The administration is reportedly scrambling to finalize a radical proposal that could reshape the innovation economy.
The proposal, issued by the Department of Commerce’s National Institutes of Standards and Technology in December, essentially tells all federal agencies they can retroactively terminate patent licensing agreements between private companies, on the one hand, and universities and other federally funded research institutions on the other.
The proposal is legally dubious and would likely be overturned by the courts. However, the damage will be done before the lawsuit is ever filed.
If there’s a possibility that federal agencies can retroactively take away a private company’s patent licenses on a whim, firms — and their investors — will balk at licensing any cutting-edge research coming out of universities. The entire innovation economy, which depends upon private firms turning universities’ discoveries into real-world products, would slow to a crawl.
The proposal reinterprets a 1980 law known as the Bayh-Dole Act. The law empowers universities, small businesses and non-profit institutions to retain the intellectual property rights for their research discoveries even if they were funded by a federal grant. Institutions can then license the patents to private firms with the resources to turn the ideas into real-world products. Before this law, the government retained patent rights on all discoveries stemming from federally funded research, with little ever commercialized.
Bayh-Dole’s goal was to incentivize innovation and commercialization, and it has been wildly successful. Between 1996 and 2020, the transfer of government-funded technologies from universities to the private sector generated $1.9 trillion in economic output, 6.5 million jobs, 17,000 startup companies, and more than 200 new medicines and vaccines.
Under a minimal set of circumstances — national emergencies, for example — Bayh-Dole allows the government to “march in” and relicense patents on federally funded products. There has been only one instance where march-in criteria were met, and the government never exercised those rights.
The administration aims to change that. Its proposal reinterprets the plain meaning of the Bayh-Dole Act to suggest government agencies can march in on a patent when “the price or other terms at which the product is currently offered to the public are not reasonable.” According to the White House, the idea is to use Bayh-Dole’s march-in provision to relicense patents on high-cost products — especially medicines — to competing companies that can produce cheaper knockoffs.
Remember that the Bayh-Dole Act’s framers explicitly stated that the law “did not intend that government set prices on resulting products.” They added that “the law makes no reference to a reasonable price that should be dictated by the government.”
Legal and bureaucratic minutiae aside, this march-in abuse is a terrible idea. If finalized, the proposal would upend the Bayh-Dole system and sow distrust in the intellectual property rights foundational to innovation.
Investors and private companies take risks on early-stage research only because they can rely on exclusive IP rights to give them a shot at earning a return. Few would continue taking those risks if the government could revoke patent licenses any time it deems the price of a product too high.
The result would be the crumbling of the Bayh-Dole system. Private companies would hesitate to license government-funded research, and the American people would miss out on promising discoveries that never make it out of the lab.
Rumors are swirling that the administration is rushing to finalize its proposal. Instead, it ought to rush to scrap it.
