10 Apr Bayh-Dole Coalition Statement on Newest Effort to Misuse the Bayh-Dole Act for Price Control
WASHINGTON, D.C. (April 10, 2024) – Several activist groups recently sent a letter to the Centers for Medicare & Medicaid Services (CMS), urging the agency to use its authority under 35 U.S.C. § 202(c)(4) and 28 U.S.C. § 1498 to disregard patent protections on the prostate cancer drug Xtandi and contract with generic manufacturers to secure cheaper knockoffs for the Medicare and Medicaid programs.
In response, Joseph P. Allen, Executive Director of the Bayh-Dole Coalition, issued the following statement explaining how this effort misrepresents how both laws actually work:
“The activist groups fundamentally misrepresent, and grossly exaggerate, the government’s powers under 35 U.S.C. § 202(c)(4) and 28 U.S.C. § 1498. They claim that the government can contract with generic drug companies, authorizing them to ignore patent protections on Xtandi to produce cheaper knockoff versions for sale to Medicare and Medicaid beneficiaries — which the activists say meets the definition of “government use” under the law. They further assert that the government needn’t compensate the developer of the drug for this infringement, because the government has a royalty-free license under the Bayh-Dole Act to use inventions made with its support for governmental purposes (35 U.S.C. § 202(c)(4)).
“This is a flawed interpretation of how both laws actually work. 28 U.S.C. § 1498 is functionally an eminent domain statute, which gives the government the ability to disregard patent protections in order to directly manufacture, or contract for, certain urgently needed products — traditionally, military equipment for national security purposes — and then retroactively compensate the patent holders for the infringement. The statute has been invoked only a handful of times in its more than 100-year history — and in every single instance, the products in question were physically acquired by, and directly used by, the Department of Defense or other federal employees. And when this has been done, Sec. 1498 requires the government to compensate the patent owner for the full market value of the invention being used.
“Similarly, the government license under the Bayh-Dole Act is only for meeting mission needs of the agency funding the invention, normally funding additional research or meeting its own procurement requirements. Medicare and Medicaid clearly do not fall under this category.
“Medicare and Medicaid are federal health insurance programs that assist senior citizens or those with low incomes health care needs. Their purpose is not to meet the mission needs of an agency funding the development of a subject invention, but rather to provide insurance to covered beneficiaries.
“To argue that such programs constitute “government use” completely misrepresents how both laws work, ignoring all legal precedent, and turns a narrow eminent domain statute and a law encouraging the commercialization of federally funded inventions into a license for the government to steal any intellectual property whenever the critics don’t like a particular price of a product. To further argue that the government needn’t compensate the patent holder for such gross misuse only adds insult to injury. Apparently, the critics who have tried so long to misuse the march in rights provision of the Bayh-Dole Act to impose price controls have given up on that ill-fated gambit only to try an even more desperate ploy.
“It should also be kept in mind that this argument could be applied to virtually any product, not just drugs. That’s how banana republics function. It’s a model which would have the same devastating impact if ever adopted in the United States.”
About the Bayh-Dole Coalition: The Bayh-Dole Coalition is a diverse group of innovation-oriented organizations and individuals committed to celebrating and protecting the Bayh-Dole Act, as well as informing policymakers and the public of its many benefits.