[Ip-health] Bayh in 1997 -- NIH should use march-in to regulate problem that
leads to unreasonably high royalties (and prices of medical care)
James Love
james.love@cptech.org
Tue May 25 22:29:12 2004
In today=92s hearing on the Norvir March-In request, former
Senator Birch Bayh testified that the Bayh-Dole Act was
never intended to address the issue of unreasonable prices.
The following are excerpts from the 1997 Cellpro march-in
petition that Lloyd Cutler and Senator Bayh wrote, asking
Donna Shalala to issue compulsory licenses. The 1997
Cellpro case was a =93refusal to deal=94 petition, and Cutler
and Bayh detailed the unsuccessful efforts of Cellpro to
obtain licenses to the patents. The disputes were largely
about the economic terms of the license -- upfront fees and
the royalty rates. Cellpro had earlier offered a $500,000
up front fee and a =93maximum royalty of 4.8%, an amount that
is at the high end of royalty rates for non-exclusive
licenses in the biotech area.=94 The patent owner wanted a
royalty closer to 16 percent, and much larger up front fees,
plus at various times, other terms. Here are some of the
excerpts from the 1997 Cutler/Bayh letter to Shalala.
Apparently in 1997 Bayh said the NIH could march-in if the
royalty rates were too high. Indeed, in 1997, Bayh asked
the NIH to investigate royalty =93layering,=94 which Bayh said
was =93a common problem that leads to unreasonably high
royalties (and prices of medical care) that should be dealt
with by regulation.=94
Today (May 25, 2004), Bayh claimed the Bayh-Dole Act does
was not intended to permit a march-in if a price to
consumers is unreasonable, which seems like a contradiction
to the position he took in 1997, when he presented Cellpro.
Jamie
http://www.nih.gov/icd/od/foia/cellpro/pdfs/foia_cellpro1.pdf
-----------From the March 3, 1997 Cellpro petition-------
* the licensee has refused to license our client=92s product
on reasonable terms and is taking the position that its
approved product should be subject to an injunction
preventing its use.
* Congress recognized that in particular cases the public
interest might require government action and therefore
included in the Act =93march-in=92=92 provisions =93to ensure that
the Government obtains sufficient rights in federally
supported inventions to . . . protect the public against
nonuse or unreasonable use of inventions.=94
* As to the question of reasonable license terms, there are
fortunately several clear benchmarks on which the agency can
rely. First, Baxter itself initially offered (before
attempting to extract exclusive distribution rights over
CellPro products) a license based on a lump sum payment of
$750,000 and a 16% royalty on antibody sales or the antibody
content of other products. Baxter also entered into
nonexclusive licenses on essentially these same terms with
two competitors of CellPro (though neither of those firms
has in fact developed a product). This, CellPro submits,
should set a cap on what could be regarded as =93reasonable
under the circumstances.=94
* In fact, the circumstances -- and the interests of the
public which paid for the research that led to the patents
and is now being asked to pay again -- cry out for a far
lower royalty payment by CellPro. Becton Dickinson
originally obtained an exclusive license on the patents
(subject of come to the government=92s march in rights),
presumably in exchange for a payment and running royalty,
though as noted above it has refixed to make available to us
the terms of its license agreement with Johns Hopkins. When
Becton Dickinson=92s attempts to use the Civin patents for
therapeutic purposes were unsuccessful, Becton Dickinson re-
licensed the patents on an exclusive basis to Baxter for a
payment of $1.25 million and a royalty of 11%. These
levels of proposed royalty suggest a more reasonable
benchmark for a nonexclusive (and thus less valuable)
license in the present case.
* . . . investigation may be needed to determine whether the
royalty =93layering=94 that plainly exists in the present case -
- where federal grantee Johns Hopkins has licensed to Becton
Dickinson, which apparently marked up the price and
relicensed to Baxter, which in turn clearly marked up the
price and relicensed to Systemix and Applied Immune Systems
-- is a common problem that leads to unreasonably high
royalties (and prices of medical care) that should be dealt
with by regulation.
<-----------sections of letter follow--------->
March 3,1997
The Honorable Donna E. Shalala
Secretary
Department of Health and Human Services
200 Independence Avenue, S.W.
Washington, D.C. 20201
Dear Secretary Shalala:
Under the Bayh-Dole Act, 35 U.S.C. 9 200 et sea., the
Secretary of Health and Human Services has the authority to
issue licenses under privately owned patents to inventions
developed as a result of government-financed research. We
are writing to request your action pursuant to that Act to
ensure that an important new medical product will be
available for use in this country.
As discussed in more detail below, the exclusive private
licensee of rights under a patent that resulted from
federally-funded medical research is threatening to force
removal from the market of our client=92s allegedly infringing
product that recently received FDA approval for use in bone
marrow transplantation to treat breast cancer and related
diseases. The exclusive licensee=92s own efforts to develop a
product for such use has not resulted in an FDA approved
product and may never do so. Nevertheless, the licensee has
refused to license our client=92s product on reasonable terms
and is taking the position that its approved product should
be subject to an injunction preventing its use. These are
the precise circumstances in which Congress provided in 35
U.S.C. 203 for the exercise of =93march in=94 rights to protect
the public interest. Accordingly, on behalf of our client,
CellPro, Incorporated, the company whose product has been
approved by the FDA, we ask that you exercise those rights
to require that a license be issued to the extent necessary
to ensure that the product remains on the market or, if
necessary, issue such a license yourself.
[SNIP]
IV. Request for Exercise of the Government=92s Rights Under
the Bayh-Dole Act
The Bayh-Dole Act was enacted in 1980 =93to promote the
commercialization and public availability of inventions made
in the United States by United States industry and labor.=94
35 U.S.C. 200. Previously, patent rights that arose from
research funded by federal grants were generally owned by
the United States. In enacting Bayh-Dole, Congress made the
judgment that policy objectives of commercializing the
results of federally-funded research were better served by
allowing federal nonprofit grantee institutions like Johns
Hopkins to obtain and hold patent rights, with exploitation
of inventions generally left to the nonprofits=92 licensing
programs and competitive forces. At the same time,
however, Congress recognized that in particular cases the
public interest might require government action and
therefore included in the Act =93march-in=92=92 provisions =93to
ensure that the Government obtains sufficient rights in
federally supported inventions to . . . protect the public
against nonuse or unreasonable use of inventions.=94 Id. As
noted above, the Bayh-Dole Act also contains a policy
judgment that small firms should have a preference in
obtaining licenses of patents arising out of federally
funded research. Id. 202(c)(7)(D).
To carry out these federal policies, the Bayh-Dole Act
provides that a Federal agency may exercise its march-in
rights and require the exclusive licensee of an invention
made with Federal funds to issue a license to a responsible
applicant =93upon terms that are reasonable under the
circumstances=94 if the Federal agency determines that
(a) action is necessary because the contractor or assignee
has not taken, or is not expected to take within a
reasonable time, effective steps to achieve practical
application of the subject invention in such field of use;
[or]
(b) action is necessary to alleviate health or safety needs
which are not reasonably satisfied by the contractor,
assignee, or their licensees.=94
35 U.S.C. 203.
In the present instance, both of these statutory bases have
plainly been met.
[snip]
By its threat to have the Ceprate Systems removed from the
market, Baxter proposes to deprive the public in this
country -- the public that funded Dr. Civin's research in
the first place -- of the benefits of the CellPro product.
This, CellPro submits, would plainly violate the statutory
mandate that government funded inventions not be used to
harm the public through =93nonuse or unreasonable use.=94
Accordingly, there are only two real questions presented by
the present request. First, what license terms would be
=93reasonable under the circumstances,=94 and second, when and
how should the agency act.
1. Reasonable Terms Under the Circumstances.
As to the question of reasonable license terms, there are
fortunately several clear benchmarks on which the agency can
rely. First, Baxter itself initially offered (before
attempting to extract exclusive distribution rights over
CellPro products) a license based on a lump sum payment of
$750,000 and a 16% royalty on antibody sales or the antibody
content of other products. Baxter also entered into
nonexclusive licenses on essentially these same terms with
two competitors of CellPro (though neither of those firms
has in fact developed a product). This, CellPro submits,
should set a cap on what could be regarded as =93reasonable
under the circumstances.=94
In fact, the circumstances -- and the interests of the
public which paid for the research that led to the patents
and is now being asked to pay again -- cry out for a far
lower royalty payment by CellPro. Becton Dickinson
originally obtained an exclusive license on the patents
(subject of come to the government=92s march in rights),
presumably in exchange for a payment and running royalty,
though as noted above it has refixed to make available to us
the terms of its license agreement with Johns Hopkins. When
Becton Dickinson=92s attempts to use the Civin patents for
therapeutic purposes were unsuccessful, Becton Dickinson re-
licensed the patents on an exclusive basis to Baxter for a
payment of $1.25 million and a royalty of 11%. These
levels of proposed royalty suggest a more reasonable
benchmark for a nonexclusive (and thus less valuable)
license in the present case. Indeed, had Johns Hopkins
complied with the preference in the law for small
businesses, Baxter=92s 1990 license in all likelihood would
have gone to CellPro or another small business firm, not
Baxter.
Moreover, nothing CellPro has done or will do in the
future has benefited from any proprietary Baxter research or
other effort. As noted above, CellPro does not use the My-10
antibody discovered by Dr. Civin. It is only because the
patent claims were written broadly and are now claimed to
cover other antibodies -- antibodies discovered under
federal grant programs at other institutions -- that there
is even an issue. To the extent CellPro=92s product is claimed
to infringe, that infiingement begins and ends with the work
done at Johns Hopkins by Dr. Civin, work funded by the
federal grant to which Baxter has no proprietary claim. In
fact, CellPro=92s products use either its own proprietary
technology -- research and clinical tests funded by it and
its investors -- or technology licensed to CellPro by the
Hutchinson Center for which CellPro pays a royalty of 5% of
sales (declining to 3% after 10 years) for use of the 12.8
antibody and patents arising out of the Hutchinson Center=92s
federally funded research.
CellPro submits that there may well be reason for the
government to adopt regulations covering situations like the
present where the same product may be claimed to be covered
by patents arising out of work done by more than one federal
grantee. Moreover, investigation may be needed to determine
whether the royalty =93layering=94 that plainly exists in the
present case -- where federal grantee Johns Hopkins has
licensed to Becton Dickinson, which apparently marked up the
price and relicensed to Baxter, which in tum clearly marked
up the price and relicensed to Systemix and Applied Immune
Systems -- is a common problem that leads to unreasonably
high royalties (and prices of medical care) that should be
dealt with by regulation. But whether or not Baxter is
permitted to demand its unearned markup -- a markup CellPro
previously indicated to Baxter it was willing to pay because
the costs and disruptions of litigation were greater [13] --
there can be no basis whatever for permitting Baxter to
threaten to cause the CellPro product to be withdrawn from
the market. Such an act could only be explained as designed
either to eliminate a competitor (in the event Baxter=92s
product eventually receives FDA approval) or to punish
CellPro for having objected to Baxter=92s demand to have
exclusive distribution rights over CellPro=92s product and
CellPro=92s decision to contest Baxter=92s claims of patent
infingement and validity. In either event, the public would
be improperly deprived of the only available product
approved by the FDA.
---------------
[13fn] In March 1994, CellPro sought clarification from
Baxter that it could license the patents for a payment of
$750,000 and a 16% royalty on antibodies that would be sold
separately from the remainder of the product and that it
would owe no further royalty to Becton Dickinson. Baxter
replied that its offer was no longer on the table and
subsequently demanded far greater royalty levels as
discussed above.
----------------------------
[snip]
V. Conclusion
Baxter has threatened to require CellPro to remove the
Ceprate products from the market on the basis of patents
issued to Johns Hopkins that are governed by the Bayh-Dole
Act. In doing so, Baxter threatens the welfare and very
lives of many individuals who need bone marrow transplants
and whose suffering could be lessened and whose lives could
be saved with these products. The Secretary has the
authority under the applicable law and regulations to avoid
this result, and on behalf of CellPro, we urge that you take
immediate steps to do so. We would also appreciate the
opportunity to meet and discuss this request with Health and
Human Services and NIH staff at the earliest possible
opportunity.
Very Truly Yours
Lloyd N. Cutler
Birch Bayh
--
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040