Biden’s plan to reduce drug prices will damage innovation

Lamar Smith

In December, the Biden Administration issued a proposal that could be very damaging to American innovation. The plan would empower the government to seize patent rights for products that the government believes in its judgment are too expensive.

In laying out this new scheme, the Administration succumbed to years of pressure from activists who argue that the plan is a legal and simple way to help lower healthcare costs. In fact, the plan is not only of dubious legality, but it would also complicate — and seriously undermine — the historic innovation pipeline created by the very law under which the Administration proposes to act.

The Bayh-Dole Act revolutionized the U.S. system for licensing technology developed at academic institutions. Prior to 1980, the government was responsible for licensing innovations that arose from federally backed research so that these novel ideas could be turned into useful products. It was a terribly ineffective scheme. Around 95% of academic discoveries remained undeveloped.

Alarmed that so much government-funded research was going to waste, Senators Birch Bayh and Bob Dole devised the framework we still use today. Their law allows universities to take charge of licensing their own patents, transferring technology to start-up partners with the skills and resources to go further.

Bayh-Dole has helped to make the United States the most innovative country on the planet. Between 1996 and 2020, the tech transfer it enabled contributed $1.9 trillion to the U.S. economy, supported 6.5 million jobs, and spawned more than 15,000 new companies. Since 1980, Bayh-Dole has fostered the development of over 200 new medicines and vaccines.

The law includes a provision that allows the government to “march in” and relicense patent rights on federally funded discoveries in certain circumstances, such as when a product is needed for a public health crisis but the company holding the rights has failed to commercialize it. Over the years, however, some have seized on this “march-in” language to argue that Bayh-Dole allows the government to use “march-in rights” to seize patents on products it deems too expensive as a means of price control. But legal experts who have studied the issue have repeatedly concluded the law was never intended to be used for this purpose.

Moreover, while the Administration describes its proposal solely as an action to lower health care and prescription drug costs, it is by no means limited to medicines. In fact, the proposal describes how “march-in” would work in areas that have nothing to do with medicines: 3-D printing, reflective sign coating, and water purification.

The Administration’s proposal would effectively gut Bayh-Dole, and the practical impact would be devastating. Universities will be reluctant to accept government funding for research, since any such funding will grant the government “march-in” rights to any products developed from the research. University licensees will pay less to universities for inventions encumbered by “march-in” rights. Consumers will lose out on new products. We’ll risk falling behind in critical sectors, like renewable energy, sustainable agriculture, artificial intelligence, and biotechnology.

While bowing to activist pressure and finally adopting their creative interpretation of Bayh-Dole to impose pharmaceutical price controls may be smart election year politics, it is terrible innovation policy. The Administration should shelve this proposal and keep Bayh-Dole intact.

Lamar Smith previously represented the 21st Congressional District of Texas for 32 years. While in Congress, he served as chairman of the Judiciary Committee, the Science, Space, and Technology Committee, and the Ethics Committee.