The National Institute for Standards and Technology (NIST) published a request for information (RFI) in December 2023 on its “Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights.” It’s quite something, if not in a good way.

Read the full piece here.

Under the Bayh-Dole Act, the federal government has the right to “march in” on patents on inventions created using taxpayer funds—to require the patentholder to license the federally funded patent to other applicants. The terms of the license must be “reasonable under the circumstances.” The act limits the exercise of march-in to specific circumstances related to accessibility of the invention, as well as national health and safety (35 U.S.C. 203).

The law does not list the pricing of a license as a grounds justifying march-in.

Read the full piece here.

The Federal Trade Commission (FTC) has now gone on record in comments to the National Institute of Standards and Technology (NIST) that it supports expanded “march-in rights” under the Bayh-Dole Act (Act). But if NIST takes the FTC’s (unexpected, but ultimately unsurprising) contribution seriously, such an expansion could lead to overregulation that would ultimately hurt consumers and destroy the incentives that firms have to develop and commercialize lifesaving medicines.

Read the full piece here.

As scholars, former judges, and former government officials who are experts in patent law, patent licensing, and innovation policy, we respectfully submit this comment in response to the Request for Information (RFI) by the National Institute of Standards and Technology (NIST) on the Draft Interagency Guidance Framework for Considering the Exercise of March-in Rights (Guidance Framework).[1] In the RFI, NIST states that it seeks “to ensure that [the Guidance Framework] is clear, and its application will both fulfill the purpose of march-in rights and uphold the policy and objectives of the Bayh-Dole Act.”[2] We believe that the Guidance Framework contradicts both the text and purpose of the Bayh-Dole Act, and thus it should be withdrawn by NIST.

For the first time since the enactment of the Bayh-Dole Act in 1980, NIST proposes a Guidance Framework for the four march-in powers in 35 U.S.C. § 203 that provides that “march-in is warranted” and thus an agency may issue licenses without authorization by the patent owner if “the price or other terms at which the product is currently offered to the public are not reasonable.”[3] The RFI expressly states that agencies that provided funding for subject inventions under the Bayh-Dole Act may “include consideration of factors that unreasonably limit availability of the invention to the public [as triggers of the march-in powers under § 203], including the reasonableness of the price and other terms at which the product is made available to end-users.”[4]

The Guidance Framework’s inclusion of “the reasonableness of the price [paid by] end-users” as a new criterion for any agency exercising the march-in powers in § 203 represents unprecedented and unauthorized regulatory authority. It lacks statutory authorization in the Bayh-Dole Act, as confirmed by its text, its purpose, and by other sources of statutory interpretation long relied on by courts and agencies, such as past interpretations of a statute by government officials. In fact, § 203 of the Bayh-Dole Act never mentions “price” as a criterion for the exercise of the four specified march-in powers, as contrasted with the RFI’s reference to “price” twenty-six (26) times.

Congress knows how to enact a price-control statute and to state clearly in a statute’s text that federal officials or agencies may consider “reasonable price” or even merely “price” as a condition for authorizing direct or indirect price controls on products produced and sold by private companies to consumers. One example is the Emergency Price Control Act of 1942,[5] among many others. The Bayh-Dole Act does not authorize this administrative power to control directly or indirectly prices, neither generally nor specifically in the four march-in conditions in § 203.

Other organizations and individuals with direct experience and knowledge in research and development in companies and universities, patent licensing under the Bayh-Dole Act, and in other related commercial activities in the U.S. innovation economy have submitted comments on these matters about which they have expertise. As legal experts, our comment explains why the Bayh-Dole Act does not authorize an agency to issue march-in licenses for the purpose of lowering prices on any product or service embodying a patent covered by this statute. First, it describes the evidence of the proven success of the patent system as a driver of innovation and economic growth. This is the necessary legal and policy framework for evaluating any proposed regulatory alterations to patent rights, especially unprecedented proposals like the Guidance Framework that would weaken or eliminate these patent rights. Second, it explains why the Guidance Framework lacks authorization in the Bayh-Dole Act according to its plain text, its statutory function, and its consistent implementation by agencies over several decades by bipartisan administrations. Third, it identifies how Senators Birch Bayh and Robert Dole expressly rejected claims by professors over two decades ago that the Bayh-Dole Act authorized agencies to use the march-in powers to control market prices of products and services. NIST should withdraw the proposed Guidance Framework.

The Success of the Patent System as a Driver of Economic Growth and Innovation

The patent system has been a key driver of the U.S. innovation economy for over 200 years, as economists, historians, and legal scholars have repeatedly demonstrated.[6] The patent system was central to the successes of the Industrial Revolution in the nineteenth century, the pharmaceutical and computer revolutions in the twentieth century, and the biotech and mobile telecommunications revolutions in the twenty-first century.[7] Patent systems that secure reliable and effective property rights to inventors consistently and strongly correlate with successful innovation economies.[8]

Dr. Zorina Khan, an award-winning economist, has demonstrated that reliable and effective property rights in innovation—patents—were a key factor in thriving markets for technology in the United States in the nineteenth century.[9] Other economists have also identified features of these robust nineteenth-century innovation markets—such as an increase in “venture capital” investment in patent owners, the rise of a secondary market in the sale of patents as assets, and the embrace of specialization via licensing business models—as indicators of value-maximizing economic activity made possible by reliable and effective patents.[10] This remains true today: a twenty-first-century startup with a patent more than doubles its chances of securing venture capital financing compared to a startup without a patent, and this patent-based startup has statistically-significant increased chances of success in the marketplace as well.[11]

These general economic insights and historical facts are especially evident in the biopharmaceutical sector. Historically, the U.S. has been a global leader in first securing innovations in new drugs, diagnostics, and other biotech innovations in healthcare.[12] As a result, the U.S. is a global leader in biomedical innovation. More than one-half of new drugs worldwide are invented in the U.S., improving the quality and duration of human life here and abroad.[13] For this reason, the U.S. patent system was identified as the “gold standard” in securing reliable and effective property rights in the fruits of innovative labors—patents.[14]

The real-world results of reliable and effective property rights—whether in real property or in patents—is extensive private investments, development of new products and services, and the creation and growth of new commercial markets. Just as in the high-tech sector and in the mobile revolution,[15] these same economic consequences are manifest in modern healthcare. The annual private investment in research and development (R&D) of new pharmaceutical and biotech innovations is approximately $129 billion (as of 2018).[16] This is almost triple the total amount of total public funding of $43 billion of R&D in healthcare innovations (as of 2018).[17] Medical diagnoses that once were either death sentences or led to a greatly diminished quality of life—cancer, hepatitis, and diabetes—are now treatable and manageable medical conditions within a relatively normal lifespan. This data is relevant in assessing the Guidance Framework because the Biden Administration has argued that it serves the purpose of lowering drug prices,[18] although the Guidance Framework does not state this nor does it limit the proposed “reasonable price” criterion to patented drugs and other inventions resulting from some upstream research funding in the life sciences by the federal government.

The evidence of the historical, economic, and empirical success of the U.S. patent system in driving innovation and economic growth is the baseline by which NIST should consider new regulatory proposals that ultimately weaken or restrict reliable and effective patents on new innovations throughout all sectors of the U.S. innovation economy. This includes the Guidance Framework, which includes an unprecedented power to issue nonexclusive licenses for the purpose of controlling prices on any patented product or service because a funding agency may deem it to be sold at “unreasonable prices.” The eight scenarios and examples in the Guidance Framework make clear that consideration of “reasonable price” as a condition for exercising the march-in power applies to every sector of the U.S. innovation economy, from manufacturing of highway signage to the 5G communication technologies implemented in connected cars.[19]

The evidentiary burden is on any official or agency proposing wide-ranging regulatory restrictions, additional costs, and additional legal uncertainties on patent owners. First, they must explain that proposed regulations are legally authorized. Second, they must explain, even if legally authorized, that there is reliable and robust data that supports this proposal as evidence-based policymaking. As will now be explained the Guidance Framework fails on both of these necessary conditions for an agency adopting new regulations, especially those that authorize unprecedented powers such as the Guidance Framework’s authorization of an agency to impose price controls under a “reasonable price” criterion for issuing nonexclusive licenses under § 203 of the Bayh-Dole Act. § 1498. These arguments are equally incorrect, as detailed below.

A Price-Control Power Contradicts the Text and Statutory Purpose of the Bayh-Dole Act

Congress enacted the Bayh-Dole Act in 1980 to provide an incentive for private parties to make the significant, risky investments in new product development, in creating manufacturing capabilities, and in setting up supply and distribution chains that bring new innovations to consumers. These are necessary investments in translating original discoveries into useful commercial products.[20] Before 1980, the government effectively claimed ownership in inventions resulting from government-funded research, offering nonexclusive licenses to anyone requesting one; this undermined the commercialization of these inventions given the absence of property rights that are the legal platform for contracts and other commercial activities.[21] The Bayh-Dole Act corrected this mistaken policy by establishing that innovators can obtain patents for inventions arising from some government-funded research and retain ownership in these patents, which facilitates licensing and other commercial activities in the marketplace.[22]

Section 203 in the Patent Act, as enacted in the Bayh-Dole Act, creates the limited exception to this core function of the Bayh-Dole Act by creating the “march in right.”[23] To ensure commercialization of inventions arising from research funded by government agencies, § 203 authorizes a federal agency that has funded research that resulted in a patented invention “to grant a nonexclusive, partially exclusive, or exclusive license” under four specified conditions.[24] A federal agency may grant these licenses “to a responsible applicant” without authorization from the patent owner in four delimited circumstances: (1) if “the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use,” (2) “to alleviate health or safety needs which are not reasonably satisfied,” (3) “requirements for public use specified by Federal regulations . . . are not reasonably satisfied,” or (4) “a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement.”[25]

The statutory text of § 203 does not support the unprecedented inclusion of “reasonable price” as a criterion for any agency in imposing price controls on patented products or services produced by private companies and sold to private consumers in the marketplace. The four march-in conditions, set forth in § 203(a) in the disjunctive, constitute the only authorizations in this exemption in the Bayh-Dole Act for a federal agency to exercise the march-in power. Notably, there is no mention of “reasonable price” in the four authorizing conditions for a federal agency to invoke the march-in power to issue licenses without approval from a patent owner.

Congress would have expressly enacted text conferring a price-control power in § 203 if it intended a “reasonable price” to trigger use of the march-in power under § 203. Congress has enacted numerous statutes that have authorized officials or agencies to impose price controls on transactions in the marketplace.[26] The Emergency Price Control Act of 1942 is one such example.[27] Similarly, rate-regulation statutes enacted by the states according to their police powers expressly authorize legislators or regulators to set “prices” or determine “rates.”[28] Contrary to these price-control or rate-regulation statutes, § 203 is devoid of any archetypical pricing terms, such as “price,” “prices charged by an assignee or licensee,” “market price,” or “reasonable price.” According to the “the ordinary meaning of the words used” in § 203 and § 201(f) in the Bayh-Dole Act, the march-in power does not authorize licenses for the purpose of imposing price controls.[29]

Moreover, there is no catch-all clause in § 203 authorizing the march-in power for anything not already covered by the four specific march-in conditions. This is significant for at least two reasons. First, Congress knows how to create broadly framed and expansive authorizations for agency action, if this is its purpose. For example, Congress has expressly created broadly-framed authorizations of general administrative powers in other statutes, such as the well-known language in the Federal Communications Act of 1934 authorizing the Federal Communications Commission to grant radio transmission licenses according to whether the “public convenience, interest, or necessity will be served thereby.”[30] Second, the canon of statutory construction of expressio unius est exclusio alterius establishes that, without a catch-all clause, the march-in power is delimited to only these four express exemptions from the longstanding rights of patent owners covered by the Bayh-Dole Act to freely assign or license their property in the marketplace.[31] In sum, Congress chose not to create an open-ended grant of authority in § 203 in listing only four specific march-in conditions that strictly specify the narrow scope and application of the march-in power exemption in the Bayh-Dole Act, which comports with the general function of the Bayh-Dole Act in promoting private commercialization of patented innovations in the marketplace.

The inclusion of “reasonable price” as a criterion in the Guidance Framework follows the work of activists and academics who have argued for over two decades that the first condition in the march-in provision that specifies the failure “to achieve practical application” of an invention as a trigger for the march-in power means that that prices can prevent this “practical application” with consumers.[32] As is typical of modern legislation, the Bayh-Dole Act has a lengthy definition of “practical application” in which these advocates for this price-control theory of § 203 have focused on a single phrase (“available to the public on reasonable terms”).[33] These activists and academics have spun an entire theory of unprecedented and vast regulatory power to control prices in the marketplace of patented products and services based on only two general phrases in two separate sections of the Bayh-Dole Act—“practical application” and “reasonable terms.”

This price-control theory of § 203 is wrong as a matter of law and statutory interpretation. First, their argument creates vast administrative powers based on an out-of-context, laser-like focus on phrases that have been isolated from lengthy and complex statutory provisions. This commits the classic interpretative error of wooden textualism.[34] For example, these activists and academics do not acknowledge that “terms” is often a distinct legal concept from “price,” as these distinct words have been used in many legal instruments. In fact, statutes often distinguish between “price” and “terms” by listing these two words separately.[35]

These advocates for the price-control theory of § 203 also do not acknowledge that the partial definition of “practical application” in § 203(a)(1) as “reasonable terms” in § 201(f) in the Bayh-Dole Act follows past usage of “practical application,” which was understood to refer to the “successful development and terms of the license, not with a product’s price.”[36] For example, President John F. Kennedy issued a statement on patent policy in 1963 in which he proposed mandating licensing of government-owned inventions in order to achieve “practical application” of an invention and to “guard against failure to practice the invention.”[37]

Second, in interpreting a specific statutory provision or a specific clause within a statutory provision, the advocates for the price-control theory of § 203 violate fundamental legal rules governing the interpretation and application of statutes. Courts always inquire into “the specific context in which that language is used, and the broader context of the statute as a whole.”[38] The Supreme Court has bluntly stated in far too many cases to cite or quote: “We do not . . . construe statutory phrases in isolation; we read statutes as a whole.”[39] “Courts have a ‘duty to construe statutes, not isolated provisions.’”[40]

Congress stated its express intent in the Bayh-Dole Act: “It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development.”[41] The march-in power is an exemption from the function of the Bayh-Dole Act to stimulate universities and other researchers receiving federal research funds to obtain patents to utilize licenses in commercializing their inventions. In fact, this exemption was included in the Bayh-Dole Act precisely because it advanced this primary commercialization function of the statute: if a patented invention is not licensed or made available in the marketplace by its owner or licensees, then an agency is authorized to act to achieve this goal. Thus, § 203(a)(1)-(4) specifies four conditions in which the march-in power is justified, and these conditions identify situations in which inventions are not sold or commercialized in the marketplace.[42]

Lastly, the Guidance Framework’s lack of legal authorization in the Bayh-Dole Act is confirmed by Supreme Court precedent that agencies may not arrogate powers to themselves that are not specifically granted in statutes. An unprecedented power to impose price controls on all patented products or services produced and sold in the marketplace that were created from upstream research supported by some federal funding requires more than vague or generalized statutory terms like “effective steps to achieve practical application.” This is especially true given that Congress has consistently and repeatedly rejected bills that would impose compulsory licensing on U.S. patent owners, from the First Congress in 1790 up through the twentieth century.[43]

The Supreme Court has consistently instructed agencies that “Congress, we have held, does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions— it does not, one might say, hide elephants in mouseholes.”[44] The Supreme Court has rejected other agencies’ claims to regulatory authority under similarly vague and generalized terminology as the statutory phrase “practice application” in § 203, which has been the justification of the price-control power that the Guidance Framework implements. In these many other legal cases, the Supreme Court has stated bluntly that “‘Congress could not have intended to delegate’ such a sweeping and consequential authority ‘in so cryptic a fashion.’”[45] The Supreme Court again stated last year that it repeatedly “requires Congress to enact exceedingly clear language if it wishes to significantly alter . . . the power of the Government over private property.”[46] The Guidance Framework lacks a clear authorization in § 203 to justify its unprecedented inclusion of “reasonable price” as a criterion for authorizing the march-in power.

Agency Interpretations of § 203 Confirm It Does Not Authorize a Price-Control Power

The plain text of § 203 and its function within the Bayh-Dole Act as a whole explains why federal agencies—spanning bipartisan administrations over several decades—have repeatedly rejected numerous petitions to use the march-in power to impose price controls on drug patents. In 2016, the Congressional Research Service identified six petitions submitted to the NIH requesting it to exercise its march-in power solely for the purpose of lowering prices of patented drugs sold in the healthcare market.[47] The NIH denied all six petitions on the grounds that § 203, as confirmed by the NIH’s prior interpretation of this statutory provision, did not permit the march-in power to be used for the purpose of lowering drug prices.[48] By 2019, four more petitions had been filed with the NIH by policy organizations and activists, each requesting again that the NIH invoke the march-in power for the sole purpose of lowering drug prices.[49] As with the prior six petitions reaching back to the 1990s, the NIH rejected these petitions on the statutory ground that “the use of march-in to control drug prices was not within the scope and intent of its authority.”[50]

In 1997, for example, the NIH was petitioned to invoke the march-in power for the Isolex 300, a patented medical device used in organ transplant procedures.[51] The NIH rejected the petition for failing to meet the burden of proof that any of the four march-in conditions specified in § 203 had been triggered, authorizing the NIH to march in and license other companies to make and sell this medical device in the healthcare market. The NIH found that the Isolex 300 was being commercialized in the marketplace: the patent owner was actively licensing the patented device, seeking regulatory approval, and meeting research demands.[52] These facts precluded the triggering of the march-in power under the four authorizing conditions in § 203.

In rejecting this march-in petition, the NIH further explained why lowering prices on a medical device like the Isolex 300—imposing price controls on the healthcare market—was not justified by the plain text of § 203 and the function of the Bayh-Dole Act in promoting the commercialization of patented inventions. The NIH stated that, even if the petitioner proved that there would be greater accessibility and lower prices given additional licenses from the NIH invoking the march-in power, this rationale lacked authorization under § 203.[53] The NIH stated bluntly that the march-in power in § 203 did not exist for the purpose of “forced attempts to influence the marketplace.”[54] It acknowledged the contradiction between the Bayh-Dole Act’s primary function in promoting the commercialization of new innovations in the marketplace and adopting a march-in power for the purpose of imposing price controls, observing that “such actions may have far-reaching repercussions on many companies’ and investors’ future willingness to invest in federally funded medical technologies.”[55] This was not merely a freestanding policy assessment by the NIH of this petition; it derived this conclusion from the plain meaning of § 203 within the context of the Bayh-Dole Act and its commercialization function.

Another petition in 2004 again requested that the NIH invoke the march-in power in § 203 to license a patent specifically to lower the price for Norvir, a drug used to treat AIDS. Again, the NIH rejected the petition.[56] The NIH explained that “the extraordinary remedy of march-in is not an appropriate means of controlling prices,” and that “[t]he issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively.”[57] The NIH again rejected another march-in petition seeking to lower the price of Norvir in 2013, again stating that the imposition of price controls on drug patents was not a statutorily authorized march-in power in § 203 of the Bayh-Dole Act.[58] The NIH bluntly concluded: “As stated in previous march-in considerations the general issue of drug pricing is appropriately addressed through legislative and other remedies, not through the use of the NIH’s march-in authorities.”[59] The frustration by NIH officials with the serial petitions seeking to impose price controls on drug patents via the march-in provision in the Bayh-Dole Act is palpable.

Lastly, on March 21, 2023, the NIH rejected the latest petition (filed again) for this agency to invoke the march-in power solely to lower the price of Xtandi, a cancer drug covered by patent.[60] In its latest rejection of the price-control theory of the Bayh-Dole Act, the NIH reiterated that the “purpose of the Bayh-Dole Act is to promote commercialization and public availability of government-funded inventions.”[61] With this statutory framework and purpose in mind, the NIH expressly “found Xtandi to be widely available to the public on the market” and “[t]herefore, the patent owner, the University of California, does not fail the requirement of bringing Xtandi to practical application.”[62] The NIH further pointed out that this decision about Xtandi is consistent with its prior multiple rejections of march-in petitions also seeking to lower drug prices.[63] It also recognized that the administrative processes and delays, especially in light of Xtandi’s remaining patent term, led it to conclude that “NIH does not believe that use of the march-in authority would be an effective means of lowering the price of the drug.”[64]

The NIH’s multiple decisions over several decades in interpreting the scope of the march-in power granted to it under § 203 is significant evidence that the Bayh-Dole Act does not authorize NIST to include “reasonable price” as a criterion for agencies like the NIH to use the march-in power under § 203. The eleven or more decisions ranging from the 1990s through 2023 in which the NIH has consistently rejected march-in petitions requesting it impose price controls on drug patents under § 203 constitute “the well-reasoned views of the agencies implementing a statute [that] ‘constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.’”[65]

Original Sponsors of the Bayh-Dole Act Stated Their Law Did Not Authorize Price Controls

The Guidance Framework’s inclusion of “reasonable price” as a criterion for applying the march-in power under § 203 is a statutory power that was allegedly discovered and argued for by two professors in a law journal article published more than two decades after the enactment of the Bayh-Dole Act.[66] When they later published an op-ed advancing their article’s argument, Senator Birch Bayh and Senator Robert Dole responded by expressly rejecting their theory that the Bayh-Dole Act authorized price controls as an essential tool of the march-in power in § 203.

Professors Peter Arno and Michael Davis published an op-ed in the Washington Post in 2002 restating their argument from their law journal article the year before that the Bayh-Dole Act mandates that patented inventions resulting from “federal funds will be made available to the public at a reasonable price.”[67] Professors Arno and Davis’ op-ed prompted a response from Senators Bayh and Dole, published as a letter to the editor in the Washington Post two weeks later:

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. . . . The [Arno and Davis] article also mischaracterizes the rights retained by the government under Bayh-Dole. The ability of the government to revoke a license granted under the act is not contingent on the pricing of the resulting product or tied to the profitability of a company that has commercialized a product that results in part from government-funded research. The law instructs the government to revoke such licenses only when the private industry collaborator has not successfully commercialized the invention as a product.[68]

Although this letter does not have the same legal status as the canons of statutory interpretation and official interpretation and application of a statute, Senators Bayh and Dole make clear that the inclusion of “reasonable price” as a criterion authorizing the march-in power is unconnected to the text or purpose of their statute. The proposed Guidance Framework, ultimately born of the price-control theory spawned by Professors Arno and Davis, is an unprecedented assertion of agency power to control prices in private market transactions without a legal basis in the Bayh-Dole Act.

Conclusion

The Guidance Framework proposes the addition of “reasonable price” as an unprecedented criterion for exercising the march-in powers specified in § 203 of the Bayh-Dole Act. This is a legally unjustified and unauthorized arrogation of power by NIST. The Bay-Dole Act does not state in its plain text a congressional authorization for federal agencies to consider “reasonable price” as a criterion for imposing price controls on all Bayh-Dole patented products or services that are commercialized in the marketplace. In addition to lack of authorization in the plain text of § 203, the Guidance Framework’s inclusion of “reasonable price” as a march-in criterion contradicts the function of Bayh-Dole in promoting the commercialization of inventions by patent owners in the marketplace. The NIH has consistently and repeatedly confirmed this lack of statutory authorization in § 203 to impose price controls across bipartisan administrations over several decades in rejecting all march-in petitions seeking to impose price controls.

NIST states in its RFI, “[t]o date, no agency has exercised its right to march-in,” but it fails to acknowledge the numerous, repeated rejections by the NIH of march-in petitions seeking to impose price controls on drug patents. NIST should follow these repeated actions by the NIH, including in its most recent rejection of the Xtandi march-in petition less than a year ago, in applying the clear text and function of the Bayh-Dole Act. Thus, NIST should withdraw the proposed Guidance Framework and permit the Bayh-Dole Act to function according to its intended function in promoting the commercialization of innumerable innovations in the marketplace.

[1] See National Institute of Standards and Technology, Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights, 88 Fed. Reg. 85593 (Dec. 7, 2023).

[2] 88 Fed. Reg. 85593.

[3] Id. at 85598.

[4] Id. (emphasis added).

[5] See Pub. L. No. 77-421, 56 Stat. 23 (1942); see also Economic Stabilization Act of 1970, Pub. L. No. 91-379, § 202, 84 Stat. 799, 799-800 (“The President is authorized to issue such orders and regulations as he may deem appropriate to stabilize prices, rents, wages, and salaries at levels not less than those prevailing on May 25, 1970.”); Housing and Rent Act of 1947, Pub. L. No. 129, 61 Stat. 193, 198 (imposing rent controls on existing structures set at levels permitted to be charged under the Economic Price Control Act of 1942).

[6] See, e.g., ROBERT P. MERGES, AMERICAN PATENT LAW: A BUSINESS AND ECONOMIC HISTORY (2023); JONATHAN M. BARNETT, INNOVATORS, FIRMS, AND MARKETS: THE ORGANIZATIONAL LOGIC OF INTELLECTUAL PROPERTY (2021); DANIEL SPULBER, THE CASE FOR PATENTS (2021); B. ZORINA KHAN, INVENTING IDEAS: PATENTS, PRIZES, AND THE KNOWLEDGE ECONOMY (2020); Stephen Haber, Innovation, Not Manna from Heaven (Hoover Institution, Sep. 15, 2020); B. Zorina Khan, Trolls and Other Patent Inventions: Economic History and the Patent Controversy in the Twenty-First Century, 21 GEO. MASON L. REV. 825, 837-39 (2014); Naomi R. Lamoreaux, Kenneth L. Sokoloff & Dhanoos Sutthiphisal, Patent Alchemy: The Market for Technology in US History, 87 BUS. HIST. REV. 3 (Spring 2013); RONALD A. CASS & KEITH N. HYLTON, LAWS OF CREATION: PROPERTY RIGHTS IN THE WORLD OF IDEAS (2013).

[7] See generally MERGES, supra note 6; BARNETT, supra note 6; KHAN, supra note 6.

[8] See, e.g., Stephen Haber, Patents and the Wealth of Nations, 23 GEO. MASON L. REV. 811 (2016); Jonathan M. Barnett, Patent Tigers: The New Geography of Global Innovation, 2 CRITERION J. INNOVATION 429 (2017).

[9] See B. ZORINA KHAN, THE DEMOCRATIZATION OF INVENTION: PATENTS AND COPYRIGHTS IN AMERICAN ECONOMIC DEVELOPMENT, 1790–1920, at 9-10 (2005) (“[P]atents and . . . intellectual property rights facilitated market exchange, a process that assigned value, helped to mobilize capital, and improved the allocation of resources. . . . Extensive markets in patent rights allowed inventors to extract returns from their activities through licensing and assigning or selling their rights.”).

[10] See, e.g., Naomi R. Lamoreaux, Kenneth L. Sokoloff & Dhanoos Sutthiphisal, Patent Alchemy: The Market for Technology in US History, 87 BUS. HIST. REV. 3, 4–5 (2013).

[11] See Joan Farre-Mensa, et al., What Is a Patent Worth? Evidence from the U.S. Patent “Lottery,” 75 J. Finance 639 (2019), https://doi.org/10.1111/jofi.12867.

[12] See Kevin Madigan & Adam Mossoff, Turning Gold to Lead: How Patent Eligibility Doctrine Is Undermining U.S. Leadership in Innovation, 24 Geo. Mason L. Rev. 939, 942-44 (2017).

[13] See Ross C. DeVol, Armen Bedroussian & Benjamin Yeo, The Global Biomedical Industry: Preserving U.S. Leadership 5 (Sep. 2011), http://www.ncnano.org/CAMIExecSum.pdf.

[14] Madigan & Mossoff, supra note 12, at 940-41.

[15] See Letter from Alden Abbott, Kristina M.L. Acri, et al. to Assistant Attorney General Jonathan Kanter, Nov. 30, 2022, https://s3.amazonaws.com/media.hudson.org/Letter+to+AAG+Kanter+re+SEPs+and+Patent+Pools+10.30.22.pdf, at 1-2 (detailing economic evidence); see also Alexander Galetovic, Stephen H. Haber & Ross Levine, An Empirical Examination of Patent Holdup, 11 J. COMP. L. & ECON. 549, 564-69 (2015), https://papers.ssrn.com/abstract=2588169 (finding quality-adjusted prices for devices and other products in the patent-intensive telecommunications market to have fallen at a faster rate as compared to other sectors of the innovation economy).

[16] See U.S. Investments in Medical and Health Research and Development 2013–2018, at 7 (Research America, 2019), https://www.researchamerica.org/wp-content/uploads/2022/09/InvestmentReport2019_Fnl.pdf (estimating total private investment in biopharmaceutical R&D in 2018 is estimated to be $129 billion). For each drug approved by the FDA for use by patients, there is on average $2.6 billion in R&D expenditures incurred over 10–15 years. See Joseph A. DiMasi, Henry G. Grabowski, & Ronald W. Hansen, Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs, 47 J. Health Econ. 20 (2016).

[17] See U.S. Investments in Medical and Health Research and Development 2013–2018, supra note 17, at 8.

[18] See FACT SHEET: Biden-?Harris Administration Announces New Actions to Lower Health Care and Prescription Drug Costs by Promoting Competition (Dec. 7, 2023), https://www.whitehouse.gov/briefing-room/statements-releases/2023/12/07/fact-sheet-biden-harris-administration-announces-new-actions-to-lower-health-care-and-prescription-drug-costs-by-promoting-competition/ (“Today, the Biden-Harris Administration is announcing new actions to promote competition in health care and support lowering prescription drug costs for American families, including the release of a proposed framework for agencies on the exercise of march-in rights on taxpayer-funded drugs and other inventions, which specifies that price can be a factor in considering whether a drug is accessible to the public.”).

[19] See 88 Fed. Reg. 85601-85605 (detailing the eight scenarios in which the march-in power may be used by an agency).

[20] See generally BARNETT, supra note 6.

[21] See, e.g., S. Rep. No. 480, 96th Cong., 1st Sess., at 2 (1979) (explaining that the government’s policy of owning patents on inventions arising from government-funded research and offering nonexclusive licenses “has proven to be an ineffective policy” and that “the private sector simply needs more protection for the time and effort needed to develop and commercialize new products than is afforded by a nonexclusive license”).

[22] See id., at 28 (“It is essentially a waste of public money to have good inventions gathering dust on agencies’ shelves because of unattractiveness of nonexclusive licenses.”).

[23] See 35 U.S.C. § 203 (2011).

[24] § 203(a).

[25] § 203(a)(1)-(4).

[26] See, e.g., Economic Stabilization Act of 1970, Pub. L. No. 91-379, § 202, 84 Stat. 799, 799-800 (“The President is authorized to issue such orders and regulations as he may deem appropriate to stabilize prices, rents, wages, and salaries at levels not less than those prevailing on May 25, 1970.”); Housing and Rent Act of 1947, Pub. L. No. 129, 61 Stat. 193, 198 (imposing rent controls on existing structures set at levels permitted to be charged under the Economic Price Control Act of 1942).

[27] See Pub. L. No. 77-421, 56 Stat. 23 (1942).

[28] See, e.g., Nebbia v. People of New York, 291 U.S. 502, 515 (1934) (“The Legislature of New York established by chapter 158 of the Laws of 1933, a Milk Control Board with power, among other things to ‘fix minimum and maximum … retail prices to be charged by … stores to consumers for consumption off the premises where sold.’”); Stone v. Farmers’ Loan & Trust Co., 116 U.S. 307, 308 (1886) (reviewing “the statute of Mississippi passed March 11, 1884, entitled ‘An act to provide for the regulation of freight and passenger rates on railroads in this state, and to create a commission to supervise the same, and for other purposes’”).

[29] INS v. Phinpathya, 464 U.S. 183, 189 (1984) (stating that “in all cases involving statutory construction, our starting point must be the language employed by Congress, . . . and we assume that the legislative purpose is expressed by the ordinary meaning of the words used”) (quotations and citations omitted).

[30] 47 U.S.C. § 307(a) (“The Commission, if public convenience, interest, or necessity will be served thereby, subject to the limitations of this Act, shall grant to any applicant therefor a station license provided for by this Act.”).

[31] See Tennessee Valley Authority v. Hill, 437 U.S. 153, 188 (1976) (“In passing the Endangered Species Act of 1973, Congress was also aware of certain instances in which exceptions to the statute’s broad sweep would be necessary. Thus, § 10, 16 U.S.C. § 1539 (1976 ed.), creates a number of limited ‘hardship exemptions,’ . . . . meaning that under the maxim expressio unius est exclusio alterius, we must presume that these were the only ‘hardship cases’ Congress intended to exempt.”); see also 73 Am. Jur. 2d Statutes § 129 (2002) (describing the statutory canon of interpretation, expressio unius est exclusio alterius).

[32] See, e.g., Letter from Amy Kapczynski, Aaron S. Kesselheim, et al. to Senator Elizabeth Warren, at 6-7 (Apr. 20, 2022), https://tinyurl.com/yt62wt4t; Fran Quigley & Jennifer Penman, Better Late than Never: How the U.S. Government Can and Should Use Bayh-Dole March-In Rights to Respond to the Medicines Access Crisis, 54 WILLAMETTE L. REV. 171 (2017); Peter S. Arno & Michael H Davis, Why Don’t We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed upon Patents Deriving in Whole or in Part from Federally Funded Research, 75 TULANE L. REV. 631 (2001).

[33] See 35 U.S.C. § 201(f) (defining “practical application” to mean “to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms”).

[34] See Sackett v. Environmental Protection Agency, 143 S. Ct. 1322, 1340 (2023) (“construing statutory language is not merely an exercise in ascertaining ‘the outer limits of a word’s definitional possibilities’”) (quoting FCC v. AT&T, 562 U.S. 397, 407 (2011)); cf. Antonin Scalia, Common-Law Courts in a Civil Law System: The Role of the United States Federal Courts in Interpreting the Constitution and Law, in A MATTER OF INTERPRETATION: FEDERAL COURTS AND THE LAW 23-24 (Amy Gutmann, ed., 1997) (critiquing out-of-context linguistic construction of statutory terms because a “good textualist is not a literalist”).

[35] See, e.g., 47 U.S.C. § 335(b)(3) (“A provider of direct broadcast satellite service shall meet the requirements of this subsection by making channel capacity available to national educational programming suppliers, upon reasonable prices, terms, and conditions, as determined by the Commission . . . .”) (emphasis added); 42 U.S.C. § 2375 (“The charges and terms for the transfer of any utility may be established by advertising and competitive bid, or by negotiated sale or other transfer at such prices, terms, and conditions as the Commission shall determine to be fair and equitable.”) (emphases added); 10 U.S.C. § 3372(a)(1) (“A contracting officer of the Department of Defense may not enter into an undefinitized contractual action unless the contractual action provides for agreement upon contractual terms, specifications, and price . . . .”) (emphasis added); 43 U.S.C. § 375c (“The Secretary is authorized to sell such land to resident farm owners or resident entrymen, on the project upon which such land is located, at prices not less than that fixed by independent appraisal approved by the Secretary, and upon such terms and at private sale or at public auction as he may prescribe . . . .”) (emphases added); 2 U.S.C. § 4103 (“[I]n any contract which is entered into by any person and either the Administrator of General Services or a contracting officer of any executive agency and under which such person agrees to sell or lease to the Federal Government (or any one or more entities thereof) any unit of property, supplies, or services at a specified price or under specified terms and conditions (or both), such person may sell or lease to the Congress the same type of such property, supplies, or services at a unit price or under terms and conditions (or both) . . . .”) (emphases added).

[36] Joseph Allen, New Study Shows Bayh-Dole is Working as Intended—and the Critics Howl, IPWATCHDOG (March 12, 2019), https://www.ipwatchdog.com/2019/03/12/new-study-shows-bayh-dole-working-intended/id=107225/.

[37] Government Patent Policy, Memorandum of Oct. 10, 1963, Fed. Reg. 10943 (Oct. 12, 1963).

[38] Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997).

[39] Samantar v. Yousuf, 560 U.S. 305, 319 (2010) (quoting United States v. Morton, 467 U.S. 822, 828, (1984)).

[40] Graham Cty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 290 (2010) (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 568 (1995)); see also Gonzales v. Oregon, 546 U.S. 243, 273 (2006) (stating that “statutes ‘should not be read as a series of unrelated and isolated provisions.’”) (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 570, (1995)); Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (“It is a ‘fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.’”) (quoting Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 809 (1989)); Louisville & N.R. Co. v. Gaines, 3 F. 266, 276 (C.C.M.D. Tenn. 1880) (“Where the language [of a statute] is clear and explicit the court is bound . . . . It must be construed as a whole. The office of a good expositor, says My Lord Coke, ‘is to make construction on all its parts together.’”).

[41] 35 U.S.C. § 200.

[42] See supra notes 23-31, and accompanying text.

[43] See, e.g., Bruce W. Bugbee, Genesis of American Patent and Copyright Law 143-44 (1967) (discussing the rejection of a Senate proposal for a compulsory licensing requirement in the bill that eventually became the Patent Act of 1790); Kali Murray, Constitutional Patent Law: Principles and Institutions, 93 Nebraska Law Review 901, 935-37 (2015) (discussing 1912 bill that imposed compulsory licensing on patent owners who are not manufacturing a patented invention, which received twenty-seven days of hearings, but was not enacted into law).

[44] Whitman v. Am. Trucking Associations, 531 U.S. 457, 468 (2001).

[45] See West Virginia v. Environmental Protection Agency, 142 S. Ct. 2587, 2608 (2022) (quoting Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159 (2000)). See also MCI Telecommunications Corp. v. American Tel. & Tel. Co., 512 U.S. 218, 231 (1994) (“It is highly unlikely that Congress would leave the determination of whether an industry will be entirely, or even substantially, rate-regulated to agency discretion—and even more unlikely that it would achieve that through such a subtle device as permission to ‘modify’ rate-filing requirements.”).

[46] Sackett, 143 S. Ct. at 1341 (quoting United States Forest Service v. Cowpasture River Preservation Ass’n, 140 S. Ct. 1837, 1849-50 (2020)).

[47] See John R. Thomas, March-In Rights Under the Bayh-Dole Act 8-10 (Congressional Research Service, Aug. 22, 2016).

[48] Id.

[49] See Return on Investment Initiative for Unleashing American Innovation 29 (NIST Special Publication 1234, April 2019) (identifying 10 petitions to break patents through the march-in power in § 203 solely for the purpose of imposing price controls on drug patents).

[50] Id.

[51] See, e.g., NIH Office of the Director, Determination in the Case of Petition of CellPro, Inc. (Aug. 1, 1997), https://www.ott.nih.gov/sites/default/files/documents/policy/cellpro-marchin.pdf (rejecting petition in part to invoke march-in power given argument that company was too slow in bringing a medical device to market).

[52] Id.

[53] Id.

[54] Id. at 7.

[55] Id. at 7.

[56] See NIH Office of the Director, In the Case of Norvir Manufactured by Abbott Laboratories, Inc. (July 29, 2004), http://www.ott.nih.gov/sites/default/files/documents/policy/March-In-Norvir.pdf.

[57] Dr. Elias A. Zerhouni, Nat’l Institute of Health, Determination in the Case of Norvir I, at 5-6 (July 2, 2004).

[58] NIH Office of the Director, In the Case of Norvir Manufactured by AbbVie (Nov. 1, 2013), https://www.ott.nih.gov/sites/default/files/documents/policy/March-In-Norvir2013.pdf.

[59] Id.

[60] See Letter from Lawrence A. Tabak, Performing the Duties of the NIH Director, to Robert Sachs and Clare Love (Mar. 23, 2023), https://www.keionline.org/wp-content/uploads/NIH-rejection-Xtandi-marchin-12march2023.pdf (rejecting petition to impose price controls on Xtandi).

[61] Id. at 2.

[62] Id.

[63] Id.

[64] Id.

[65] See United States v. Mead Corp., 533 U.S. 218, 227 (2001) (quoting Bragdon v. Abbott, 524 U.S. 624, 642 (1998) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)))

[66] See Arno & Davis, supra note 32.

[67] See Peter Arno & Michael Davis, Paying Twice for the Same Drugs, Washington Post (March 27, 2002), https://www.washingtonpost.com/archive/opinions/2002/03/27/paying-twice-for-the-same-drugs/c031aa41-caaf-450d-a95f-c072f6998931/ (emphasis added).

[68] Birch Bayh and Robert Dole, Our Law Helps Patients Get New Drugs Sooner, Wash. Post (Apr. 11, 2002), https://www.washingtonpost.com/archive/opinions/2002/04/11/our-law-helps-patients-get-new-drugs-sooner/d814d22a-6e63-4f06-8da3-d9698552fa24/.

I. Introduction

This comment is submitted in response to the National Institute of Standards and Technology’s (NIST) request for information (RFI) on the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights.[1]

The U.S. patent system has been a major driver of innovation, and provides an important foundation for the nation’s technological leadership around the world. Undoubtedly, there are cases at the margins where one could find some invention has not been optimally commercialized. But the measure of the system’s success is not in isolated anecdotes, but rather, in data demonstrating it has been a major driver of economic growth and consumer welfare—both in general and particularly in the consistent development of lifesaving and life-enhancing medicines and medical devices.

This suggests that the integrity of the current patent rights framework under the Bayh-Dole Act is crucial for sustaining innovation, promoting commercialization, and ultimately enhancing consumer welfare. As such, any proposal to expand “march-in rights” must be treated with caution.

Further, while the administration’s focus in this draft guidance appears to be centered primarily on the pharmaceutical sector,[2] the proposed modifications have the potential to trigger extensive spillover effects across various other patent-reliant industries. For instance, industries such as biotechnology, software development, and advanced manufacturing—which rely fundamentally on strong patent protections to secure investments for research and development—could face unforeseen challenges. These sectors are driven by innovation underpinned by intellectual property. Increased uncertainty regarding the longevity and security of patent rights could lead them to experience a slowdown in the pace of that innovation, as venture capitalists may become more reluctant to fund new ventures. Of particular concern is that march-in petitions brought under a more liberal standard may become a useful tool for firms looking to stymie their competition.

The proposed changes are clearly unnecessary, given the history of success that characterizes the post-Bayh-Dole era. Indeed, these suggested modifications threaten to undermine a substantial portion of the U.S. economy and to harm both consumer health and general welfare. Apart from being ill-advised from an economic perspective, the proposed changes also appear to be at odds with the Bayh-Dole Act’s very legal and policy basis. As Adam Mossoff has observed, “the text of the Bayh-Dole Act and its consistent interpretation by federal officials militates against” the view that it authorizes imposing price controls on patented inventions produced with support from federal funding.[3]

In summary, the ongoing debate about modifying march-in rights under the Bayh-Dole Act touches on fundamental aspects of innovation, economic growth, and public welfare. This is not merely about adjusting a legislative framework; it is about preserving the delicate balance that has propelled the United States to the forefront of global innovation, particularly in life-saving pharmaceuticals and technologies. Any alterations to the Act’s implementation risk distorting this balance, potentially stifling innovation and undermining the economic and health benefits that have been realized. As such, it is imperative to carefully consider any proposed modifications to ensure that they support, rather than hinder, the Act’s foundational goal of fostering innovation and delivering tangible benefits to society.

II. Success of the Bayh-Dole Act and the Importance of Patent Rights

The Bayh-Dole Act, formally known as the University and Small Business Patent Procedures Act of 1980 (Act),[4] is a landmark piece of intellectual-property legislation. The Act allows universities, small businesses, and nonprofit organizations to retain and exercise patent rights to inventions developed under federally funded research programs. This legislative framework was designed to:

• Facilitate the transfer of federally funded research from academic and research institutions to the private sector for further development and commercialization;
• Encourage the practical application of these inventions for public benefit;
• Stimulate collaboration between public research entities and the private sector; and
• Enhance the contribution of federally funded inventions to the market, thereby boosting economic growth and public welfare.[5]

The Act has been a pivotal catalyst in advancing U.S. technological innovation, primarily by establishing a property-rights framework that creates incentives for the commercialization of scientific developments that received some degree of government funding. These property rights empower entities to license their inventions for more extensive applied research and development, thereby enhancing their accessibility and application for the broader public good.

The Act has been paying dividends since its inception in 1980. One important effect has been that, by enabling private companies to benefit from R&D that they (co-)fund at publicly supported universities, it has led to a dramatic increase in private-sector sponsorship of R&D at such universities. A report from the General Accounting Office (now known as the U.S. Government Accountability Office) found that, between 1980 and 1985 alone:

total business sponsorship of university research grew 74 percent, from $277 million in fiscal year 1980 to $482 million in fiscal year 1985 (in constant 1982 dollars). For 23 of the 25 universities we surveyed… industrial sponsorship of research more than doubled from $70 million in fiscal year 1980 to $160 million in fiscal year 1985 (in constant 1982 dollars).[6]

The Association of University Technology Managers (AUTM) estimates that, between 1996 and 2010, academic licensors contributed between $86 billion and $338 billion to U.S. gross domestic product (in 2005 dollars), in addition to supporting between 900,000 and 3 million person-years of employment over that that period.[7] In a survey of the 2019-2020 period, AUTM found that innovations of the sort that are at the core of the Bayh-Dole Act’s focus led to a 7% increase in startups; a 7% increase in invention disclosures; an 11% increase in net patent applications; a 3% increase in licenses executed; and a 31% increase in new products introduced to market based on academic research.[8]

Along with many other pro-innovation policies enacted over the last several decades, one of the Act’s enduring legacies is the fundamental shift it initiated in relocating innovative activity from Europe and Asia to the United States, with the latter now firmly established as the most important locale for producing new medicines:

In the last decade, while the U.S. had 111 [new chemical entities] discovered, Switzerland-headquartered companies were second with 26. This means that actual [new chemical entities] discovered that had a significant U.S. nexus for research and development is much higher than the 57 percent of total [new chemical entities] discovered, perhaps closer to 65 percent. One other point worth noting… is the reduction in overall [new chemical entities] discovered from the decade of the 1980s to now. The U.S. has the vast majority of clinical trials. A similar trend has taken place for medical devices.[9]

The United States has continued to develop a large number of new chemical entities in absolute terms, and in relative terms, has come to completely dominate the field.[10] This boom of patented innovations has also given rise to numerous transformative products we now consider commonplace, such as various cancer treatments,[11] prosthetics and medical devices,[12] a variety of web technologies, and improved foods.[13]

Nevertheless, the Act and the patent system are not without critics. Some have challenged the idea that the patent system does not sufficiently stimulate the production of inventions at universities,[14] or that, when such inventions occur, “large portion of those royalties… are derived from a few sizeable inventions at a handful of academic institutions.”[15] Thus, according to these critics, the Act does not promote widespread welfare gains, so much as enable large gains to a small number of parties.

Proposed changes to federal policy have also threatened to pare back the gains the Act has helped to facilitate. In addition to this draft guidance, which would introduce de facto price controls on any industry substantially reliant on patented invention, the U.S. Energy Department has been imposing more stringent domestic-manufacturing requirements on licensees—an obligation that makes little sense in our globalized economy and that is more likely to impose red tape without substantially improving domestic production.[16] In a 2021 letter to the Pentagon, Sen. Elizabeth Warren (D-Mass.) and Rep. Lloyd Doggett (D-Texas) noted that “[r]ecognizing the high prices of medical products developed, in part, with DOD funding, the Senate Armed Services Committee directed DOD to utilize march-in rights to lower prices.”[17] That is to say, at least some members of Congress have called explicitly for diminution of property rights and imposition of price controls.

But critics of the current patent system take far too dim a view of the Bayh-Dole Act’s legacy. Both the patent system and the Act provide important incentives not just to spur invention, but also to encourage commercialization. As noted above, the Act has performed remarkably well at opening opportunities for the commercialization of inventions, and it is this commercialization function that helps to ensure that crucial discoveries are not left to gather dust. Indeed, one of the main drivers of the Act’s success is its harmony with the economic theory of patent rights.

A. The Centrality of Strong Patent Protections

The biotechnology sector historically has depended on patents as a means to organize collaboration among universities, startups, and larger corporations. The costly and complex process of moving a discovery from the laboratory to the marketplace depends heavily on the temporary exclusivity granted by patent rights, as well as the data-protection rights of biologics subject to regulatory approval.[18] Such property rights are fundamental for attracting investors to commit resources to these ventures, which are fraught with high risks and significant costs.

Nobel laureate Kenneth Arrow observed that the product of inventive activity is knowledge.[19] This distinguishes knowledge from other goods or services, in that knowledge is costly to produce, but nearly costless to distribute.[20] In addition, information is often indivisible.[21] Indivisibility means that the information cannot be divided or allocated across producers, products, or outputs—e.g., once a drug’s chemical structure is known, this knowledge does not vary with how many doses are produced, or who produces them.[22] In addition, unlike most products and services, once knowledge is obtained, it is known forever. Those in possession of it can often utilize it with relatively little or no further expenditure. While a bicyclist may need to buy a new bicycle, his knowledge of how to ride will, once acquired, remain with him throughout his life. Likewise, once one knows how to produce a new drug, copies can often be reproduced at relatively low cost.

Another feature of knowledge is that consumers may not know its value until considerable resources have been expended to uncover it.[23] Consumers of a new drug do not know its safety and efficacy of until investigations have established how it performs biologically, which requires extensive modeling, as well as animal and human trials—the latter of which is especially costly.[24]

All these factors place drugs in the category of goods that are expensive to research, develop, and bring to market, but relatively cheap to imitate, as explained by Kip Viscusi and his co-authors:

Suppose the inventor discovers an important drug, Panacea. The inventor could keep the chemical structure secret and try selling the drug as a cure for certain diseases. But a rival could easily buy a few pills, hire a chemist to figure out the structure, and begin selling exact copies at a lower price.[25]

These rivals would benefit from the inventor’s investment in researching the new discovery at little expense of their own. In what is likely the most-cited empirical research on imitation costs, Edwin Mansfield et al. find that 6o% of the patented innovations in their sample were imitated much more quickly and at much lower cost than the initial innovation:

In the ethical drug industry [i.e., the part of the industry involved in researching, developing and bringing drugs to market with regulatory approvals], patents had a bigger impact on imitation costs than in the other industries, which helps to account for survey results indicating that patents are regarded as more important in ethical drugs than elsewhere. … Without patent protection, it frequently would have been relatively cheap (and quick) for an imitator to determine the composition of a new drug and to begin producing it. However, for many of these electronics and machinery innovations, it would have been quite difficult for imitators to determine from the new product how it is produced, and patents would not add a great deal to imitation cost (or time).[26]

If the benefits of the costly investment can be easily appropriated by rivals, then the incentives for invention evaporate. This leads to reduced investment, as explained in a section titled “Imitation Discourages Research” in Dennis Carlton and Jeffrey Perloff’s textbook:

Without a patent, anyone could use new information and imitations of new inventions could be sold legally. Suppose you discovered a cure for AIDS. You could sell your new drug for large sums of money if a patent gave you exclusive rights. Without a patent, other companies could duplicate your drug, and competition would drive the price to the competitive level. You would incur all the research costs, but not all the private benefit.[27]

Commenting on a 1990s-era proposal to regulate the pricing of “breakthrough” drugs, Viscusi et al. conclude that the proposal would ripple through companies’ R&D portfolios:

If one regards R&D investment as somewhat like a lottery—with low probabilities of achieving huge returns—top decile regulation changes completely the nature of the game. Winning the lottery now provides only a reasonable or breakeven return, with other outcomes worse![28]

Not only would such regulations affect companies’ expected returns, but they would also increase the variation in those returns. The added regulatory uncertainty would reduce firms’ confidence in the reliability of their return-on-investment projections. Because of the well-known and widely accepted risk-return tradeoff, firms that face increased uncertainty in investment returns will demand higher expected returns from the investments they pursue.[29] In other words, policies such as the proposed “march-in” rights simultaneously reduce expected investment returns and increase the required rate of return to invest in R&D, thereby reducing investment.

The history of patent commercialization supports the economic theory above. Prior to enactment of the Bayh-Dole Act, the federal government had a patchwork of often-stringent requirements on patenting and licensing agreements for projects it had funded.[30] The result was that many firms were hesitant to make large investments in the basic discoveries that were necessary to create commercial products.[31] Indeed, this makes sense, as a key feature of the patent system is that it can ensure the stability needed to attract investment and the large-scale diffusion of innovations across the market.

The evidence abundantly demonstrates that robust property-rights systems have been crucial to economic growth and prosperity.[32] These rights facilitate specialization and trade, which lead to innovation and growth. Intellectual property plays a crucial role in this dynamic. While there may be debates over the exact parameters of any patent-protection regime, strong evidence supports the idea that robust patent protection is vital for economic growth. Stephen Haber highlights that enforceable patent rights correlate with significant GDP increases.[33] Patricia Schneider’s research indicates that intellectual property substantially fosters innovation in developed countries.[34] Similarly, Yee Kyoung Kim and colleagues conclude that intellectual property boosts innovation.[35] Theoretical work by Daron Acemoglu and Ufuk Akcigit underscores the importance of patents, especially where inventors are significantly advanced technologically.[36] Yum Kwan and Edwin Lai suggest that inadequate intellectual-property protection causes greater welfare losses than does overprotection.[37]

Relatedly, Nobel laureate economist William Nordhaus has found that, even with patented discoveries, only a tiny fraction of the social returns from technological advancements is captured by producers, while the majority of benefits accrue to consumers.[38]

Patents are particularly important for startups, whose ability to exercise enforceable patent rights is key to market entry. There are three primary reasons for this: 1) injunctions protect startups from being copied by established firms, who might otherwise copy startups’ discoveries and pay court-set royalties; 2) patents serve as collateral to secure startup funding; and 3) patents attract venture-capital investment.

Diminishing patent rights by removing exclusion rights would allow larger firms to imitate startup innovations, reinforcing their market dominance. Without the threat of copying, established companies are forced to either innovate independently or acquire innovative startups. This aspect is particularly crucial for startups, as it protects their inventions from being misappropriated by larger rivals. The literature on firms’ strategies to prevent rivals from copying their inventions suggests that, while patents are not the only method, they are crucial in certain industries, most notably in pharmaceuticals and chemicals. [39]

Another key aspect of strong intellectual property rights is that they can allow firms to raise funds through the process of collateralization. This is particularly relevant for startups that lack tangible assets, as they can offer patents as security for funding.[40] As Gaétan de Rassenfosse puts it:

SMEs can leverage their IP to facilitate R&D financing…. [P]atents materialize the value of knowledge stock: they codify the knowledge and make it tradable, such that they can be used as collaterals. Recent theoretical evidence by Amable et al. (2010) suggests that a systematic use of patents as collateral would allow a high growth rate of innovations despite financial constraints.[41]

But the complexity in valuing patents,[42] particularly in the face of infringement risks, underscores why reliable IP rights are so important to maintaining patents’ value as collateral. As Jayan Kumar observes (in the parallel context of copyright):

Infringement action (most obviously music piracy) can seriously erode revenue streams and plans for combating infringement through litigation must be in place in order to protect the value of IP. Given the above risks and complexities, due diligence on IP before securitization is more expensive than with traditionally securitized assets.[43]

This last point becomes crucial to consider for the draft guidance, given that liberalizing march-in rights will almost certainly lead to increased litigation exposure across all industries that rely on patented technologies.

Lastly, as suggested above, intellectual-property protection influences venture-capital activity significantly. Patents impede imitation, can be used as collateral, and can help facilitate specialization, thereby fostering the entry of new specialized firms. Additionally, patents often signal to investors a company’s potential success and value. Empirical studies show that patent filings have significant positive effects on investor valuations, especially for early-stage companies, and play an important role as a “commitment device,” protecting entrepreneurs from investor expropriation.  For example, David Hsu and Rosemarie Ziedonis find:

a statistically significant and economically large effect of patent filings on investor estimates of start-up value…. A doubling in the patent application stock of a new venture [in] this sector is associated with a 28 percent increase in valuation, representing an upward funding-round adjustment of approximately $16.8 million for the average start-up in our sample.[44]

They also note that the effect is more pronounced in earlier financing rounds, when uncertainty surrounding the value of the underlying company is greater.[45]  Along similar lines, Carolin Häussler, Dietmar Harhoff, and Elisabeth Mueller show that “companies’ patenting activities have consistent and cogent effects on the timing of VC financing. Having at least one patent application reduces the time to the first VC investment by 76%.”[46] Other authors argue that patents may serve as a commitment device to protect entrepreneurs from the risk of expropriation by their early investors.[47]

The conclusion is clear: intellectual property is a significant contributor to innovation and should be a central element of growth strategies. This view is widely accepted among economists, particularly in industries with very large upfront costs and steeply declining marginal costs of production—of which, pharmaceuticals is perhaps the most extreme example.

Having said that, it would be naïve to think that U.S. intellectual-property law has reached a state of perfection. Intellectual-property protection must strike a delicate balance between guarding knowledge that could otherwise be replicated at minimal cost—thereby encouraging the creation of such knowledge—and ensuring that the knowledge is disseminated to the public. Even a minor shift in that balance toward dissemination and away from protection could have disproportionate effects, making copying (i.e., free-riding on the innovations of others) a more attractive strategy. This could lead to underinvestment and economic stagnation. Thus, when thinking about making changes to the status quo, policymakers should proceed with utmost care. The world preeminence that the current U.S. patent system has helped bring to fruition could easily be destroyed.

III.    March-In Rights and the Danger to Innovation

The proposed changes to the Bayh-Dole Act’s march-in rights[48] pose serious threats to the successful innovation regime that has propelled the United States to the forefront of global innovation.  In particular, the proposed revisions would expand the criteria for federal agencies to exercise march-in rights, potentially allowing for broader interpretation and application. Most concerning is that the proposed framework would allow agencies to consider such factors as the pricing of commercial goods and services arising from federally funded inventions.[49] Tellingly, the proposed framework would grant agency regulators authority to determine when a price is “extreme and unjustified given the totality of circumstances” and to decide, on that basis, whether to exercise march-in rights.[50]

These proposed changes raise concerns about their potential impact on the incentives for private-sector investment in the commercialization of federally funded research. Such changes threaten to disrupt the delicate balance of incentives that the Bayh-Dole Act has successfully established for more than four decades, potentially hindering innovation and diminishing consumer welfare in the long run.

But more importantly, one fundamental flaw in the draft framework would return us to a pre-1980 status quo ante. One of the primary questions that needs to be brought into focus in this proceeding is: what method of price discovery leads to the optimal commercialization of new patented inventions? Since much of this proceeding is focused on pharmaceutical products, we will restrict our discussion to the pricing of these products. Much of the economics of pricing patented medicines, however, transfers well to other contexts involving patent protections. As we discuss below, regulators are fundamentally incapable of matching, on average, the market’s efficiency in setting prices.

To understand the pricing of new pharmaceuticals, it’s helpful to begin with standard neoclassical price theory. The most basic model assumes that patented pharmaceuticals establish a monopoly, and that the monopolist sets different prices for different consumers based on their willingness to pay. In principle, such a “price-discriminating monopolist” will charge each consumer a different price and the lowest price paid will be equal to the drug’s marginal cost of production. In other words, those consumers least willing to pay will pay the same price as in a “perfectly competitive” market. Moreover, the amount of the drug produced will be the same as under perfect competition. The big difference is that the producer receives all the consumer surplus. In practice, pharmaceutical companies are not perfectly discriminating monopolists, but they do typically set different prices in different countries and for different patient groups.[51]

In reality, very few—if any—new pharmaceuticals actually enjoy a monopoly. At best, they represent a new class of drug for treating a condition. Even in such cases, they typically compete with older products that are either less effective or have more side effects for some proportion of patients.[52] This competition introduces a dynamic interplay between the new and old products, influencing the innovator’s pricing strategy.

The neoclassical model shows that even a profit-maximizing monopolist has incentives to offer products at a range of prices to different consumers. But when the “monopolist” assumption is relaxed—reflecting the reality of competitive dynamics both within and between classes of drugs for any particular condition­–it becomes even more difficult, if not impossible, to determine whether a particular drug price is “extreme and unjustified.” There is thus a high likelihood that any such intervention would be arbitrary and capricious.

Unfortunately, if given such a mandate, regulators are likely to have incentives to intervene for political reasons. In essence, regulators gain little by declining to intervene in the presence of an alleged “extreme and unjustified” drug price.[53] Meanwhile, the consequences of (practically ubiquitous) improper intervention would not be borne by the regulator, but by the innovators and patients.

When a private firm misjudges demand and sets its prices incorrectly, it faces punishment by the market. This, in turn, leads the firm to correct its pricing strategy. Liberalized march-in rights, by contrast, create incentives for a one-way ratchet, whereby regulators—themselves insulated from market discipline—are driven by political pressures to demand price reductions, regardless of the effect on firms’ incentives to develop new medicines.

A.      Intrinsic Complexities

The economics of drug development and pricing in the pharmaceutical industry present unique challenges that set it apart from many other sectors. While the fundamental principles of the price system apply to patented inventions in this field, the intricacies of pharmaceutical development necessitate more complex pricing strategies.

One of the defining characteristics of pharmaceutical R&D is the very long time it takes to bring a drug to market. From initial discovery to market launch, the process of developing a new drug typically takes between 12 and 15 years.[54] This extended timeframe is due largely to the rigorous clinical trials and associated regulatory approvals that each new drug must undergo to ensure safety and efficacy. This prolonged development period represents a significant commitment of time and resources, often with no guarantee of success.[55]

Many potential drugs that enter the development pipeline do not make it to market, either due to inefficacy, safety concerns, or other factors discovered during the development process.[56] This high attrition rate means that successful drugs must not only cover their own development costs but also compensate for the expenses incurred by those that failed.[57] A 2016 study found that the likelihood of a molecule selected for clinical trials successfully concluding all three phases of trials and going to market is around 12%.[58] Taking into account this low success rate, the authors estimate the average cost of developing a new approved drug to be $2.8 billion.[59]

Given these unique challenges­—long development times, substantial upfront investments, and a high rate of failure—pharmaceutical pricing must be carefully calibrated. Pricing strategies must account for recouping large investments while also considering the competitive market landscape, regulatory environment, and patient access.

B.      Regulatory Complexities

The challenge is magnified when one considers the complex regulatory environment that exerts significant distortionary pressures on drug pricing. For example, there are several federal programs—including Medicaid,[60] the 340B Drug Pricing Program,[61] and the regulations for the coverage gap for Medicare Part D[62]—that impose price controls on pharmaceuticals. While these controls aim to make medications more affordable for certain groups, the challenges they inadvertently create for pharmaceutical companies include potential distortions of downstream pricing for drugs outside of these programs.

For example, among these policies’ unintended consequences is to penalize companies that offer drugs at lower prices. The mandated discounts and rebates for government programs often mean that pharmaceutical companies receive less revenue for the same product, relative to the open market.[63] To compensate for revenue losses incurred in these programs, pharmaceutical companies are often compelled to raise prices for patients not covered by these federal programs.[64] This situation creates a disparity in drug pricing, where the burden of subsidizing the cost for government programs falls indirectly on other consumers, often resulting in higher overall healthcare costs.

Furthermore, this regulatory thicket complicates drugmakers’ pricing strategies. Instead of pricing based strictly on market demand or research and development costs (which is complicated enough on its own), companies must navigate a maze of regulations and mandatory discounts. This distorts natural market dynamics, often leading to higher prices for some consumers to balance the reduced revenue from government-mandated pricing. This approach can also stifle innovation, as pharmaceutical companies may redirect resources from research and development to regulatory compliance and strategic-pricing management.

C.      The Fraught Nature of Intervening in Market-Based Drug Pricing

It’s worth noting that march-in rights have not, to date, been exercised. This fact serves as an implicit acknowledgment of the pharmaceutical industry’s effective functioning within the constraints noted above. Moreover, it reflects regulators’ prudent reluctance to intervene in a complex and delicately balanced ecosystem. Indeed, any intervention in such a nuanced sector runs the risk of arbitrariness, given the intricacies involved in drug development and pricing. The restraint regulators have shown underlines their understanding of the unique economic dynamics of the pharmaceutical industry and the potential unintended consequences of intervention.

Further, the economics of the pharmaceutical industry also reveal the role that successful, high-revenue drugs have played in cross-subsidizing those discoveries that generate lower revenues.[65] This interplay between different segments of a pharmaceutical company’s portfolio is another crucial factor that militates against pricing interventions. The inherent support that successful patented medicines offer to the research and development of less profitable drugs (and total failures) is a vital component of the industry’s ecosystem.

So-called “blockbuster” drugs are a boon not just for the pharmaceutical companies, but also for the broader healthcare system. Some of the profits from these successful drugs are reinvested into further research and development, fueling the discovery and production of new medications.[66] This cycle of profit and reinvestment is critical to sustain the development of drugs that may have a smaller absolute market but are vital for treating rarer conditions. In this way, the big winners in a pharmaceutical company’s portfolio underpin the development and continued availability of lower revenue drugs and experiments with seemingly promising, but ultimately unfruitful, lines of research.

Therefore, any intervention in pharmaceutical pricing must be approached with caution. The cross-subsidization model represents a delicate balance essential not just for pharmaceutical firms’ financial health, but also to ensure the availability of a wide range of medications that meet diverse health-care needs. Unfortunately, this balance has already been weakened by price controls both in the United States and internationally, and could be substantially harmed by new price controls or other regulatory interventions.

Intervening in the pharmaceutical industry’s complex, carefully balanced, intricate, and multifaceted domain of drug development and commercialization risks creating an environment in which outcomes are dictated by centralized agencies, rather than by decentralized, bottom-up processes. In such a system, regulators’ necessarily limited knowledge will inevitably result in inferior outcomes. Moreover, it will lead to picking winners and losers in an arbitrary and capricious manner.

The issue’s complexity is compounded by the fact that the vast majority of drugs that are developed receive some federal funding.[67] While it is impossible to know whether the same drugs would be developed without such funding, the fact is that such funding crowds out private investment in basic R&D. Moreover, it means that the proposed expansion of march-in rights would apply to nearly every patented drug currently on the market and in development. Therefore, such interventions would not only be arbitrary and capricious, in ways that raise constitutional questions, but also ominous and all-encompassing.

Moreover, the error costs associated with such interventions cannot be overlooked. In the pharmaceutical industry, the journey from lab to market is fraught with uncertainties and high failure rates. For instance, only a quarter of drugs that complete Phase 3 clinical trials proceed to Phase 4.[68] Reasons for this can include a lack of efficacy in larger populations or commercial non-viability.[69] A regulatory body attempting to override these decisions would need to possess better knowledge than the compound’s own developers and commercializers regarding what will ultimately prove viable in the market. This prospect is clearly absurd and would lead to misallocation of resources, with companies being perversely encouraged to chase a higher number of unsuccessful endeavors.

Thus, any regulatory intervention in this space must be undertaken with a deep understanding of the inherent complexities and uncertainties of drug development. A regulator’s decision to intervene in the commercialization process could result in significant wasted resources and could potentially impede the development of truly effective and needed medicines. The challenge lies in striking the right balance between encouraging innovation and ensuring access to effective and affordable medications, without falling into the trap of overregulation that could stifle progress in this vital field.

IV.    Conclusion

In short, the narrative that drives the conversation around altering march-in rights is deeply flawed. The Bayh-Dole Act does not unjustly deprive taxpayers of the innovations they partially funded through their contributions to the federal government. In fact, the Act has fostered an explosion of innovative activity that yields enormous benefits, both seen and unseen, to American consumers. The observable benefits are evident in the ever-expanding access to new medicines and devices that improve health outcomes for consumers.[70] The unseen—or rather, the easy to miss—benefits include the economic growth that has resulted from the United States serving as a major hub for innovative research and development.[71] The status quo is wildly successful and any perceived failures should be addressed with targeted solutions, not with a wholesale alteration to the framework that has been responsible for driving these changes.

Further, it’s crucial to understand the effects that expanding march-in rights to address instances of “extreme” pricing could have on the nature of the Act itself. Originally designed as a pro-innovation policy, the Bayh-Dole Act could inadvertently transform into a regulatory tool for market manipulation.

Regulations are often complex and challenging to navigate. This complexity creates opportunities for incumbent firms to leverage regulations to their advantage, and to the detriment of competition and consumer welfare.  In the context of the Bayh-Dole Act, expanding march-in rights to tackle “extreme” pricing could lead to just such a perverse outcome. Such a scenario would mark a significant shift from the Bayh-Dole Act original intent of fostering innovation toward a landscape where regulatory manipulation becomes a key competitive strategy. This potential transformation underscores the need for careful consideration and a balanced approach in any amendments to the Act. Addressing the issue of pricing should not compromise the Act’s ability to stimulate innovation and healthy market competition.

Finally, expanding march-in rights under the Bayh-Dole Act, although primarily targeted at pharmaceutical producers, sets a precedent with far-reaching implications for all patent-reliant industries, including computers, biotech, and manufacturing. Industries that thrive on intellectual property to develop and safeguard their innovations will be watching this development closely. This potential for regulatory and legal manipulation could alter the competitive landscape, where gaining an upper hand might no longer depend solely on innovation and market strategies, but increasingly on the ability to navigate and exploit expanded march-in rights.

[1] Request for Information Regarding the Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights, 88 FR 85593 (Dec. 8, 2023), https://www.federalregister.gov/documents/2023/12/08/2023-26930/request-for-information-regarding-the-draft-interagency-guidance-framework-for-considering-the [hereinafter “RFI”]

[2] For example, five of the eight “scenarios” presented in the RFI focus on biotechnology.

[3]  Adam Mossoff, The False Promise of Breaking Patents to Lower Drug Prices, 97 St. John’s L. Rev. (forthcoming 2023) (manuscript at 18), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4348499.

[4] 35 U.S.C. § 200, et seq. (2011).

[5] Id. at § 202.

[6] U.S. General Accounting Office, Patent Policy Recent Changes in Federal Law Considered Beneficial, GAO Report No. RCED-87-44 (1987), available at https://www.gao.gov/products/rced-87-44.

[7] Lori Pressman et al., The Economic Contribution of University/Nonprofit Inventions in the United States: 1996–2010, Biotechnology Industry Organization (Jun. 20, 2012) at 13,  available at https://archive.bio.org/sites/default/files/Pressman%2520BIO%25202012%2520Final%2520r1%2520w%2520cover%2520sheet_0.pdf.

[8] Joseph Allen, A Pandemic Can’t Stop Bayh-Dole—But Politicians Might, IPWatchdog (Aug. 31, 2021), https://ipwatchdog.com/2021/08/31/pandemic-cant-stop-bayh-dole-politicians-might/id=137235.

[9] Shanker Singham, Improving U.S. Competitiveness; Eliminating Anti-Competitive Market Distortions, at 12 (Int’l Roundtable Trade & Competition Pol’y., Nov. 15, 2011), available at https://shankersingham.com/2019/10/05/on-improving-us-competitiveness.

[10] Id.

[11] See, e.g., Molecular Biomarkers Improve Treatment of Colorectal Cancers, AUTM (2008), https://autm.net/about-tech-transfer/better-world-project/bwp-stories/medical-diagnostic-predictors-of-therapy-response (last visited Feb. 1, 2024); 3-D Virtual Colonoscopies: Changing Attitudes, Reducing Cancer, AUTM, https://autm.net/about-tech-transfer/better-world-project/bwp-stories/3-d-virtual-colonoscopy (last visited Feb. 1, 2024).

[12] See, e.g., Increasing Mobility for Amputees, AUTM (2016), https://autm.net/about-tech-transfer/better-world-project/bwp-stories/all-terrain-knee-(1) (last visited Feb. 1, 2024); Innovative Bandage Saves Lives, AUTM (2008), https://autm.net/about-tech-transfer/better-world-project/bwp-stories/alphabandage (last visited Feb. 1, 2024); Cochlear Implant Brings Sound and Language to Thousands, AUTM (2006), https://autm.net/about-tech-transfer/better-world-project/bwp-stories/cochlear-implant (last visited Feb. 1, 2024).

[13] Honeycrisp: The Apple of Minnesota’s Eye, AUTM (2018), https://autm.net/about-tech-transfer/better-world-project/bwp-stories/honeycrisp-apple (last visited Feb. 1, 2024).

[14] See, e.g., Lisa Larrimore Oullette & Andrew Tutt, How Do Patent Incentives Affect University Researchers?, 61 Int’l Rev. L. & Econ. 1 (2020), https://doi.org/10.1016/j.irle.2019.105883.

[15] David Orozco, Assessing the Efficacy of the Bayh-Dole Act Through the Lens of University Technology Transfer Offices (ITOS), 21 N.C. J.L. & Tech. 115, 142 (2019)

[16] See Frequently Asked Questions (FAQs) for Applicants and Awardees of DOE Financial Assistance and R&D Contracts Regarding the Department’s Determination of Exceptional Circumstances (DEC) for DOE Science and Energy Technologies Issued in June of 2021, U.S. Department of Energy (2021), available at https://www.energy.gov/sites/default/files/2022-03/FAQs_03092022.pdf; see also Joseph Allen, DOE’s Misuse of Bayh-Dole’s ‘Exceptional Circumstances’ Provision: How Uniform Patent Policies Slip Away, IPWatchdog (May 26, 2022), https://ipwatchdog.com/2022/05/26/misuse-bayh-doles-exceptional-circumstances-provision-uniform-patent-policies-slip-away/id=149275.

[17] See Elizabeth Warren & Lloyd Doggett, Letter to the Secretary of Defense Regarding Reducing Drug Prices (Jul. 22, 2021), available at https://www.warren.senate.gov/imo/media/doc/Letter%20to%20DOD%20about%20Reducing%20Drug%20Prices%20Final%207.22.21.pdf.

[18] Dana P. Goldman, Darius N. Lakdawalla, & Tomas Philipson, The Benefits From Giving Makers Of Conventional ‘Small Molecule’ Drugs Longer Exclusivity Over Clinical Trial Data, 30 Health Affairs 1, 84-90 (2011), available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3804334.

[19] Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, at 609, in The Rate and Direction of Inventive Activity (R. R. Nelson, ed., 1962).

[20] See id. at 614 (“The cost of transmitting a given body of information is frequently very low.”).

[21] See id.. at 615.

[22] See id. (“[T]he use of information about production possibilities, for example, need not depend on the rate of production.”)

[23] Id.

[24] Joseph A. DiMasi, Henry G. Grabowski, & Ronald W. Hansen, Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs, 47 J. Health Econ. 20 (2016), https://pubmed.ncbi.nlm.nih.gov/26928437.

[25] W. Kip Viscusi, John M. Vernon & Joseph E. Harrington, Jr., Economics of Regulation and Antitrust (2d ed., 1995) at 832.

[26] Edwin Mansfield, Mark Schwartz, & Samuel Wagner, Imitation Costs and Patents: An Empirical Study, 91 Econ. J. 907, 913 (1981). [emphasis added]

[27] Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organization (4^th ed., 2005) at 532. For a numerical example, see, Richard A. Posner, Economic Analysis of Law (4^th ed., 1992) at 38.

[28] Viscusi, Vernon &  Harrington, Jr., supra n. 25, at 863.

[29] See Edwin J. Elton & Martin J. Gruber, Modern Portfolio Theory and Investment Analysis (4th ed, 1991).

[30]  See, e.g., Jonathan Barnett, The Great Patent Grab, in The Battle Over Patents: History and Politics of Innovation (Stephen H. Haber & Naomi R. Lamoreaux eds., Oxford University Press 2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3909528; Mossoff, supra n. 3, at 18-20 (“Government ownership of patents proved to stifle, rather than to promote distribution of new innovations.”)

[31] Id.

[32] Stephen Haber, Patents and the Wealth of Nations, 23 Geo. Mason L. Rev. 811, 811 (2016) (“There is abundant evidence from economics and history that the world’s wealthy countries grew rich because they had well-developed systems of private property”); see also, Zorina Khan & Kenneth L. Sokoloff, Institutions and Democratic Invention in 19th-Century America: Evidence from “Great Inventors” 1790-1930, 94 Am. Econ. Rev. 400 (2004); Josh Lerner, The Economics of Technology and Innovation: 150 Years of Patent Protection, 92 Am. Econ. Rev. 221 (2002); Albert G.Z. Hu & Ivan P.L. Png, Patent Rights and Economic Growth: Evidence from Cross-Country Panels of Manufacturing Industries, 65 Oxford Econ. Papers 675 (2013) (finding faster growth and higher value in patent-intensive industries in countries that improve the strength of patents); Bronwyn H. Hall & Rosemarie Ham Ziedonis, The Patent Paradox Revisited: An Empirical Study of Patenting in the US Semiconductor Industry, 1979-1995, 32 RAND J. Econ. 101, 125 (2001) (identifying “two ways in which the pro-patent shift in the U.S. legal environment appears to be causally related to the otherwise perplexing surge in U.S. patenting rates, at least in the semiconductor industry”); Nikos C. Varsakelis, The Impact of Patent Protection, Economy Openness and National Culture on R&D Investment: A Cross-country Empirical Investigation, 30 Res. Pol’y 1059, 1067 (2001) (“Patent protection is a strong determinant of the R&D intensity, and countries with a strong patent protection framework invest more in R&D.”); David M. Gould & William C. Gruben, The Role of Intellectual Property Rights in Economic Growth, in Dynamics Of Globalization & Development 209 (Satya Dev Gupta & Nanda K. Choudhry eds., 1997) (“The evidence suggests that intellectual property protection is a significant determinant of economic growth. These effects appear to be slightly stronger in relatively open economies and are robust to both the measure of openness used and to other alternative model specifications.”)

[33] Haber, supra note 32, at 816. (“Figure 1 therefore presents a graph of the strength of enforceable patent rights and levels of economic development for all non-petro states in 2010. There is nothing ambiguous about the resulting pattern: there are no wealthy countries with weak patent rights, and there are no poor countries with strong patent rights. Indeed… as patent rights increase, GDP per capita increases with it. Roughly speaking, for every one-unit increase in patent rights (measured from zero to fifty) per capita income increases by $780. A simple regression of patent rights and patent rights squared on GDP indicates that roughly three-quarters of the cross-sectional variance in per capita GDP around the world is explained by the strength of patent rights.”) (emphasis added); see also Ronald A. Cass & Keith N. Hylton, Laws Of Creation: Property Rights In The World Of Ideas 45-46 (2013) (discussing results of regression analysis providing evidence that “countries with stronger intellectual property rights tend to grow economically more than those with weak intellectual property rights.”)

[34] Patricia Higino Schneider, International Trade, Economic Growth and Intellectual Property Rights: A Panel Data Study of Developed and Developing Countries, 78 J. Dev. Econ. 529, 539 (2005) (“The results suggest that IPRs have a stronger impact on domestic innovation for developed countries. This variable is positive and statistically significant in all OLS regressions in Table 4 (developed countries).”)

[35] Yee Kyoung Kim, Keun Lee, Walter G. Park, & Kineung Choo, Appropriate Intellectual Property Protection and Economic Growth in Countries at Different Levels of Development, 41 Res. Pol’y 358, 367 (2012) (“[T]he impact of patenting intensity on growth is much larger in high income countries, as can be seen from the positive coefficient of the interaction term between the high income country dummy and patenting intensity – this coefficient being statistically significant at the 1% level of statistical significance. From column 6, the measured net effect of patent intensity on growth in high income countries is 0.0683 (=−0.027 + 0.953, where the former is the coefficient of the patenting intensity of middle-to-low-income countries and the latter the coefficient of the interaction term between the high income country dummy and patenting intensity).”)

[36] Daron Acemoglu & Ufuk Akcigit, Intellectual Property Rights Policy, Competition and Innovation, 10 J. Eur. Econ. Ass’n. 1, 1 (2012) (“[O]ptimal policy involves state-dependent IPR protection, providing greater protection to technology leaders that are further ahead than those that are close to their followers.”)

[37] Yum K. Kwan & Edwin L-C Lai, Intellectual Property Rights Protection and Endogenous Economic Growth, 27 J. Econ. Dynamics & Control 853, 854 (2003) (“The calibration results indicate that there is under-protection of IPR (relative to the optimal level) within plausible range of parameter values, and that under-protection of IPR is much more likely than over-protection. More complete computation indicates that in the case of over-protection, the welfare losses are trivial; whereas in the case of under-protection, the welfare losses can be substantial. One interpretation of this result is that the US should protect IPR much more than it currently does.”)

[38] William D. Nordhaus, Schumpeterian Profits in the American Economy: Theory and Measurement at 1 (Nat’l Bureau of Econ. Res. Working Paper No. 10433 Apr. 2004), http://www.nber.org/papers/w10433.

[39] See, e.g., Edwin Mansfield, Patents and Innovation: An Empirical Study, 32 Mgmt. Sci. 173, 175-176 (1986) (Mansfield shows through surveys that patent protection only had a limited impact on innovation in industries other than the pharmaceutical industry and, to a lesser extent, the chemical industry. Mansfield argues that this is because the effectiveness of patents depends on the extent to which they increase imitation costs; and that this increase is more substantial in the chemical and pharmaceutical industries). Note that this study largely predates standard-reliant industries, such as mobile-communications technology, where patents likely play a very important role in creating appropriability. See also Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, Sidney G. Winter, Richard Gilbert, & Zvi Griliches, Appropriating the Returns from Industrial Research and Development, 3 Brookings Papers On Econ. Activity 783, 797 (1987). Levin et al.’s findings are broadly in line with Mansfield’s. More recently, these findings were supported by Cohen et al. See Wesley M. Cohen, Richard R. Nelson, & John P. Walsh, Protecting Their Intellectual Assets: Appropriability Conditions and Why US Manufacturing Firms Patent (or Not) (Nat’l Bureau of Econ. Res. Working Paper 7552, Feb. 2000), https://www.nber.org/papers/w7552.

[40] See, e.g., Mario Calderini & Maria Cristina Odasso, Intellectual Property Portfolio Securitization: An Evidence Based Analysis, Innovation Studies Working Paper (ISWOP), NO. 1/08, at 33 (2008) (“[I]t seems that patent securitization should be more suitable for small and medium companies with a consistent IP portfolio but that have not easy access to capital market or have a higher financial risk and few possibility to raise unsecured financing.”); see also Dov Solomon & Miriam Bitton, Intellectual Property Securitization, 33 Cardozo Arts & Ent. L.J. 125, 171-73 (2015) (“Among the famous securitization transactions in the field of IP rights are the securitizations of the copyrights of the singer David Bowie, the trademark of the Domino’s Pizza chain, and the patent on the HIV drug developed by Yale University.”); Nishad Deshpande & Asha Nagendra, Patents as Collateral for Securitization, 35 Nature Biotechnology 514, 514 (2017) (“Patents are important assets for biotech organizations, not only for protecting inventions but also as assets to raise monies.”); Tahir M. Nisar, Intellectual Property Securitization and Growth Capital in Retail Franchising, 87 J. Retailing 393, 393 (2011) (“A method of raising finance particularly suited to retail franchisors is intellectual property (IP) securitization that allows companies to account for intangible assets such as intellectual property, royalty and brands and realize their full value. In recent years, a number of large restaurant franchisors have securitized their brands to raise funds, including Dunkin Brands and Domino’s Pizza (Domino’s). We use property rights approach to show that IP securitization provides mechanisms that explicitly define ownership of intangible assets within the securitization structure and thus enables a company to raise funds against these assets.”)

[41] Gaétan De Rassenfosse, How SMEs Exploit Their Intellectual Property Assets: Evidence from Survey Data, 39 Small Bus. Econ. 437, 439 (2012).

[42] See Solomon & Bitton, supra note 40 (discussing the difficulties in evaluating patents as a barrier to securitization); see also Aleksandar Nikolic, Securitization of Patents and Its Continued Viability in Light of the Current Economic Conditions, 19 Albany L.J. Sci. & Tech. 393, 491 (2009) (“Anyone attempting to accurately assess the value of a patent portfolio faces numerous challenges including potential invalidity proceedings, potential infringement and infringement proceedings, obsolescence, or lack of demand for a license or the invention itself.”)

[43] Jayant Kumar, Intellectual Property Securitization: How Far Possible and Effective, 11 J. Intellectual Prop. Rights 98, 98 (2006).

[44] David H. Hsu & Rosemarie H. Ziedonis, Patents as Quality Signals for Entrepreneurial Ventures, Acad. Mgmt. Proceedings, Vol. 1, at 6 (2008), available at https://faculty.wharton.upenn.edu/wp-content/uploads/2015/07/11.pdf.

[45] Id.

[46] Carolin Häussler, Dietmar Harhoff & Elisabeth Müller, To Be Financed or Not… — The Role of Patents for Venture Capital-Financing, at 3 (ZEW-Centre for European Economic Research Discussion Paper 09-003, Mar. 28, 2013), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1393725; see also De Rassenfosse, supra note 41, at 441.

[47] See Ronald J. Mann & Thomas W. Sager, Patents, Venture Capital, and Software Start-Ups, 36 Research Pol’y 193, 207 (2007). (“We note one additional possibility suggested by the data, that portfolio firms obtain the patents not because they increase the value of the firm to its investors, but because they protect the contributions of the firm from expropriation by the investors. The idea here is that by giving the portfolio firm a cognizable property right in its technology, the patents increase the value of the firm by decreasing the costs of moral hazard and hold-up in the relations between the entrepreneurs and their investors. Shane (2002) proposes a similar mechanism to explain patterns in licensing of patents assigned to MIT.”)

[48] 35 U.S.C. 203 allows for a limited number of conditions under which federal agencies can grant licenses to inventions at least partially funded by federal money. These conditions include when a contractor or assignee is not expected to commercialize an invention in a reasonable amount of time, or when health or safety concerns are not expected to be reasonably satisfied by a contractor or assignee. Id. at (a)(1)-(2). To date, march-in rights have never been exercised. It should also be noted that “price” is not mentioned anywhere in § 203 as a basis for “march in,” which could lead to the possibility of a valid Supreme Court challenge to such a change under the “major questions doctrine.” See, e.g., The Major Questions Doctrine, CRS Report No. IF12077 (Nov. 2, 2022), https://crsreports.congress.gov/product/pdf/IF/IF12077. (“Under the major questions doctrine, the Supreme Court has rejected agency claims of regulatory authority when (1) the underlying claim of authority concerns an issue of “vast ‘economic and political significance,’” and (2) Congress has not clearly empowered the agency with authority over the issue.”) Moreover, the claim that the act was intended to be used to impose price controls is, at best, a stretch of statutory interpretation and, more realistically, a completely ill-fated enterprise that depends on taking statutory terms out of context. See Mossoff, supra n. 3, at 22-33.

[49] RFI at 85599.

[50] Id.

[51] See Paul Krugman & Robin Wells, Economics (4^th ed., 2015) at 391 (Regarding pricing of patent-protected drugs, “A monopolist will maximize profits by charging a higher price in the country with a lower price elasticity (the rich country) and a lower price in the country with a higher price elasticity (the poor country). Interestingly, however, drug prices can differ substantially even among countries with comparable income levels.”)

[52] For example, the H2 antagonist Tagamet (cimetidine) was developed by Smith, Kline & French to prevent and treat gastroesophageal reflux disease (GERD) and gastric ulcers. In response, Glaxo developed a similar but more effective H2 antagonist, Zantac (ranitidine) (See Viscusi et al., supra note 25 at 851-852). This within-class competition was followed by the development of a new, more-effective, and longer-lasting class of anti-GERD drugs known as proton-pump inhibitors (PPI), starting with omeprazole and soon followed by a slew of others, including lansoprazole and pantoprazole. See Daniel S. Strand, Daejin Kim, & David A. Peura1, 25 Years of Proton Pump Inhibitors: A Comprehensive Review, 15 Gut Liver. 11(1), 27-37 (2017), available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5221858. The development of treatments for Alzheimer’s has followed a similar trajectory. Biogen’s Aduhelm (aducanumab), was recently retired, but the drug, which works by clearing the amyloid plaques that block neurotransmission in people with Alzheimer’s, has been hailed as a “groundbreaking discovery that paved the way for a new class of drugs and reinvigorated investments in the field.” See Editorial Board, Requiem for an Alzheimer’s Drug, Wall St. J. (Jan. 31, 2024), https://www.wsj.com/articles/aduhelm-biogen-alzheimers-treatment-drug-development-pharma-fda-1d866bd7. The development of Aduhelm thus served as both a foundation for other drugs in the same class of anti-amyloid monoclonal antibody treatments, such as Leqembi (lecanemab) (see Christopher H. Van Dyck et al., Lecanemab in Early Alzheimer’s Disease, 388 N. Engl. J. Med. 9-21 (2023), https://www.nejm.org/doi/full/10.1056/NEJMoa2212948) as well as continued within-class competition for those later drugs, until its retirement. Similarly, Cognex (tacrine)—the first in an earlier class of ameliorative drugs for Alzheimer’s (acetylcholineesterase inhibitors, AChEIs), which work by preventing the breakdown of the neurotransmitter acetylcholine—was, like Aduhelm, ultimately deemed relatively ineffective and withdrawn (See Nawab Qizilbash et al., WITHDRAWN: Tacrine for Alzheimer’s Disease, 18 Cochrane Database Sys. Rev. 3 (2007), https://pubmed.ncbi.nlm.nih.gov/17636619) because it had been superseded by other AChEIs, such as Aricept (donepezil). See Sharon L. Rogers et al., Donepezil Improves Cognition and Global Function in Alzheimer Disease, 158(9) Arch Intern Med. 1021-1031 (1998), available at https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/205223.

[53] See, e.g., Eric Fruits, The Oregon Health Plan: A “Bold Experiment” That Failed (Cascade Policy Institute, Sep. 2010), https://ssrn.com/abstract=1680047 (describing how covered treatments under Oregon’s Medicaid program was originally based on objective “cost-effectiveness” criteria, but quickly transitioned to subjective criteria based on public pressure).

[54] AI’s Potential to Accelerate Drug Discovery Needs a Reality Check, Nature (Oct. 10, 2023), https://www.nature.com/articles/d41586-023-03172-6.

[55] Duxin Sun, Wei Gao, Hongxiang Hu, & Simon Zhou, Why 90% of Clinical Drug Development Fails and How to Improve It?, 12 Acta Pharm. Sin. B 3049 (Jul. 2022); see also, Krugman & Wells, supra note 51 at 264 (“there is a huge failure rate along the way, as only one in five drugs tested on humans ever makes it to market.”)

[56] Sun et al., supra note 55.

[57] Research and Development in the Pharmaceutical Industry, Congressional Budget Office (Apr. 2021), https://www.cbo.gov/publication/57126 (“For established drug companies, current revenue streams from existing products also provide an important source of financing for their R&D projects.”)

[58] DiMasi, Grabowski, & Hansen, supra n. 24.

[59] Id.; see also, CBO, supra note 57 (“average R&D expenditures per new drug range from less than $1 billion to more than $2 billion”).

[60] See The Medicaid Prescription Drug Rebate Program, established by the Omnibus Budget Reconciliation Act (OBRA) of 1990, 42 U.S.C. 1396r-8 (c)(1)(C). This program requires drug manufacturers to provide rebates for medications dispensed to Medicaid patients. The amount of rebate is determined by a formula that takes into account the average manufacturer price (AMP) and the best price (or lowest price) offered to any other buyer; see also Ramsey Baghdadi, Medicaid Best Price, Health Affairs (Aug. 10, 2017), https://www.healthaffairs.org/do/10.1377/hpb20171008.000173 (“Program participation by drug manufacturers is essentially mandatory; companies declining to participate are excluded from all federal programs, including Medicare.”).

[61] The 340B Drug Pricing Program, established by the Veterans Health Care Act of 1992, requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices. 42 U.S.C. § 256b (1993).

[62] Under the Affordable Care Act, a significant provision was introduced that directly affects the Medicare Part D coverage gap, commonly known as the “donut hole.” See 42 U.S.C. § 1395w-114a (2018). This provision mandates pharmaceutical manufacturers to offer a 50% discount on drugs for beneficiaries during this coverage gap. Id.

[63] See, e.g., Mark Duggan & Fiona M. Scott Morton, The Distortionary Effects of Government Procurement: Evidence from Medicaid Prescription Drug Purchasing (Nat’l Bureau of Econ. Res. Working Paper w10930, Feb. 2000), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=622874 (demonstrating that Medicaid pricing pressure on pharmaceuticals leads to downstream distortions in the price of pharmaceuticals purchased outside of the Medicaid program).

[64] Id.

[65] See, e.g., Sun et al., supra note 55. (discussing the fact that 90% of clinical trials fail, which means that the 10% of successful candidates effectively fund the experiments with the other 90%). As the authors note: Drug discovery and development is a long, costly, and high-risk process that takes over 10–15 years with an average cost of over $1–2 billion for each new drug to be approved for clinical use. For any pharmaceutical company or academic institution, it is a big achievement to advance a drug candidate to phase I clinical trial after drug candidates are rigorously optimized at preclinical stage. However, nine out of ten drug candidates after they have entered clinical studies would fail during phase I, II, III clinical trials and drug approval. It is also worth noting that the 90% failure rate is for the drug candidates that are already advanced to phase I clinical trial, which does not include the drug candidates in the preclinical stages. If drug candidates in the preclinical stage are also counted, the failure rate of drug discovery/development is even higher than 90%.

[66] John LaMattina, Pharma R&D Investments Moderating, But Still High, Forbes (Jun. 12, 2018), https://www.forbes.com/sites/johnlamattina/2018/06/12/pharma-rd-investments-moderating-but-still-high (Noting that R&D investment has typically been at 15% for the pharmaceutical industry).

[67] See Ekaterina Galkina Cleary, Matthew J. Jackson, Edward W. Zhou, & Fred D. Ledley, Comparison of Research Spending on New Drug Approvals by the National Institutes of Health vs the Pharmaceutical Industry, 2010-2019, 4(4) JAMA Health Forum (2023), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10148199. (“Funding from the NIH was contributed to 354 of 356 drugs (99.4%) approved from 2010 to 2019 totaling $187 billion, with a mean (SD) $1344.6 ($1433.1) million per target for basic research on drug targets and $51.8 ($96.8) million per drug for applied research on products.”)

[68] FDA, Step 3: Clinical Research (Jan. 4, 2018), https://www.fda.gov/patients/drug-development-process/step-3-clinical-research.

[69] Id.

[70] See, e.g., What’s Driving the Improvement in U.S. Cancer Survival Rates?, City of Hope (Jan. 26, 2023), https://www.cancercenter.com/community/blog/2023/01/cancer-survival-rates-are-improving Cancer death rates are down 33% since 1991. This is, in large part, due to the development of increasingly effective means of treating cancer and improving survivability odds.

[71] See supra notes 5-8 and accompanying text.

As the European Parliament is on the verge of expressing its view on the Commission’s proposal for a regulation on standard essential patents (SEPs), it seems appropriate to draw the attention to potential disruptive effects of this legislative initiative. Although some commentators have portrayed the proposed regulation as a balanced, innocuous and ‘common-sense’ solution, the reality is very different, as the regulation will likely have adverse effects on European innovation, tech sovereignty and the competitiveness of the European Union in the global arena.

Read the full piece here.

Sometimes Congress does something right, and one example is the Bayh-Dole Act of 1980. This bipartisan patent law is widely recognized as one of the great legislative achievements of the past 60 years. It has massively boosted innovation and economic growth by incentivizing researchers and universities to commercialize their new inventions by, paradoxically, removing them from public control by the government. The Biden administration has now announced a plan to twist this law to reimpose government control over these inventions in the form of price controls. This proposal would kill this “golden goose” of innovation.

Read the full piece here.

Abstract

Summary

Efficient infringement is when firms opt to “infringe now, pay later,” rather than accepting ex ante a license to use a patented technology. This behavior is particularly attractive when the infringer believes that, even if it is found to have infringed a valid patent, it will not be enjoined from continued infringement. At worst, absent injunctive relief, the infringer will need only pay damages for past infringement, approximating what it would have paid if it had licensed the technology ex ante, and then a royalty rate for future infringement. Essentially, the infringer is in no worse a position that it would be had it accepted a license and may even be in an improved position if the royalty rate set by a court is lower than it could have obtained via negotiation.

Efficient infringement is of particular concern in the standards essential patent (SEP) space because injunctive relief is generally unavailable to SEP owners. This chapter explains that courts are unlikely to grant requests for permanent injunctions and SEP owners are unlikely to even seek injunctive relief, setting up the necessary condition for efficient infringement to flourish. Unsurprisingly, there is evidence that infringers are selecting to “infringe now, pay later” when it comes to SEPs and this chapter sets out the case why this is problematic for a well-functioning innovation system.