We’ve talked a lot about how important patents are to the drug industry. They are at the core of how incentives for innovation work. There are, however, a few ways that governments can revoke the patents that drug companies fight so hard for. At best, this is usually unnecessary. At worst, it discourages innovation just like a price control on novel medicines would.
In the U.S., march-in rights refer to the government’s authority under the Bayh-Dole Act to intervene and license patents to third parties under specific conditions, even if the patent is held by a private entity. Notably, this was not originally intended as a price control. Rather, it was meant to help foster development and production of products that were not being moved forward by their patent holder.
The government can exercise march-in rights if:
1. The patent holder or licensee has not taken effective steps to achieve practical application of the invention or…
2. The action is necessary to alleviate health or safety needs that are not reasonably satisfied or…
3. The action is necessary to meet requirements for public use specified by federal regulations or…
4. The patent holder or licensee has not agreed to grant licenses on reasonable terms.
While march-in rights have never actually been used, the FTC and NIST have been considering using them in an effort to lower drug prices in recent years. This, in our opinion, amounts to price controls and should be avoided, because, again, it would stifle innovation.
Consider the concept of home ownership. It’s the foundation of our notion of private property. But what if the government said that other people could move into a house that you built for yourself? While there’s no unbuilding of the house, would you build a new house knowing the same thing could happen? Our patent system is like that, too. Except instead of a house, we’re talking about the incentives that brilliant people and their investors have to create cures for diseases. And instead of someone owning their own home forever, we’re talking about patents that last only 20 years, after which society does get to move in and enjoy that medicine as a public good. So, should patents on a medicine be violated?
Like seizing property through “eminent domain,” the government can actually “waive” patents to allow society to have broader access to an invention than what the inventor/owner might allow. But this process is truly a last resort and not invoked lightly. Someone might argue that the price that a company is charging for a drug is too high and therefore the drug is denied to people who need it. But while a poor country really might feel like it can’t afford a drug, it’s hard to argue that any medicine isn’t affordable to wealthy countries when the totality of novel branded medicines add up to little more than 1% of their GDP. So the price of any one medicine is not a justification for claiming that a company is withholding something of vital national interest.