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A plan to bring down drug prices could threaten America’s technology boom

As it stands, the draft policy would undermine the long-standing Bayh-Dole Act, with unintended consequences for innovation.

March 8, 2024
view of the skyline in Kendall Square, Cambridge with new glass towers including one for Google mixed in with older brick and collegiate buildings
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Forty years ago, Kendall Square in Cambridge, Massachusetts, was full of deserted warehouses and dying low-tech factories. Today, it is arguably the center of the global biotech industry. 

During my 30 years in MIT’s Technology Licensing Office, I witnessed this transformation firsthand, and I know it was no accident. Much of it was the direct result of the Bayh-Dole Act, a bipartisan law that Congress passed in 1980. 

The reform enabled world-class universities like MIT and Harvard, both within a couple of miles of Kendall Square, to retain the patent and licensing rights on discoveries made by their scientists—even when federal funds paid for the research, as they did in nearly all labs. Those discoveries, in turn, helped a significant number of biotechnology startups throughout the Boston area launch and grow.

Before Bayh-Dole, the government retained those patent and licensing rights. Yet while federal agencies like the National Institutes of Health heavily funded basic scientific research at universities, they were ill equipped to find private-sector companies interested in licensing and developing promising but still nascent discoveries. That’s because, worried about accusations of favoritism, government agencies were willing to grant only nonexclusive licenses to companies to develop patented technologies. 

Few companies were willing to license technology on a nonexclusive basis. Nonexclusive licenses opened up the possibility that a startup might spend many millions of dollars on product development only to have the government relicense the patent to a rival firm.

As a result, many taxpayer-financed discoveries were never turned into real-world products. Before the law, less than 5% of the roughly 28,000 patents held by the federal government had been licensed for development by private firms.

The bipartisan lawmakers behind Bayh-Dole understood that these misaligned incentives were impeding scientific and technological progress—and hampering economic growth and job creation. They changed the rules so that patents no longer automatically went to the federal government. Instead, universities and medical schools could hold on to their patents and manage the licensing themselves.

In response, research institutions invested heavily in offices like the one I ran at MIT, which are devoted to transferring technology from academia to private-sector companies.

Today, universities and nonprofit research institutions transfer thousands of discoveries each year, resulting in innovations in all manner of technical fields. Many thousands of entrepreneurial companies—often founded by the researchers who made the discoveries in question—have licensed patents stemming from federally funded research. This technology transfer system has helped create millions of jobs

Google’s search algorithm, for instance, was developed by Sergey Brin and Larry Page with the help of federal grants while they were still PhD students at Stanford. They cofounded Google, licensed their patented algorithm from the school’s technology transfer office, and ultimately built one of the world’s most valuable companies.

All told, the law sparked a national innovation renaissance that continues to this day. In 2002, the Economist dubbed it “possibly the most inspired piece of legislation to be enacted in America over the past half-century.” I consider it so vital that after I retired, I joined the advisory council of an organization devoted to celebrating and protecting it. 

But the efficacy of the Bayh-Dole Act is now under serious threat from a draft framework the Biden administration is currently in the process of finalizing after a months-long public comment period that concluded on February 6.

In an attempt to control drug prices in the US, the administration’s proposal relies on an obscure provision of Bayh-Dole that allows the government to “march in” and relicense patents. In other words, it can take the exclusively licensed patent right from one company and grant a license to a competing firm. 

The provision is designed to allow the government to step in if a company fails to commercialize a federally funded discovery and make it available to the public in a reasonable time frame. But the White House is now proposing that the provision be used to control the ever-rising costs of pharmaceuticals by relicensing brand-name drug patents if they are not offered at a “reasonable” price. 

On the surface, this might sound like a good idea—the US has some of the highest drug prices in the world, and many life-saving drugs are unavailable to patients who cannot afford them. But trying to control drug prices through the march-in provision will be largely ineffective. Many drugs are separately protected by other private patents filed by biotech and pharma companies later in the development process, so relicensing just an early-stage patent will do little to help generate generic alternatives. At the same time, this policy could have an enormous chilling effect on the very beginning of the drug development process, when companies license the initial innovative patent from the universities and research institutions.

If the Biden administration finalizes the draft march-in framework as currently written, it will allow the federal government to ignore licensing agreements between universities and private companies whenever it chooses and on the basis of currently unknown and potentially subjective criteria, such as what constitutes a “reasonable” price. This would make developing new technologies far riskier. Large companies would have ample reason to walk away, and investors in startup companies—which are major players in bringing innovative university technology to market—would be equally reluctant to invest in those firms.

Any patent associated with federal dollars would likely become toxic overnight, since even one cent of taxpayer funding would make the resulting consumer product eligible for march-in on the basis of price. 

What’s more, while the draft framework has been billed as a “drug pricing” policy, it makes no distinction between university discoveries in life sciences and those in any other high-tech field. As a result, investment in IP-driven industries from biotech to aerospace to alternative energy would plummet. Technological progress would stall. And the system of technology transfer established by the Bayh-Dole Act would quickly break down.

Unless the administration withdraws its proposal, the United States will return to the days when the most promising federally backed discoveries never left university labs. Far fewer inventions based on advanced research will be patented, and innovation hubs like the one I watched grow will have no chance to take root.

Lita Nelsen joined the Technology Licensing Office of the Massachusetts Institute of Technology in 1986 and was director from 1992 to 2016. She is a member of the advisory council of the Bayh-Dole Coalition, a group of organizations and individuals committed to celebrating and protecting the Bayh-Dole Act, as well as informing policymakers and the public of its benefits.

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