Beyond Compulsory Licensing: Patent Threats to the U.S. Pharmaceutical Industry Amid an Ongoing Global Pandemic

Compulsory licensing, a tool initially designed to support drug access in emerging markets, is increasingly used by developed countries as a controversial mechanism to lower drug prices. The pressure on governments to provide increased access to drugs at lower costs is a global issue, and U.S. policymakers are not immune. But this year, in the midst of a contentious political election and a global pandemic, the stakes are higher than ever.

While compulsory licensing has not traditionally been considered a critical threat to industry in the U.S., the conversation around similar tools, like march-in rights, has gained traction in recent months. As the COVID-19 pandemic presses on against a highly polarized political backdrop, U.S. policymakers on both sides of the aisle are particularly focused on lowering drug prices, opening the window for new legislative challenges to the country’s historically robust intellectual property environment. The pharmaceutical industry will therefore need to pay careful attention to policymakers’ words and actions to ensure that any risks posed by an unconventional approach to lowering drug prices are adequately appraised and mitigated.

March-in Rights: A Provision with Sweeping Implications

“March-in rights” is a term derived from the 1980 Bayh-Dole Act, also known as the Patent and Trademark Law Amendments Act. This bipartisan legislation, authored by Senators Birch Bayh (D-IN) and Bob Dole (R-KS), allows universities, non-profits and small companies to keep the license rights to inventions made with federal funding. In exchange, the government can “march in” to force additional licensing under specific conditions, including if the patent owner has not made and is not expected to make the product available on “reasonable terms.”

The phrase “reasonable terms’’ was never defined in the law and has therefore generated differing interpretations. This ambiguity has allowed critics and consumer advocates to assert that the government can march in if a resulting product isn’t reasonably priced. While these advocates argue that this form of government action is an important and rare check on drug price gouging, supporters of strong patent rights note that the Bayh-Dole Act was never meant to control drug prices, citing a 2002 letter by Senators Bayh and Dole explicitly stating that “Bayh-Dole did not intend that government set prices on resulting products.”

Patent Threats During COVID-19

Although march-in rights have never been used, there are growing calls from advocacy groups, lawmakers and the general public for the U.S. government to impose drug price controls on COVID-19 vaccines and treatments. On August 4, for example, a bipartisan group of 34 state attorneys general sent a letter to the U.S. government asking it to use its march-in rights under the Bayh-Dole Act and license Gilead’s remdesivir – an experimental drug used to treat COVID-19 patients – to “help increase the supply of this drug and lower the price so it is accessible to our state residents.”

Similarly, groups like Doctors Without Borders and Universities Allied for Essential Medicines are urging governments to take control of patents on COVID-19 therapies that were researched, developed and tested using taxpayer dollars, in an effort to prevent industry price gouging. According to new polling data, voters in four battleground states – Arizona, North Carolina, Iowa, and Maine – also show strong support for restricting intellectual property rights on pharmaceutical companies, with 72% of respondents saying they would be more likely to support a political candidate committed to ending patents on high-cost drugs, and 48% saying they would back a candidate that committed to making coronavirus treatments and vaccines free.

Amid these patent threats, there are also mounting concerns that similar political pressures will be extended to therapeutics used to treat non-communicable diseases, such as cancer, diabetes and hypertension.  Several companies have already taken steps to ensure their COVID-19 products are affordable and accessible – Moderna, for example, waived patent enforcement on its vaccine – but the possibility of government-imposed restrictions on prices and licensing rights has sparked new worries about the precedent this could set for the industry’s broader portfolio of medications.

Other Approaches to Lowering Drug Prices

All of this takes place amid ongoing efforts by both sides of the aisle to lower drug prices for American consumers. While Democrats have attempted to advance legislation that would allow the government to negotiate prices with drug makers, President Trump, who has a record of inventive regulatory actions, signed four executive orders this year that would create an international pricing index and eliminate rebates for PBMs.  While these efforts have been perceived as counterproductive by industry, who subsequently labeled them a “reckless distraction” from the pandemic at hand, the agenda to lower drug prices in both the White House and in Congress still exists. This, coupled with the recent attacks on intellectual property spurred by the COVID-19 pandemic, have created an increasingly complex regulatory environment consisting of a multi-level playing field that industry must be ready to navigate, regardless of who wins the election in November.

Key Considerations for Industry

Measures that aim to restrict patents and increase affordability, while well-intentioned, may put the pharmaceutical industry’s ability to innovate at risk. As the COVID-19 pandemic continues to spread, and the subsequent calls for government intervention on patent rights continue to grow, industry should keep in mind the following considerations:

  1. Communications should be focused around the notion that pricing is not the sole factor in the debate over patient access to COVID-19 vaccines and treatments. The pandemic has exposed limitations in the country’s manufacturing capabilities, distribution network, medical infrastructure and insurers. As innovators continue working towards a safe and effective vaccine, it is important that they also help lawmakers avoid a narrow focus on pricing in the debate over patient access.
  2. The risk of potential COVID-19 patent restrictions being extended to other drugs exists, and as such, it is important that engagement with lawmakers on this topic should not be centered solely on vaccines and treatments being developed to treat the virus. These conversations must take into account that any licensing regulations and price controls imposed under the current context could have far-reaching implications beyond the scope of the pandemic.
  3. Leveraging existing long-term relationships between the public and private sectors and forging new partnerships will benefit both parties not only during the current crisis, but for years to come. This pandemic should be a time of increased and sustained collaboration not only to address immediate needs, but also to open communication channels that allow for more productive bilateral discussions in the future.

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