In its Report on the National Defense Authorization Act for Fiscal Year 2018, the Senate Armed Services Committee (the “Committee”) included an “Item of Special Interest” directing the DoD to exercise its rights under the Bayh-Dole Act “to authorize third parties to use inventions that benefited from DOD funding whenever the price of a drug, vaccine, or other medical technology is higher in the United States” as compared to prices in foreign countries.  This directive does not have the force of law, and was included as an item of special interest after an amendment to incorporate the clause into the NDAA failed.  However, it represents an example of efforts to use the Bayh-Dole Act to influence drug product pricing. 

Congress passed the Bayh-Dole Act in 1980 to address the stagnant state of innovation in the United States. The statute created a careful balance of public and private interests in inventions that receive government seed funding.  This balance conveys to the inventor title to the invention and the ability to offer an exclusive license to private industry, while providing the government royalty-free use of the invention for government purposes and the ability to safeguard the public interest through the exercise of march-in rights.  This balance spurred innovation, especially in the context of collaborations between universities and private industry.  Universities were able to maintain title to their inventions, while licensing the invention to private industry who would bear the significant cost of commercializing an invention in exchange for the assurance that it could benefit from its exclusive license to the invention.  This approach has been very successful.  In 2014 alone, university technology transfer programs resulted in 6,363 patents issued to universities, 5,435 licenses executed with private industry, and 965 new commercial product launches. By contrast, prior to the Bayh-Dole Act, universities receiving government funds secured fewer than 250 patents each year and only a small portion of such patents were successfully commercialized.

Against this backdrop, it is difficult to see how or why DoD would implement the Committee’s directive.

  • First, as reflected above, the Bayh-Dole Act has created a careful balance of interests. It seems unlikely that an agency charged with defending the country — not with making healthcare or patent policies — would interfere with this balance by effectively imposing rigid price controls on a particular class of products. Indeed, doing so could chill the progress in innovation that has been spurred by the Bayh-Dole Act and leave private industry less willing to undertake the significant investment of commercializing an invention. In addition, it would create an irrational inconsistency in how different industries are treated under the same statute.
  • Second, even if the DoD were to attempt to implement the Committee’s directive, the proposed action falls outside the current statutory framework. The Bayh-Dole Act only allows the government to grant third-party licenses in limited situations, and none of the situations involve or consider the price of the products incorporating the inventions. It is possible that if the directive is moved from an item of special interest in the Committee’s Report into the NDAA itself, there could be new statutory authority under the Bayh-Dole Act to affect pricing. That said, such authority would only have the potential to apply to inventions conceived or reduced to practice with DoD funding during the relevant NDAA fiscal year and would not be retroactive. Further, any such authority would require re-authorization in the subsequent year’s NDAA.
  • Third, the Committee language appears to be well beyond that contemplated by the Bayh-Dole Act as it directs DoD to take action with respect to any invention that directly or indirectly received DoD funding.   DoD’s authority under the Bayh-Dole Act does not stretch to any invention that benefits from DoD funding. Instead, the Bayh-Dole Act only applies when an invention is first conceived or reduced to practice with the support of federal funding.   Broadening DoD’s authority could have catastrophic effects on private industry’s willingness to share proprietary technology in any way with the U.S. Government.

Although the DoD lacks the proper policy foundation and statutory authority to implement the Committee’s directive, contractors would be well advised to monitor continued attempts to influence pricing through the Bayh-Dole Act.  Additionally, contractors should assess the intellectual property to which they hold title or an exclusive license to identify any inventions — whether in the drug product context or otherwise — that may be encumbered by the Bayh-Dole Act or may have benefitted from federal funding.

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Photo of Jennifer Plitsch Jennifer Plitsch

Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.

She…

Jennifer Plitsch leads the firm’s Government Contracts Practice Group, where she works with clients on a broad range of issues arising from both defense and civilian contracts including contract proposal, performance, and compliance questions as well as litigation, transactional, and legislative issues.

She has particular expertise in advising clients on intellectual property and data rights issues under the Federal Acquisition Regulations (FAR) and obligations imposed by the Bayh-Dole Act, including march-in and substantial domestic manufacturing. Jen also has significant experience in negotiation and compliance under non-traditional government agreements including Other Transaction Authority agreements (OTAs), Cooperative Research and Development Agreements (CRADAs), Cooperative Agreements, Grants, and Small Business Innovation Research agreements.

For over 20 years, Jen’s practice has focused on advising clients in the pharmaceutical, biologics and medical device industry on all aspects of both commercial and non-commercial agreements with various government agencies including:

  • the Department of Veterans Affairs (VA);
  • the Department of Health and Human Services (HHS), including the Biomedical Advanced Research and Development Authority (BARDA), the National Institutes of Health (NIH), and the Centers for Disease Control (CDC);
  • the Department of Defense (DoD), including the Defense Threat Reduction Agency (DTRA), the Defense Advanced Research Projects Agency (DARPA), and the Joint Program Executive Office for Chemical Biological Defense (JPEO-CBRN); and
    the U.S. Agency for International Development (USAID).

She regularly advises on the development, production, and supply to the government of vaccines and other medical countermeasures addressing threats such as COVID-19, Ebola, Zika, MERS-CoV, Smallpox, seasonal and pandemic influenza, tropical diseases, botulinum toxin, nerve agents, and radiation events. In addition, for commercial drugs, biologics, and medical devices, Jen advises on Federal Supply Schedule contracts, including the complex pricing requirements imposed on products under the Veterans Health Care Act, as well as on the obligations imposed by participation in the 340B Drug Pricing program.

Jen also has significant experience in domestic sourcing compliance under the Buy American Act (BAA) and the Trade Agreements Act (TAA), including regulatory analysis and comments, certifications, investigations, and disclosures (including under the Acetris decision and Biden Administration Executive Orders). She also advises on prevailing wage requirements, including those imposed through the Davis-Bacon Act and the Service Contract Labor Standards.

Photo of Alexander Hastings Alexander Hastings

Alex Hastings advises clients across a broad range of government contracting issues, including advising clients in transactional matters involving government contractors and assisting defense contractors and pharmaceutical companies in securing and performing government contracts.

Mr. Hastings also advises clients concerning best practices in…

Alex Hastings advises clients across a broad range of government contracting issues, including advising clients in transactional matters involving government contractors and assisting defense contractors and pharmaceutical companies in securing and performing government contracts.

Mr. Hastings also advises clients concerning best practices in e-discovery. He assists in investigations and litigations that involve complex e-discovery issues and has represented clients in matters involving the U.S. Department of Justice, Securities and Exchange Commission and the United States International Trade Commission.

Mr. Hastings’ government contracts experience includes advising clients regarding new developments in regulatory requirements, including the Federal Acquisition Regulation’s (FAR) anti-human trafficking requirements and the FAR and Bayh-Dole Act’s intellectual property provisions. Mr. Hastings also provides due diligence regulatory advice to clients contemplating the acquisition of government contracting entities or assets.

Mr. Hastings’ e-discovery experience includes advising a wide-array of clients on best practices in information governance and document collection and assisting clients develop effective mobile device and document management policies.

Mr. Hastings also maintains an active pro bono practice and routinely writes on issues related to government contracts and e-discovery.