the administration to misuse march-in rights now want them to misuse the authorities of Section 1498 of the U.S. Code so the government can seize privately funded patents to be shared. This would not be limited to drugs but would apply to all fields of technology.
The Discussion:
Prof. Adam Mossoff explains Section 1498
Section 1498 of the U.S. legal code stands as a constitutional guardian for patent owners, equating their rights with those of real property owners. Just as homeowners receive compensation when their property is appropriated for public use, so too are patent holders entitled to fair remuneration. The statute draws strength from the takings clause of the Constitution, treating patents as inviolable property rights. “Patents are property rights,” stated Prof. Mossoff.
He also highlights the historical significance that American jurisprudence recognized early on that patents deserve the same constitutional protection as physical property. This perspective is backed by 19th-century cases where the government’s use of patented items, like tents by the Union Army, triggered compensation.
The essence of Section 1498 is its function as an eminent domain law for intellectual property. Enacted in 1910 and refined during wartime, the statute clarified the government’s responsibility to pay for using patents without permission. When the government or its contractors use a patented invention without permission, they a re taking something that i s not theirs. “It has to pay,” remarked Prof. Mossoff.
Importantly, Section 1498 is not intended to regulate prices in the private sector. “It’s not meant to be a price control statute,” Mossoff emphasized, “It is not designed in either its text or its purpose to control prices of products and services created by private companies and sold to private consumers whether they are patients or any other type of consumer in the marketplace.”
Implications of March-In
Brian O’Shaughnessy commented on the proposed policies as a huge deal. He said, “This framework has the potential to completely undo the brilliance of the Bayh-Dole Act. And I think it’s very important that we remember the Bayh-Dole Act, for example, was characterized by The Economist magazine as ‘The most inspired piece of legislation in the last 50 years of American legislation.’ It is truly a brilliant piece of legislation because it decentralizes away from the federal government, the technology transfer of technologies that are born of basic research funded by the federal government. It decentralizes it and puts it in the hands of people who have skin in the game, the people who actually develop the technology.”
O’Shaughnessy continued, “The Bayh-Dole Act galvanized our universities and research institutions, granting them ownership of intellectual property (IP) derived from federally funded research. The revenues from licensing these technologies are substantial, flowing back into the very heart of our education and research infrastructure. ”
Experts have expressed concern over the proposed framework’s potential to destabilize the Act’s benefits. The core issue lies in the government’s ‘march-in rights,’ which could be invoked if it deems the pricing of derived products unfavorable. “This puts a cloud over the IP title,” explained O’Shaughnessy. “Private entities might face expropriation of their investments after years of research and risk-taking.”
The fear is that activating march-in rights would lead companies to sidestep university research, perceiving it as ‘tainted’ due to federal funding involvement. “What’s at stake,” O’Shaughnessy continued, “is not just the financial aspect, but the very innovation that improves our lives. We risk losing valuable research to obscurity if the private sector withdraws.”
To maintain America’s competitive edge, the call is clear: safeguard the integrity of licensing agreements and reassure investors of secure IP rights. Otherwise, we risk reverting to an era where potentially life-changing research is left to collect dust.
Implications for Small Business
Jennifer Young suggests that first-time homeowners often endure a journey parallel to that of entrepreneurs. “Saving for that first home requires not just hard-earned money but also additional support through loans or gifts,” she explains. The excitement of homeownership is often accompanied by necessary and unexpected renovations, mirroring the entrepreneur’s experience of constant decision-making under financial constraints.
Young draws a vivid comparison: “Just as a homeowner might rely on a neighbor’s help for a quick fix, an entrepreneur may need external assistance, like government programs, to launch a product.” However, she cautioned against government overreach, equating unsolicited advice on home upgrades to unwarranted interference in product pricing.
If the government steps in to control prices, ignoring the personal sacrifices and investments made, it could severely dampen the entrepreneurial spirit. Young emphasizes the critical role of small business owners in the economy, asserting, “They invest everything, and they are disproportionately the contributors to the economy far more than the large corporations.” She stands firm in advocating for the small innovator. Their all-in investment drives significant advancements, not just in business but in life-changing products and technologies.
Life or Death for the “Inventrapreneur”
Robert (Bob) Schmidt raised a siren call for inventors and small business owners. He voiced urgent concerns regarding proposed changes to intellectual property laws. As co-chair of the Small Business Technology Council (SBTC), he stressed the potential risks small companies face due to the National Institute of Standards and Technology’s (NIST) proposed policy.
Schmidt , who is also an accomplished “inventrapreneur” with 60 patents to his name, described the dangers of the proposed inclusion of pricing as a basis for march-in rights. This move could devastate small U.S. businesses by enabling larger, often foreign, companies to usurp patents by producing similar products at lower costs.
Furthermore, Schmidt detailed his personal journey, highlighting the dedication required to be an inventrapreneur, often at great personal and financial sacrifice. The SBTC’s opposition to the proposed rule change is grounded in the belief that it would effectively strip inventors of the incentive to innovate for federal programs like the Small Business Innovation Research (SBIR) , leading to a ‘broke or dead’ outcome with no potential for financial success.
With an illustrative example, Schmidt mentioned his company, Cleveland Medical Devices, which leveraged a $1 million SBIR grant to develop a cost-saving home diagnostic for sleep apnea. This example underscores the value that small businesses can bring to healthcare and beyond.
“This proposal is a killer for innovation,” he stated. He called for the NIST to reconsider the rule change because of its potentially disastrous economic impacts. Bob concluded by urging the NIST to learn from past mistakes and protect the future of small business innovation.
For more information, the Bayh-Dole Coalition has created a new infographic on the myths vs. the facts about misusing the Bayh-Dole Act’s march-in rights as a price control mechanism. It contains statistics and talking points to push back against the administration’s march-in framework and its supporters.