The Catch-22 of Bayh-Dole March-In Rights

By Rachel Sachs

Earlier today, the NIH rejected a request filed by consumer groups including Knowledge Ecology International (KEI) to exercise the government’s march-in rights on an expensive prostate cancer drug, Xtandi.  Xtandi costs upwards of $129,000 per year, and KEI had asked the government to exercise its rights under the Bayh-Dole Act, which specifies a range of conditions under which the government may require a patentholder to grant licenses on reasonable terms to others to practice the patent.  Specifically, the government may require such a license where “action is necessary to alleviate health or safety needs which are not reasonably satisfied,” 35 U.S.C. § 203(a)(2), or where the benefits of the invention are not being made “available to the public on reasonable terms,” 35 U.S.C. § 201(f).

For some time now, there has been debate over the question of whether high prices for pharmaceuticals are a sufficient trigger to invoke the use of march-in rights under these clauses of the statute.  I don’t take a position on that question here.  Instead, I want to ask whose responsibility it is to decide that question.  Congress has the legal right to do so, but it seems unwilling or unable to.  The agencies in question have recently declined to, even assuming they have the power to interpret the statute in that way.  And so we might look to the courts.  But there’s a puzzle here: it’s not clear that anyone can ask a court to decide whether high prices meet the statutory requirements unless an agency actually decides that high prices meet the statutory requirements.

Here’s what I mean.  If NIH Director Francis Collins believes that high prices are not a sufficient statutory trigger for march-in authority (although he did not clearly state as such in his rejection of KEI’s petition), then he will deny petitions like KEI’s and refuse to march in.  (KEI intends to appeal to the Secretary of Health and Human Services, but let us assume for now that HHS Secretary Burwell’s lawyers hold the same views as Director Collins’.)  The Bayh-Dole Act does not give KEI or any other third party the legal right to bring a lawsuit in federal court challenging the NIH’s denial of its march-in petition.  (Admin law wonks may want to skip to the end for a brief discussion of the APA implications here.)

However, the statute does create a right of action for patentholders (such as the makers of Xtandi) against whom march-in rights are exercised to appeal to federal court.  Section 203(b) permits a patentholder (or those in particular relationships with the patentholder) who is “adversely affected by a determination under this section” (presumably, the exercise of march-in rights) to “file a petition in the United States Court of Federal Claims, which shall have jurisdiction to determine the appeal on the record and to affirm, reverse, remand or modify, as appropriate, the determination of the Federal agency.” Procedure wonks who are curious about the creation of “the record” may enjoy reading the regulations surrounding the exercise of march-in rights.

In other words, if the NIH does decide to march in against a patentholder on the grounds that 1) high prices are a sufficient statutory trigger and 2) the price in the particular case is too high, only then does a federal court get to interpret the law and set a precedent for future cases.  There are many administrative law questions I can’t hope to answer in this blog post (Would any agencies get Chevron deference here? Under what circumstances? Should they? Why? Etc.).  But I do want to emphasize the asymmetry involved here.  Third parties who are aggrieved by agency action seemingly cannot appeal to the federal courts, but patentholders can.  I am not the first person to make this observation, of course, but the growing concern over high drug prices and the number of march-in petitions in recent years may make it more salient.

To be sure, this asymmetry in who has standing to appeal is not unique to march-in rights.  This problem has been known for decades and has often been particularly acute in the context of environmental law, where the regulated industry has far greater ability to challenge agency actions of all kinds than do environmental groups.  But we still might be worried about this asymmetry, because when combined with the agency’s refusal to act it means we may wait quite a long time to resolve the legal question as to whether high drug prices may trigger the Bayh-Dole Act.  It seems that the agencies themselves may be uncertain about the answer to this question – but to have that uncertainty resolved, they must choose a particular interpretation of the statute and wait for the aggrieved company to appeal.

I’ve written here before about some of the different roadblocks to the exercise of march-in rights, and this asymmetry in rights of appeal may be another.  As I noted then, it may be that it falls to Congress to either clarify the terms of a statute written more than thirty years ago or to permit symmetric rights of access to the courts.  I’m not optimistic about Congressional action in this political climate, but it is still likely the simplest way to resolve these issues clearly.

APA Implications: There’s a colorable but in my mind not slam-dunk argument that the APA (5 U.S.C. § 702) gives KEI the right to sue in federal court, as a party “adversely affected” by agency action.  I’ve gone down a number of rabbit holes on this point, and in the end I disagree.  In my view the clearest reason why is likely because the NIH’s/HHS’ actions here amount to agency inaction, rather than action.  Particularly if the march-in procedure is viewed as being closer to an enforcement action rather than a rulemaking, the denial of the petition might be presumptively unreviewable under the APA.  The fact that no prior denial of a march-in petition has to my knowledge resulted in such a lawsuit would also seem to support this view.  But I’d love to hear from APA experts on this issue!

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