implications of the "cellpro" determination on inventions made with federal assistance:...

Implications of the "CellPro" Determination on Inventions Made with Federal Assistance: Willthe Government Ever Exercise Its March-In Right?Author(s): Kevin W. McCabeSource: Public Contract Law Journal, Vol. 27, No. 3 (Spring 1998), pp. 645-668Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/25754329 .

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NOTE

Implications of the CellPro Determination on Inventions Made with Federal Assistance: Will the

Government Ever Exercise Its March-In Right?

Kevin W. McCabe

I. Introduction 645 II. Overview of Technology Transfer for Federally

Sponsored Research 649 A. The Stevenson-Wydler Technology Innovation Act 650 B. The Bayh-Dole Act 651 C. The Government's Rights in Inventions Developed with

Federal Assistance 653 1. The Government's March-In Right 654 2. The Government's Residual Rights 655

III. The CeiiPro Determination 656 A. Factual Background of the CeiiPro Determination 656 B. CellPro's March-In Petition 659

IV. Beyond CellPro: The Future of the Government's March-In Right 661 A. It Is Unlikely That the Government Will Exercise Its

March-In Right 661 1. Market Forces Limit the Opportunity for March-In 662 2. March-In Would Undermine the Vitality of the

Biotechnology Industry 664 B. The Continuing Need for the Government's March-In

Right 666 V. Conclusion 667

I. Introduction

The Constitution grants Congress the power "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and

Kevin W. McCabe is a third-year evening law student at The George Washington University Law School and a Member of the Public Contract Law Journal. Mr. McCabe is also a

full-time law clerk at the Washington, D.C., office of Howrey & Simon.



6^*3-6 Public Contract Law Journal Vol. 27, No. 3 Spring 1998

Inventors the exclusive Right to their respective Writings and Discoveries.,,1 This clause "reflects a balance between the need to encourage innovation2 and the avoidance of monopolies which stifle competition."3 To implement the twin constitutional goals of encouraging innovation and preventing

monopolies, the First Congress enacted the Patent Act of 1790.4 Although this statute has evolved over time,5 the current patent statute continues to

reflect the goals of encouraging innovation and preventing monopolies.6 The Supreme Court has recognized that the patent laws give an inventor

the right to prevent others from making, using, selling, or offering to sell the claimed invention "as an incentive to inventors to risk the often enor

mous costs in terms of time, research and development."7 Because the patent system vests an inventor with this exclusive right, the patent holder or its

licensees may be able to obtain an enhanced return in the subject invention.8

Any exclusive right, however, is available only for a limited time.9 The

1. U.S. Const, art. I, ? 8, cl. 8.

2. In addition to encouraging innovation, intellectual property protection provides an incentive for research investment. See David R. Marsh, The Preclusive Effect of Foreign

Country Patent Judgements in the United States, N.Y.U. J. INT'l L. & pol. 469, 471 (1995) (stating that "patent rights increase the incentive to invest in research and development

activities"); see also SCM Corp. v. Xerox Corp., 463 F. Supp. 983, 997 (D. Conn. 1978). 3. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989); see

also Atari Games Corp. v. Nintendo of Am., Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990) ("[T]he aims and objectives of patent and antitrust laws may seem, at first glance, wholly at odds. However, the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and competition.").

4. Act of Apr. 10, 1790, ch. 7, 1 Stat. 109. The Patent Act of 1790 granted a limited monopoly of 14 years to any applicant that "invented or discovered any useful art,

manufacture, ... or device, or any improvement therein not before known or used."

Id. at 110.

5. See generally 1 donald S. chisum, chisum on patents, overview (1997); Donald S. Chisum &. Michael A. Jacobs, Understanding Intellectual Prop erty Law ? 2B (1992); Ernest Bainbridge Lipscomb, III, Lipscomb's Walker on Patents ?? 1.1-1.9 (1984).

6. "Whoever invents or discovers any new and useful process, machine, manufac

ture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." 35 U.S.C.

? 101 (1994); see also id. ? 271(d)(5) (stating that the patent owner shall be deemed guilty of misuse if the patent owner "conditioned the license of any rights to the patent or

the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product [and] the patent owner has market power in

the relevant market for the patent or patented product on which the license or sale is

conditioned"). 7. See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470,480 (1974); see also 35 U.S.C.

? 271 (1994 & Supp. I 1995). 8. See Philip Areeda & Louis Kaplow, Antitrust Analysis f 336 (1997). 9. The present term of a patent is 20 years from the date of filing or, for patent

applications filed before June 7, 1995, 20 years from the date of filing or 17 years from the date of issue, whichever is longer. See 35 U.S.C. ? 154 (1994).



Implications off the CollPro Determination

limited duration of the exclusive right reflects the balance that Congress has struck between encouraging innovation and preventing monopolies.

The biotechnology industry,10 in particular, depends on the safeguards provided by the patent laws because of the high costs of research, develop ment, and commercialization associated with biotechnology inventions.11 Billions of dollars have been invested in developing new medical technolog ies,12 and yet it is estimated that only one in 5,000 pharmaceutical com

pounds13 ever reaches the commercial market.14 The costs of bringing a

biotechnology product to market are compounded by the complex regulatory hurdles imposed by the Food and Drug Administration before it will approve

10. In this Note, the phrase "biotechnology industry" is used broadly to encompass industries focused on alleviating the world's health problems through the use of methods, processes, or compositions of matter employing biological molecules, biological systems, or living organisms. As such, the phrase "biotechnology industry" includes such fields as pharmacology, oncology, biochemistry, genetic engineering, and genetic therapy. The

biotechnology industry comprised more than 1000 small to medium companies in 1994,

employed more than 184,000 persons in 1992, and had revenues in excess of $52 billion in 1991. See Pharmaceuticals, MEX. trade & L. REP., July 1, 1994, at 24; see also Hearings on Technical Innovations in Health Care Before the House ]oint Econ. Comm., 103d Cong. (1994), available in LEXIS, Legis library, CNGTST file, (statement of Roger C. Herdman, director, Office of Technology Assessment) [hereinafter Herdman Statement] (estimating that by 1995, 1300 biotechnology firms existed in the United States); Gail Dutton, Biotech: Risky Business, 84 MGMT. REV. 36 (1995) (stating that 1025 of the firms in the biotechnology industry were formed after 1980).

11. See S. rep. No. 96-480, at 19 (1979) ("It has been estimated by many experts that the cost of taking a new invention from basic research through development and

commercialization costs ten times as much as did the basic research itself."); wendy H.

Schacht, Congressional Research Serv., The Library of Congress, Report for

Congress: The Bayh-Dole Act: Patent Policy and the Commercialization of technology 4 (1994) ("Studies have shown that research funding only accounts for approximately 25 percent of the costs associated with bringing a new product to market.");

Biopharmaceuticals Increase Their Share of the Market, mfg. chemist, Feb. 1997, at 28

(stating that it takes an average of 12 years and $360 million to bring a biopharmaceutical

drug to market); General Agreement on Tariffs and Trade (GATT): Intellectual Property Provisions Before the Joint Subcomm. on Intellectual Property and Judicial Administration and

the Subcomm. on Patents, Copyrights, and Trademarks, Comm. on the Judiciary, 103d Cong. 295 (1994) (statement of Gerald J. Mossinghoff, president, Pharmaceutical Research and

Manufacturers of America) [hereinafter Mossinghoff Statement] (estimating that it takes 10 to 12 years and over $350 million to bring a single pharmaceutical product to market).

12. See Elizabeth Corcoran, Patent Medicine, 259 sci. amer. 128 (1988). 13. Although these statistics apply to pharmaceutical compounds, biotechnology

products undergo the same rigorous research and development procedures as pharmaceu tical compounds. Biotechnology products therefore would have a similar likelihood of

reaching the commercial market. See Kenneth B. Lee, Jr., and Lilly S. Hu, Biotechnology:

Past, Present, Future, chemistry ck industry, May 19%, at 334. 14. See Mossinghoff Statement, supra note 11. Other commentators have estimated

that the probability of a newly synthesized compound reaching the marketplace is less than one in 12,000. See, e.g., Brian H. Vickery, Cost of Research and Patent Considerations,

8 J. Andrology S-27 (1987).



Public Contract Law Journal Vol. 27, No. 3 Spring 1998

a new product.15 Furthermore, biological inventions are particularly suscepti ble to piracy because, although they typically require substantial expendi tures to develop, they are often simple to replicate.16 The market exclusivity provided by patent protection affords patent owners the opportunity to

realize a return on their initial investment.17 The Federal Government has played an important role in the growth

and development of the U.S. biotechnology industry by subsidizing much of the industry's basic research.18 However, the Federal Government imposes many restrictions on inventions developed with federal assistance. One re

striction in particular?the Government's so-called "march-in right"19? would act as a severe impediment to the commercialization of federally sponsored inventions were it ever exercised.20

The march-in right provides the Government with the ability to force the owner of an invention developed with federal assistance to license the

subject invention to a third party.21 The march-in right is designed to ensure

that inventions made with federal assistance are used in the best interest

15. See S. REP. No. 96-480, at 19 (1979) ("Additionally, a medical discovery faces lengthy, expensive regulatory procedures before any new medicine can be marketed.").

16. See, e.g., William D. Noonan, Patenting Medical Technology, 11 J. LEG. MED. 263, 264 (1990).

17. See Marsh, supra note 2, at 471; Evan Ackiron, The Human Genome Initiative

and the Impact of Genetic Testing and Screening Technologies: Note and Comment: Patents

for Critical Pharmaceuticals: The AZT Case, 17 Am. J. L. & med. 145, 167, 170 (1991)

(noting that Burroughs Wellcome purportedly spent $80 million developing the drug AZT but earned an estimated $25 million to $100 million in net profits from the drug in 1989 when sales reached $220 million); see also Rebecca S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, 56 U. CHI. L. Rev. 1017, 1025-26 (1989) (citations omitted) (noting that inventions will not be made in the absence of patent protection "because inventions once made are easily appropriated by competitors of the original inventor who have not shared in the costs of the invention").

18. "Basic research" is defined as efforts directed toward increasing knowledge and

understanding in science and engineering, rather than the practical application of that

knowledge and understanding. See 15 U.S.C. ? 638(e)(5) (1994). Although "the share of national expenditures for research and development borne by the Federal Government

has declined since 1980, federal funding in 1995 still accounted for approximately thirty six percent of total national outlays for research and development and nearly fifty-eight percent of outlays for basic research." Rebecca S. Eisenberg, Symposium on Regulating

Medical Innovation: Public Research and Private Development: Patents and Technology Transfer in Government Sponsored Research, 82 Va. L. rev. 1663, 1667 (1996) (citing National Science Board, Science & Engineering Indicators: 1996, at 4-6 to 4-7 & 107 app. tbl. 4-4); see also staff of the subcomm. on regulations, business opportunities and Energy, House Comm. on Small Business, 101st Cong., Report on Transfer of Federal Technology, to Ron Wyden, Subcomm. Chairman (1989) (reporting that in 1989 the Federal Government financed 47 percent of the research and development in the United States).

19. See 35 U.S.C. ? 203 (1994). 20. See infra Part IV.A.2.

21. See 35 U.S.C. ? 203.



Implications off the CellPro Determination

of society. The statutory requirements for initiating a march-in proceeding allow the Government to exercise its march-in right only under limited

situations, however.22

The Government's march-in right has existed in relative obscurity?never used and largely forgotten?since 1964. In the summer of 1997, however, CellPro, Inc., a commercial biotechnology company, petitioned the Govern ment to initiate a march-in proceeding against Johns Hopkins University concerning patents for a leukemia treatment assigned to Johns Hopkins.23 Although the Government ultimately decided not to exercise its march-in

right, CellPro's petition raised a fervor of interest in the march-in provision. Chief among the issues raised by CellPro's petition and the Government's

subsequent determination is whether the Government will ever exercise its march-in right, and at what cost to the biotechnology industry and society.

This Note explores the Government's march-in right and the benefits and burdens of that right. Part II provides an overview of technology transfer for federally sponsored inventions and the patent rights of the Federal Gov ernment in those inventions. Part III discusses CellPro's march-in petition and the decision of the National Institutes of Health (NIH) not to initiate a proceeding. Part IV argues that it is unlikely that the Government will exercise its march-in right because market forces usually will preempt the need to do so. Even in those situations where the Government could exercise its march-in right, this Note argues that the Government likely would refrain from exercising its march-in right because of the deleterious long-term effects that a march-in proceeding would have on the biotechnology industry and

society. Finally, Part IV notes the important functions served by the Govern ment's march-in right, even if it is never exercised.

II. Overview of Technology Transfer for Federally Sponsored Research

At one time the Government presumed that private ownership of all

patent rights in government-funded research resided with the funding agency.24 Specifically, private ownership of federally funded inventions was

believed to be contrary to the public interest.25 In 1980, however, Congress

22. See id.; infra Part II.C.l.

23. See in/ra Part III.A. 24. See Government Patent Policy: Memorandum for the Heads of Executive Depart

ments and Agencies, 28 Fed. Reg. 10,943-44 (1963); James E. Dobkin, Patent Policy in Government Research and Development Contracts, 53 Va. L. rev. 564, 568-69 (1967); Letter from Lloyd N. Cutler and Birch Bayh to Donna E. Shalala, secretary, Department of

Health and Human Services (DHHS) (Mar. 3, 1997) [hereinafter CellPro Petition], re

printed in 1 Mealevs Line Rep.: Biotechnology, at A-l, A-6 (May 30, 1997). 25. See Government Patent Policy: Memorandum for the Heads of Executive Depart

ments and Agencies, 28 Fed. Reg. 10,943-44 (1963); Dobkin, supra note 24, at 568-69.



6?5CD Public Contract Law Journal Vol. 27, No. 3 Spring 1998

enacted the Stevenson-Wydler Technology Innovation Act and the Bayh Dole Act,27 both of which radically changed the Government's policy to

wards ownership of patent rights and technology transfer. The Government now presumes that ownership of patent rights in government-funded re

search will vest in any contractor that is a party to the funding agreement.28 This policy change was enacted out of a concern that "[fjederal agencies are not as successful in delivering new products and inventions to the market

place as the private sector."29 The switch to private ownership of federally

sponsored inventions sought to "improve[] utilization of federally funded

technology developments by State and local governments and the private sector"30 and to "ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise."31 This policy change "has been consistently hailed as an

unqualified success in stimulating the commercial development of discoveries

emerging from government-sponsored research in universities."32

A. The Stevenson-Wydkr Technology Innovation Act

In order to promote technology transfer, the Stevenson-Wydler Technol

ogy Innovation Act authorized federal laboratories to enter into cooperative research and development agreements (CRADA) with private industry, uni

versities, and others.33 Generally, a CRADA is an agreement between a

federal laboratory and another party to conduct specified research and devel

opment that is consistent with the mission statement of the federal labora

tory.34 A CRADA allows the federal laboratory to contribute personnel, property, and services, but not funds, while the research partner may contrib ute personnel, property, services, and funds.35

26. Pub. L. No. 96-480, 94 Stat. 2311 (1980) (codified as amended at 15 U.s.C. ?? 3701-3714 (1994)).

27. 35 U.s.C. ?? 200-211 (1994). 28. Section 201(c) of title 35 defines the term "contractor" as "any person, small

business firm, or nonprofit organization that is a party to the funding agreement." See

U.s.C. ? 203 (1994). This definition was subsequently broadened to include any party to the funding agreement. See infra notes 46-47. The Government presumes, therefore, that ownership of patent rights in government-funded research will vest in any contractor,

irrespective of whether that contractor is a small, large, nonprofit, or for-profit business.

See also H.R. Rep. No. 96-1307, pt. 1, at 5 (1980). 29. s. Rep. No. 96-480, at 19 (1979). 30. 15 U.s.C. ? 3702(3) (1994). 31. 35 U.s.C. ? 200 (1994); see also FAR 27.302. 32. Eisenberg, supra note 18, at 1708 (citing The Bayh-Dole Act, A Review of Patent

Issues in Federally Funded Research: Hearings on Pub. L. No. 96-517 Before Subcomm. on

Patents, Copyrights and Trademarks of the Senate Comm. on the Judiciary, 103d Cong. 1-2

(1994) (opening statement of Sen. Dennis DeConcini)) (additional citations omitted); see also schacht, supra note 11, at 1.

33. See s. Rep. No. 99-283 (1986). 34. See 15 U.s.C. ? 3710a(d)(l) (1994). 35. See id; see also Mark R. Wisner, Recent Development: Proposed Changes to Laws

Governing Ownership of Inventions Made with Federal Funding, 2 tex. intell. prop. L.J.

193, 195 (1994).




"The primary purpose of a CRADA is to encourage the transfer of com

mercially useful technologies from Federal laboratories to the private sec tor."36 The director of the laboratory is authorized to negotiate an agreement with the research partner, including waiving in advance any government ownership rights resulting from the research.37 The Federal Government, however, always retains a nonexclusive, nontransferable, irrevocable, paid up license to any invention resulting from the cooperative research.38

Congress amended the Stevenson-Wydler Technology Innovation Act

by passing the Federal Technology Transfer Act (FTTA) of 1986,39 which "made technology transfer an integral part of the research and development responsibilities of federal laboratories and their employees."40 Congress sub

sequently extended the Stevenson-Wydler Technology Innovation Act to

government-owned, contractor-operated federal laboratories when it en acted the National Competitiveness Technology Transfer Act of 1989.41

More recently, President Clinton signed into law the National Technology Transfer and Advancement Act of 1995,42 which clarified the ownership rights of federal laboratory scientists in inventions that the Government chooses not to patent and provided for the sharing of federal royalty income with the federal laboratory scientist working on the invention.43

B. The Boyh-Dole Act

The Bayh-Dole Act encourages small businesses and nonprofit organiza tions to patent innovations arising out of government-sponsored research

"by allowing them to retain patent ownership themselves, provided [that] they [are] diligent about getting patent applications on file and promoting

36. Fernand A. Lavallee, Course Manual: Cooperative Agreements and Other Transac

tions, at 26-27 (Fed. Pub. 1996). See, e.g., 15 U.S.C. ? 3710a(a)(l) (1994). 37. See S. Rep. No. 99-283, at 10 (1986); see also 15 U.S.C. ? 3705(e)(1) (1994). 38. See staff of the senate comm. on commerce, science and transp., loo

Cong., Commercialization of Federally Funded Research and Development: A Guide to Technology Transfer from Federal Laboratories, S. Print 100-130, at 7-8 (Comm. Print 1988). With this license, the Government is free to practice the subject invention. The Government cannot, however, transfer this license to a third party. The

contractor, on the other hand, is free to license additional parties but cannot revoke

the Government's license.

39. Pub. L. No. 99-502,100 Stat. 1785 (codified as amended at 15 U.S.C. ? 3710a(a)(l), (b)(2M3) (1994 <Sl Supp. II 1996)). The Federal Technology Transfer Act (FTTA) of 1986 established the Federal Laboratory Consortium for Technology Transfer to promote

technology transfer. See S. Rep. No. 99-283, at 3 (1986); see also 15 U.S.C. ? 3710(e) (1994 ck Supp. II 1996). The FTTA permits federal researchers to share in the royalties generated by any of their federally funded inventions commercialized by the private sector. See S. Rep. No. 99-283, at 5 (1986).

40. Eisenberg, supra note 18, at 1665.

41. See Pub. L. No. 101-189, ?? 3131-3133, 103 Stat. 1674 (codified at 15 U.S.C. ? 3701 (1994)).

42. Pub. L. No. 104-113, ?? 4-6, 110 Stat. 775-79 (1996). 43. See id.




commercial development of the inventions."44 The stated objective of the

Bayh-Dole Act is:

to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum

participation of small business firms in federally supported research and devel

opment efforts; to promote collaboration between commercial concerns and

nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient

rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area.45

In 1983 President Reagan significantly expanded the scope of the Bayh Dole Act by issuing a directive to the heads of the executive departments and agencies that the technology transfer provisions of the Bayh-Dole Act were to be extended to all government contractors, including large busi nesses.46 Congress endorsed President Reagan's directive in a 1984 amend ment to the Bayh-Dole Act.47

The Bayh-Dole Act imposes several requirements on the contractor. For

example, the contractor must "include within the specification of such appli

44. See Eisenberg, supra note 18, at 1665. Additionally, the Bayh-Dole Act provides that the contractor must disclose each subject invention to the federal agency within a reasonable time. See 35 U.S.C. ? 202(c)(1) (1994).

45. 35 U.S.C. ? 200 (1994). 46. See Memorandum to the Heads of Executive Departments and Agencies: Govern

ment Patent Policy, 19 weekly comp. pres. Doc. 252, 253 (Feb. 18, 1983) ("To the extent permitted by law, agency policy with respect to the disposition of any invention

made in the performance of a federally-funded research and development contract, grant or cooperative agreement award shall be the same or substantially the same as applied to small business firms and nonprofit organizations under Chapter 38 of Title 35 of the

United States Code."). 47. In 1984 the Trademark Clarification Act amended 35 U.S.C. ? 210(c) to provide

as follows:

Nothing in this chapter is intended to limit the authority of agencies to agree to the disposition of rights in inventions made in the performance of work under funding agreements with persons other than nonprofit organizations or small business firms in accordance with the Statement of Government Patent Policy issued on February 18, 1983, agency regulations, or other applicable regulations or to otherwise limit the

authority of agencies to allow such persons to retain ownership of inventions except that all funding agreements, including those with other than small business firms and

nonprofit organizations, shall include the requirements established in [section] 202(c)(4) and section 203 of this title ....

Pub. L. No. 98-620, ? 501(13), 98 Stat. 3335, 3367-68 (1984) (codified at 35 U.S.C. ? 210(c) (1994)) (footnotes omitted); see also S. rep. No. 98-662, at 2 (1984), reprinted in 1984 U.S.C.C.A.N. 5799, 5800; FAR 27.302(a).



Implications of the CeffPro Determination 653

cation and any patent issuing thereon, a statement that the invention was made with Government support and that the Government has certain rights in the invention."48 In addition, the contractor must "disclose each subject invention to the Federal agency within a reasonable time."49 A "subject invention" is defined as any invention that the contractor first conceived or reduced to practice in the performance of a government contract or

through the use of government funds.50 The contractor must disclose the

subject invention to the federal agency within two months after the inventor first disclosed the subject invention to the contractor or within six months after the contractor became aware of the subject invention, whichever is earlier.51 In addition, the contractor must file a patent application within

prescribed time limits.52 If the contractor fails to disclose the invention to the Government within the prescribed time limits, the contractor forfeits title in the subject invention to the Government.53

C. The Government's Rights in inventions Developed with Federal Assistance

Although the Government has shifted the presumption of ownership of

patent rights in government-funded inventions from the Government to the

private sector, the Government still retains certain rights in the inventions it funds.54 Principal among these rights are a march-in right55 and a nonexclu

sive, nontransferable, irrevocable, paid-up license to practice the invention.56 The Government retains these rights to ensure that the subject invention

properly will be brought to the marketplace to serve the public's interests.

Indeed, one of the objectives of the Bayh-Dole Act is "to ensure that the Government obtains sufficient rights in federally supported inventions to

48. 35 U.S.C. ? 202(c)(6) (1994). 49. Id. ? 202(c)(1). 50. See id. ? 201(e). "Conception" is roughly defined as the "formation in the minds

of the inventor, of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice." See Hybritech, Inc. v. Monoclonal Antibodies,

Inc., 802 F.2d 1367, 1376 (Fed. Cir. 1986) (quoting 1 ROBINSON ON PATENTS 532 (1890); Coleman v. Dines, 754 F.2d 353, 359 (Fed. Cir. 1985)). The moment of reduction to practice is often difficult to define precisely. In the context of a government contract,

however, "[Reduction to practice occurs when it is established that the invention will

perform its intended function beyond a reasonable probability of failure." See Hazeltine

Corp. v. United States, 820 F.2d 1190, 1196 (Fed. Cir. 1987) (citations omitted). 51. See FAR 52.22742(c)(1). 52. See 35 U.S.C. ? 202(c)(3) (1994); FAR 52.22742(d)(2). 53. See 35 U.S.C. ? 202(c)(3); FAR 52.22742(d)(2). 54. To ensure its rights, the Government inserts a standard patent rights clause into

its solicitations and contracts for experimental, developmental, or research work. See

FAR 52.227-11. The standard patent rights clause is not inserted, however, into contracts

of the Department of Defense, the Department of Energy, or the National Aeronautics

and Space Administration. See FAR 27.303(a)(l)(i). 55. See 35 U.S.C. ? 203 (1994); see also FAR 27.302(f)(1). 56. See 35 U.S.C. ? 202(c)(4) (1994); see also FAR 27.302(c).




meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions."57

1. The Government's March-In Right One of the rights that the Government retains with respect to inventions

made with federal assistance is the right to march-in and "require the contrac

tor, assignee or exclusive licensee ... to grant a nonexclusive, partially exclusive or exclusive license in any field of use . . . upon terms that are

reasonable under the circumstances."58 Although the Government may initi ate a march-in proceeding on its own accord, the regulations governing

march-in proceedings also permit third parties to request that the Govern ment initiate a march-in proceeding against the contractor.59

Of the four enumerated grounds on which the Government may initiate a march-in proceeding, two are particularly applicable to the biotechnology industry.60 First, under section 203(l)(a), the Government can exercise its

march-in right if it determines that such "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."61 Second, under section 203(l)(b), the Government can initiate

57. Pub. L. No. 96-517, 94 Stat. 3015 (1980) (codified as amended at 35 U.S.C. ? 200 (1994)).

58. See 35 U.S.C. ? 203(1) (1994); see also FAR 27.302(f)(1). A nonexclusive license allows the contractor to license additional third parties. A partially exclusive license

may provide a third party with exclusive rights in one geographic area (e.g., the United

States) but with no license or only a nonexclusive license in other areas (e.g., the rest

of the world). A partially exclusive license also may be restricted with respect to field

of use (e.g., research and development but not marketing). An exclusive license in a

field of use gives a third party the exclusive right to practice the subject invention for

the subject field of use. In other words, the licensor is bound "not to enlarge thereafter

the scope of other licenses already granted, or increase the number of licenses." BLACK'S

LAW DICTIONARY 565 (6th ed. 1990) (citing Mechanical Ice Tray Corp. v. General Motors Corp., 144 F.2d 720, 725 (2d Cir. 1944)).

59. See FAR 27.304-l(g). 60. The Government can exercise its march-in right if it 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 applica tion of the subject invention in such field of use;

(b) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;

(c) action is necessary to meet requirements for public use specified by Federal regula tions and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or

(d) action is necessary because the agreement required by section 204 has not been

obtained or waived or because a licensee of the exclusive right to use or sell any

subject invention in the United States is in breach of its agreement obtained

pursuant to section 204. 35 U.S.C. ? 203(1) (1994).

61. See id. ? 203(l)(a); seealso FAR 27.302(f)(l)(i). Although the Bayh-Dole Act defines the terms "practical application" and "subject invention," nowhere does the Bayh-Dole

Act define the term "reasonable time." The term "practical application" is defined as




a march-in proceeding to "alleviate health or safety needs which are not

reasonably satisfied by the contractor, assignee or their licensees."62 This

ground potentially has broad application to the biotechnology industry because many of the products developed by the industry seek to address the nation's health and safety needs.63

According to Department of Commerce regulations implementing the

Bayh-Dole Act,

[w]henever an agency receives information that it believes might warrant the exercise of march-in rights, before initiating any march-in proceeding, it shall notify the contractor in writing of the information and request informal written or oral comments from the contractor, as well as information relevant to the matter.64

Once the contractor has been notified, it has thirty days in which to respond to the requesting agency.65 The requesting agency then has sixty days in which to decide whether to initiate a march-in proceeding against the con

tractor.66 All march-in proceedings are closed to the public, including poten tial licensees.67

2. The Government's Residual Rights In addition to its march-in right, the Government retains ua nonexclu

sive, nontransferable, irrevocable, paid-up license to practice or have

practiced for or on behalf of the United States any subject invention

throughout the world. "68

The Government's license to practice the subject invention immunizes the Government from an infringement suit by the

inventor.69 The Government's license does not, however, provide the Government with the authority to sublicense the subject invention. The

"such conditions [that] establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms." 35 U.S.C. ? 201(f) (1994).

62. 35 U.S.C. ? 203(l)(b) (1994). 63. See Michael J. Malinowski, Legal Development: Globalization of Biotechnology and

the Public Health Challenges Accompanying It, 60 ALB. L. Rev. 119, 161 (1996) ("Many of the products at issue in the biotech sector provide the means to alleviate tremendous

human suffering, and the importance of realizing such an improvement to public health

certainly is as global as the challenges accompanying the commercialization of biotech

nology."). 64. 37 C.F.R. ? 401.6(b) (1997). 65. See FAR 27.302(f)(2). 66. See id. 67. See FAR 27.304-1(g)(4). 68. 35 U.S.C. ? 202(c)(4) (1994); see FAR 27.302(c). 69. An "infringer" is defined as a person who, without authority, makes, uses, offers

to sell, or sells the patented invention. See 35 U.S.C. ? 271(a) (1994 ck Supp. I 1995); see also Spindekfabrik Suessen-Schurr v. Schubert 6k Salazar, 829 F.2d 1075, 1081 (Fed. Cir. 1987) (stating that a patent license "in essence is nothing more than a promise by the licensor not to sue the licensee").



6 ?5 6 Public Contract Law Journal Vol. 27, No. 3 Spring 1998

Government may sublicense the subject invention only if it initiates a

march-in proceeding or if the funding agreement specifically permits the

Government to grant a sublicense.70

III. The CellPro Determination

Although a march-in proceeding has yet to be initiated in the thirty-four years that such a right has existed, the Government has, on occasion, consid

ered exercising this right.71 In the summer of 1997 the Government took

the rare step of considering whether to initiate a march-in proceeding. Al

though no further action was ultimately taken, the incident raised the ques tion of whether the Government ever would formally exercise its march-in

right.

A. Factual Background of the CellPro Determination

In the early 1980s Dr. Curt Civin, working under a NIH grant at Johns

Hopkins University, discovered the My-10 antibody,72 which, by binding only to human immature stem cells, makes it possible to separate these

70. See 35 U.S.C. ? 202(c)(4) (1994). 71. See Lynn J. Alstadt, The 1980 Patent Rights Statute: A Key to Alternative Energy

Sources, 43 U. PlTT. L. Rev. 73, 95 (1981) ("March-in rights . . . have been included in

the federal patent policy since 1964."); University and Small Business Patent Act of 1980 Implementation: Hearings on Pub. L. No. 95-517 Before Subcomm. on Regulations, Business

Opportunities, and Technology of the House Comm. on Small Business, 103d Cong. (1994) (statement of Wendy Baldwin, Ph.D., deputy director, Extramural Research, National

Institutes of Health (NIH)) ("To date [1994], while the NIH has on occasion threatened to use 'march-in' rights with some positive results, it has never fully exerted its 'march-in'

rights, nor are we aware of any other Federal department that has formally exercised

these rights."); see also Hearings on Technical Innovations in Health Care Before the House

Joint Econ. Comm., 103d Cong. (1994), available in LEXIS, Legis library, CNGTST file, (statement of Daryl A. Chamblee, acting deputy director, Science Policy and Technology Transfer, NIH) ("To date [1994], the NIH has never exerted its 'march-in' righter [sic] nor are we aware of any other Federal department formally exorcising [sic] these rights."); Letter from Donald R. Ware and Frederick G. Savage to Wendy Baldwin, Ph.D., deputy

director, Office of Extramural Research, NIH (June 2, 1997) [hereinafter Johns Hopkins Letter], reprinted in 1 MEALEY's LlTIG. REP.: BIOTECHNOLOGY at C-l, C-9 (June 13, 1997) ("These facts do not come close to justifying the initiation of the first-ever march-in

proceeding."). One commentator suggested that the Government, on one occasion, was

prepared to initiate a march-in proceeding but that the issue became moot when "the

patent owner voluntarily reassigned the patent to the Air Force." See Alstadt, supra, at

95 n.121. The only other published reference concerning the initiation of a march-in

proceeding, prior to the NIH determination, was in 1981 by the Office of the Assistant Secretary of Health. See 46 Fed. Reg. 12,856, 12,857 (1981). That publication of intent to initiate a march-in proceeding was withdrawn, however, one week later. See id. at

14,455 (1981). 72. See Johns Hopkins Univ. v. CellPro, Inc., 931 F. Supp. 303, 309 (D. Del. 1996).



Implications of the CellPro Determination

cells from mature cells, including cancer cells. This process is medically significant because the standard methods for treating leukemia, such as

chemotherapy and radiation therapy, kill the patient's bone marrow. Dr. Civin's discovery allows for the reintroduction of the patient's own purified, cancer-free immature stem cells during bone marrow transplant surgery to

replace bone marrow destroyed during chemotherapy and radiation

therapy.74 In 1986 researchers at the Fred Hutchinson Cancer Research Center

produced the 12.8 antibody using substantially the same method that Dr. Civin used at Johns Hopkins to produce the My-10 antibody.75 The 12.8

antibody is substantially identical in character to Dr. Civin's My-10 anti

body,76 but u[u]nlike My-10, 12.8 binds to primate cells, which allows scien tists to use 12.8 in clinical trials with nonhumans. In addition, 12.8 can bind to biotin, which is a type of vitamin, whereas My-10 cannot."77

Several researchers at the Fred Hutchinson Cancer Center formed

CellPro, Inc., to "develop commercial methods of isolating and separating stem cells through use of the 12.8 antibody."78 CellPro scientists then per fected a process for purifying stem cells,79 and in December 1996 they ob tained FDA approval for use of the process in the United States.80

73. See CellPro Petition, supra note 24, at A-2. The concept behind Dr. Civin's

discovery is that immature stem cells express a different cell-specific marker than mature

cells. Therefore, these cells, which are normally inseparable, become separable when the

My-10 antibody binds to immature and not mature cells. Because the My-10 antibody binds only to the immature cell-specific marker, Dr. Civin was able to separate a heteroge nous pool of cells to obtain a pure population of immature stem cells. See id.

74. See Johns Hopkins, 931 F. Supp. at 309. Reintroducing the patient's own stem

cells during bone marrow transplant surgery reduces the risk of an adverse immune

response. 75. See id. at 311.

76. See id. at 312.

77. Id.; see also CellPro Petition, supra note 24, at A-2.

78. See CellPro Petition, supra note 24, at A-2.

79. The researchers at CellPro were able to design a protocol for the rapid and simple

purification of immature stem cells by using avidin, a protein with a high affinity for biotin. In short, the 12.8 antibody is initially incubated with biotin, allowing the biotin to become bound to the 12.8 antibody. The biotinylated 12.8 antibody is then incubated with the blood cells to be purified. During this step, the biotinylated 12.8 antibody preferentially binds to the immature stem cells. This mixture is then poured into a

column containing avidin-coated beads. The biotinylated 12.8 antibody then binds to

the avidin-coated beads. After subsequent washes, all other bloods cells are removed

and the column retains the immature stem cells immobilized to the avidin-coated beads.

A subsequent treatment releases the desired immature stem cells. See Johns Hopkins, 931

F. Supp. at 312.

80. See CellPro Petition, supra note 24, at A-2 to A-3. CellPro was able to obtain

FDA approval before Johns Hopkins and its licensees because the 12.8 antibody was able to bind to both biotin and primate cells.




Dr. Civin's patents, which are assigned to his employer, Johns Hopkins, specifically recite that the subject inventions were "made with Government

support under a grant award from the Department of Health and Human Services" and that "[t]he Government has certain rights in [these] inven

tionfs]."81 In 1987 John Hopkins initially provided Becton Dickinson &l Co. an exclusive license to practice the Civin My-10 patents.82 In 1990 Becton Dickinson sublicensed Dr. Civin's My-10 patents to Baxter Healthcare

Corp.83 According to the terms of the license agreement, "Baxter obtained an exclusive license for therapeutic uses (as well as the results of Becton Dickinson's prior efforts in the stem cell field) in exchange for an initial

payment of $1,250,000 and a running royalty of 11% on sales of antibodies covered by the Civin patents."84

After receiving an exclusive license from Becton Dickinson, "Baxter noti fied CellPro that Baxter believed that the Civin patents covered the 12.8

antibody and its use in purifying stem cells for bone marrow transplanta tion."85 Following an unsuccessful round of licensing negotiations,86 CellPro filed suit in federal district court in Washington State "alleging that the Civin

patents were invalid and not infringed by CellPro."87 The court dismissed the case, however, for failure to join Johns Hopkins as an essential party.88

Baxter, Becton Dickinson, and Johns Hopkins then sued CellPro in fed eral district court in Delaware alleging that CellPro's use of the 12.8 antibody infringed one or more claims of the Civin patents.89 A jury found that the claims of Dr. Civin's patents were invalid in view of the prior art90 and

consequently that CellPro did not literally infringe the claims of the Civin

patents.91 Following the trial, however, the court granted several of Baxter's

post-trial motions and held, as a matter of law, that CellPro infringed the claims of U.S. Patent No. 4,965,680 (stem cell suspensions) and that Baxter was entitled to a new trial.92

81. See U.S. Patent Nos. 4,965,204 (antibody), 4,965,680 (stem cell suspensions), 5,035,994 (process using antibody), and 5,130,144 (transplants using stem cell suspen sions).

82. See CellPro Petition, supra note 24, at A-3. 83. See id. at A-4.

84. Id.

85. Id.

86. Baxter initially offered "to license the patents to CellPro on a nonexclusive basis for payment of an up-front fee of $750,000 and a 16% running royalty ... on sales of the 12.8 antibody (or the 12.8 antibody content of other products)." Id. CellPro, on the other hand, offered to pay "an up-front fee of $500,000, with the fee credited against future running royalties that would accrue at a 16% rate on the antibody portion of future CellPro products." Id.

87. See id. at A-5.

88. See id.

89. See id.

90. See 35 U.S.C. ?? 102-103 (1994 <Sl Supp I 1995). 91. See Johns Hopkins Univ. v. CellPro, Inc., 931 F. Supp. 303, 307 (D. Del. 1996). 92. See id. at 328.



Implications off the CollPro Determination

On March 3, 1997, on the eve of the second trial, CellPro wrote to Donna Shalala, secretary of the Department of Health and Human Services

(DHHS), requesting that the Government exercise its march-in right against the Civin patents. Although CellPro filed its petition with DHHS, NIH had proper jurisdiction over the petition, because NIH had funded the inventions claimed in Dr. Civin's patents.94 Accordingly, Secretary Shalala forwarded the petition to NIH director Harold Varmus for resolution.

B. CellPro's March-In Petition

CellPro requested in its March 3 letter that the Government "initiate the procedures set forth in 37 C.F.R. ? 410.6 and upon the conclusion of those procedures provide [CellPro] the march-in rights required under the circumstances to avoid harm to the public interest."95 In short, CellPro

requested that the Government exercise its march-in right to force Johns Hopkins and Baxter to license the Civin patents to CellPro.96 CellPro as

serted in its petition that the Government should exercise its march-in right because Johns Hopkins and its licensees had not taken effective steps to

achieve practical application of the antibody technology and that such action was necessary to alleviate health or safety concerns.97 CellPro argued that a march-in proceeding was needed because neither Johns Hopkins nor its

licensee, Baxter, had obtained or was likely to obtain approval from the FDA to use the antibody technology.98 CellPro further argued that enjoining it from making, using, or selling the antibody technology would harm the

public because CellPro's life-saving cancer treatment system would be un

available.99

Pursuant to 37 C.F.R. ? 401.6, Director Varmus notified Johns Hopkins in writing of CellPro's petition and solicited comments from Johns Hopkins concerning a possible march-in proceeding.100 In accordance with 37 C.F.R.

93. In the second trial, the jury returned a verdict finding that CellPro had willfully infringed the claims of the Civin patents and awarded $2,324,493 in compensatory

damages. See Johns Hopkins Univ. v. CellPro, 978 F. Supp. 184, 185 (D. Del. 1997). The award of $2,324,493 apparently represented an up-front payment of $1,000,000 and a 10% running royalty. See id. at 189. District Judge McKelvie granted Johns Hopkins and Baxter's post-trial motion for treble damages in the amount of $6,973,479 because

of CellPro's "deliberate and bad-faith infringement of the Civin patents." See id. at 196.

94. See National Institutes of Health, Office of the Director, Determination In the Case

of Petition of CellPro, Inc. [hereinafter NIH Determination], reprinted in 1 mealey's LlTIG. Rep.: Biotechnology at A-l, A-2 (Aug. 8, 1997).

95. CellPro Petition, supra note 24, at A-9.

96. See id. at A-3 to A-4.

97. See id. at A-6; see also 35 U.S.C. ? 203(l)(a), (b) (1994). 98. See CellPro Petition, supra note 24, at A-l.

99. See id. at A-9.

100. "Whenever an agency receives information that it believes might warrant the

exercise of march-in rights, before initiating any march-in proceeding, it shall notify the

contractor in writing of the information and request informal written or oral comments

from the contractor as well as information relevant to the matter." 37 C.F.R. ? 401.6(b)

(1997); see also FAR 27.304-l(g)(l).



3 & O Public Contract Law Journal Vol. 27, No. 3 Spring 1998

? 401.6(b), Johns Hopkins and its licensee, Baxter, had thirty days in which to respond to the allegations in CellPro's petition.101 Before Johns Hopkins and Baxter filed their May 7 response to CellPro's March 3 submission, CellPro filed an additional submission on April 24.102 NIH finally agreed to "review and consider any submission made by the parties through July 2."103 In addition to its April 24 submission, CellPro made supplemental filings on May 8, May 28, and July 2, and Johns Hopkins and Baxter made

supplemental filings on May 19, June 2, and July 2.104 In their June 2 letter, Johns Hopkins and Baxter presented essentially

two arguments in response to CellPro's allegations.105 Johns Hopkins and Baxter first argued that "[intervention of DHHS in the circumstances of this case would be a gross misuse of the Bayh-Dole Act"106 and that if the

Government initiated a march-in proceeding, "no company will again invest with confidence in the patented inventions of a university or hospital that received even a modicum of federal support."107 Johns Hopkins and Baxter further argued that they had not failed to bring the product to the market

place but rather that they were on the verge of FDA approval.108 Director Varmus ultimately denied CellPro's petition. NIH examined the

criteria of 35 U.S.C. ? 203(l)(a) and (b) and concluded that a march-in

proceeding was not warranted under either criterion.109 NIH determined that "Johns Hopkins and Baxter have taken, or are expected to take within a reasonable time, effective steps to achieve practical application of the

applicable patents."110 In addition, NIH determined that CellPro had failed to "demonstrate an unmet health need that is not reasonably satisfied by [Johns] Hopkins and Baxter."111

In reaching his decision, Director Varmus examined the actions of the

parties since the dispute originated in the early 1980s. Because "CellPro had the opportunity to license the invention from Baxter but decided against doing so, and instead risked patent infringement litigation,"112 Director Var mus concluded that it would be inappropriate "to exercise its authorities under the Bayh-Dole Act to procure for CellPro more favorable commercial terms than it [could] otherwise obtain from the [court] or from the patent

101. See 37 C.F.R. ? 401.6(b) (1997); see also FAR 27.304-l(g)(l). 102. See NIH Determination, supra note 94, at A-l.

103. Id. 104. See id. 105. See Johns Hopkins Letter, supra note 71. Although Johns Hopkins submitted

several letters in response to CellPro's filings, these letters largely raised the same issues.

Thus, Johns Hopkins's June 2 submission typified its position. 106. See Johns Hopkins Letter, supra note 71, at C-2.

107. See id. 108. See id. at C-6.

109. See NIH Determination, supra note 94, at A-3.

110. Id.; see 35 U.S.C. ? 203(l)(a) (1994). 111. See NIH Determination, supra note 94, at A*3; see 35 U.S.C. ? 203(l)(b). 112. NIH Determination, supra note 94, at A~3.




owners."113 Director Varmus also was influenced by the terms of the courts order, which stated, in pertinent part, that "CellPro may continue to make, have made, use and sell [the 12.8 antibody] . . . within the United States, until such time as an alternative stem cell concentration device ... is ap proved for therapeutic use in the United States by the United States Food and Drug Administration."114 Thus, there was no pressing health reason for NIH to initiate a march-in proceeding against Johns Hopkins.

IV. Beyond CellPro: The Future of the Government's March-In Right

Although the CelJPro determination reaffirmed the Government's reluc tance to exercise its march-in right, the question remains as to whether the

Government will ever exercise its march-in right, and if so, under what circumstances. If the march-in right will never be exercised, then the further

question is raised as to whether the march-in provisions are still necessary. This part of the Note argues that the Government rarely will have the

opportunity to exercise its march-in right because market forces in the bio

technology industry will act to preclude such a situation. Even if the Govern ment did have the opportunity to march-in, it should not do so, because the long-term harm to the biotechnology industry, and ultimately society, would outweigh any short-term benefits derived from a march-in. Still, al

though the Government's march-in right might never be exercised, the mere existence of that right serves important functions, justifying its preservation.

A. If Is Unlikely That the Government Will Exercise Its March-In Right Two canons of economic theory suggest that the Government will never

initiate a march-in proceeding against a biotechnology company. First, be cause biotechnology companies are rational actors, they will seek to maximize their investment return.115 The Government, as a result, rarely will need to force a company to take effective steps to achieve practical application of a commercially viable biotechnology invention. Second, because investors are risk averse, they would be less willing to invest in biotechnology if the threat of government march-in ever became a reality.116 As a result, the

Government would be unable to fill the void left in the biotechnology field, and the public health and welfare would suffer. Thus, the Government is

113. See id. 114. See id. (quoting Johns Hopkins v. CellPro, No. 94-105-RPM (D. Del. July 24,

1997) (order granting permanent injunction and partial stay of injunction), reprinted in 1 Mealey's Line Rep.: Biotechnology at B-l, B-3 (Aug. 8, 1997)).

115. See Richard A. Posner, Economic Analysis of Law 6 (4th ed. 1992). 116. See C. Owen Paepke, An Economic Interpretation of the Misappropriation Doctrine:

Common Law Protection for Investments in Innovation, 2 hightech. L.J. 55, 60 n.26 (1987); see also posner, supra note 115, at 12.



3 3 2 Public Contract Law Journal Vol. 27, No. 3 Spring 1998

unlikely to exercise its march-in right even in the rare instance where the

statutory prerequisites for march-in have been met.117

1. Market Forces Limit the Opportunity for March-In Under 35 U.S.C. ? 203(l)(a), the Government may initiate a march-in

proceeding where the patent owner has not taken, and is not expected to take within a reasonable time, the necessary steps to bring the subject invention to the marketplace.118 Although the aim of the biotechnology industry is to alleviate the world's health problems, "[w]e need to remember that health care, at least in the United States, is part of our society's free-market eco nomic system."119 The biotechnology industry is motivated by profit and has a strong incentive to achieve practical application of a subject invention where a need for the product in the marketplace makes it cost effective to do so. Because this incentive to achieve practical application of a commercially viable subject invention is already brought to bear upon the company by its investors and financial backers, the need for additional external pressure from the Government to achieve practical application of a commercially viable invention through a march-in proceeding is essentially nonexistent.

Furthermore, the draconian nature of the Government's march-in right ensures that it will be exercised only for the most medically important and

commercially successful biotechnology inventions. A march-in proceeding would not be initiated against a subject invention that has significant nonin

fringing substitutes in the marketplace or an invention of marginal commer cial application. As a result, the situations under section 203(l)(a) in which the Government could march-in are the very situations in which the patent owner already has the greatest incentive to bring the subject invention to the marketplace.

Even where market forces fail to motivate a biotechnology company to achieve practical application of a new technology, the language of section 203(1 )(a) might act to preclude a march-in proceeding. Section 203(1 )(a) provides the Government with the authority to exercise its march-in right where the biotechnology company uis not expected to take within a reasonable time, effective steps to achieve practical application of the subject inven tion."120 The phrase "reasonable time" is not clearly defined within the

Bayh-Dole Act, and in the context of the biotechnology industry it appears

117. See supra notes 60-62 and accompanying text. 118. See 35 U.S.C. ? 203(l)(a); supra note 60. 119. See Michael Montagne, Drug Advertising and Promotion: An Introduction, 22 J.

DRUG ISSUES 195,202 (1992); see also Alan M. Fisch, Compulsory Licensing ofPruirmaceutical Patents: An Unreasonable Solution to an Unfortunate Problem, JURIMETRICS J. 295, 302 (1994); Thomas P. Dillon, Note, Source Compensation for Tissues and Cells Used in Biotechni cal Research: Why a Source Shouldn't Share in the Profits, 64 NOTRE DAME L. REV. 628, 639 (1989).

120. See 35 U.S.C. ? 203(l)(a) (1994) (emphasis added).



Implications of the CellPro Determination 663

that several years, and even decades, may be a "reasonable time." 1 If, for

example, a biotechnology company lacks the necessary funding to achieve

practical application of a subject invention122 or withholds a new product from the market where its release might stifle sales or cut short the useful life of the company's predecessor product,123 the Government might find that the company would achieve practical application of the subject inven tion within a "reasonable time." In the CellPro determination, Director

Varmus determined that Johns Hopkins and Baxter "have taken, or are

expected to take within a reasonable time, effective steps to achieve practical application of the applicable patents," even though Dr. Civin's initial discov

ery had been made in the early 1980s, and Johns Hopkins and its licensees had yet to bring a product to the marketplace by 1997.124 Thus, it appears

121. The meaning of "reasonable time" is especially difficult to ascertain in the biotech

nology industry. All treatments intended for human use must be tested extensively under

the guidelines of the Food and Drug Administration. The entire development period of some treatments can span 10 years or more. See Mossinghoff Statement, supra note

11. The term "reasonable time," therefore, must be considered within the context of

the normal development period of the subject invention.

122. If the subject invention has a potential practical application, however, it would be

in the economic best interests of the biotechnology company to enter into a collaborative

agreement with a larger company with the necessary resources. Indeed, in the biotechnol

ogy industry it is common for smaller biotechnology companies to perform the initial

research and development of a subject invention and then enter into a collaborative

agreement with, or even be purchased by, a biotechnology company with additional

financial resources. See Beyond the Behemoths, ECONOMIST, Feb. 21, 1998, at S16; Beth

Berselli, The Right Connections, WASH. POST, Mar. 2, 1998, at F13.

123. Although it is conceivable that a biotechnology company would shelve a superior second product when that company had a predecessor product on the market, in reality, a company would rarely take such action. First, due to the nature of research and

development in the biotechnology industry, the company's product pipeline typically

spans a decade or more. See Mossinghoff Statement, supra note 11. Thus, the company

theoretically will have the opportunity to plan its research and development and, if

prudent, cancel the research and development of the first product when the company has a superior product immediately behind the first product in its product pipeline. Most

companies, however, probably would not cancel the research and development of a

predecessor product because of the difficulty in predicting whether the second superior

product will generate adverse side effects. Adverse side effects typically are not diagnosed

properly until large-scale clinical trials. This phenomenon was recently demonstrated

when Fen-Phen was withdrawn from the marketplace after adverse side effects, which

were not discovered during clinical trials, became apparent when the product became

available for public use. See E. Patrick McGuire, Fen-Pheris Broad Implications: The Under

reporting of Product-Related Injuries, 16 PRODUCT LIABILITY 4 (1997). Most companies, there fore, would proceed with the research and development of both products with the expecta tion that one or both of the products might fail clinical trial testing. Second, even where the company is fortunate enough to have a superior second product in its pipeline

immediately behind the predecessor product, the company would not shelve the superior

product. Rather, a rational company would seek to recoup its research and development costs by charging a price for the superior product that would recoup the research and

development costs for all of its failed products. See Fisch, supra note 119, at 303. 124. See NIH Determination, supra note 94, at A-3.



66-4 Public Contract Law Journal Vol. 27, No. 3 Spring 1998

that as long as a company continues to expend resources on the research and development of a subject invention, the Government would not initiate a march-in proceeding pursuant to section 203(1)(a).

2. March-In Would Undermine the Vitality of the Biotechnology Industry Because of the difficulty of fulfilling the requirements of section 203(l)(a),

the more likely provision under which the Government might consider

initiating a march-in proceeding is 35 U.S.C. ? 203(l)(b). Section 203(l)(b)

permits the Government to march-in to alleviate unmet health or safety needs.125 Although section 203(l)(b) overlaps with section 203(l)(a), section

203(1 )(b) goes beyond section 203(1 )(a) by providing the Government with authority to march-in even after the subject invention has reached the

marketplace.126 An invention may fail to alleviate health and safety needs, even once it has been brought to the marketplace, if a biotechnology com

pany charges a price for the invention above competitive levels.127 In such a circumstance, the Government would be authorized to march-in to force the biotechnology company to lower its prices.

Although the Government would have the authority to march-in to alleviate health and safety needs not being reasonably satisfied by the paten tee, the Government should not exercise its march-in right solely because a biotechnology company was charging prices above competitive levels. Al

though prices above competitive levels might seem excessive, such prices are justified because the company that sponsored the research leading to a

product must be able to recover the research and development costs not only for that product but also for its many failed experiments.128 Furthermore, the

seemingly excessive prices for biomedical products often pale in comparison

125. See 35 U.S.C. ? 203(l)(b) (1994); supra note 60. 126. It appears that once the subject invention has reached the marketplace, the

company would have achieved practical application of the subject invention. Section

203(1)(a) of Title 35 would, therefore, no longer provide the Government with the authority to march-in. See id. ? 203(l)(a).

127. A presumption exists, however, that a patent does not create market power in

the antitrust context. See department of justice and federal trade commission, Antitrust Guidelines for the Licensing of Intellectual Property ? 2.0 (Apr. 6, 1996); see also American Hoist <Sl Derrick Co. v. Sowa <Sl Sons, Inc., 725 F.2d 1350, 1367 (Fed. Cir. 1984) (stating that patent rights are not legal monopolies in the antitrust sense of the word); Schenck v. Nortron, 713 F.2d 782, 786 n.3 (Fed. Cir. 1983) ("Nowhere in any statute is a patent described as a monopoly."); USM Corp. v. SPS Tech., Inc., 694 F.2d 505, 511 (7th Cir. 1982) ("[N]ot every patent confers market power."); areeda & kaplow, supra note 8, 1 336.

128. By many estimates, only one in 10,000 compounds ever reaches the commercial

marketplace. See supra notes 11-15 and accompanying text. Therefore, the one successful commercial product needs to provide the biotechnology company with sufficient profits to allow that company to recover the research and development costs of not only that

product but also the remaining thousands of products that failed to reach the marketplace. See Fisch, supra note 119, at 303.




to the costs that untreated ailments have on society.129 Therefore, the Gov ernment must keep in mind the true costs that a march-in proceeding would have on society initiating such a proceeding.

If the Government were to exercise its march-in right solely because a

biotechnology company was charging a price on its patented invention above

competitive levels, biotechnology companies would no longer "have the incentive to make the substantial investment necessary to bring university owned inventions to development."130 Biotechnology companies would re frain from making substantial investments because they would no longer be guaranteed exclusive rights in their invention. Biotechnology companies rely on the exclusive rights provided by the patent system because of the astronomical costs of research and development associated with the biotech

nology industry.131 Furthermore, because of the "competitive and imitative" nature of the biotechnology industry, companies will hesitate to enter into research and development agreements with the federal government unless

they are guaranteed exclusive rights.132

129. It has been estimated that [i]n 1990 alone, for example, the projected cost of cardiovascular disease and stroke to the U.S. economy was $95 billion, including the costs of hospital days, disability days, and $33 billion in medical expenditures, not to mention the countless potential years of life lost before the age of 65; for acquired immunodeficiency syndrome (AIDS) including the loss of productivity, the estimated 1990 cost was $26 billion. In 1989 cancer cost the nation $100 billion, and Alzheimer's disease cost $80 billion.

P. Roy Vagelos, Are Prescription Drug Prices High?, 252 SCIENCE 1081,1081 (1991) (citations omitted).

130. See Letter from Elizabeth C. Huidekoper, vice president for finance, Harvard

University, to Harold Varmus, M.D., director, NIH (June 17, 1997) [hereinafter Huide

koper Letter] (on file at the Freedom of Information Reading Room on the NIH Campus, Building 4A); see also Letter from Jordan J. Cohen, M.D., president, American Associa

tion of Medical Colleges, to Harold Varmus, M.D., director, NIH (May 30, 1997) ("[I]f 'march-in rights' are exercised in this case, incentives for developing critical technologies in the fight against disease will be diminished and, in the long run, the public will lose out.") (on file at the Freedom of Information Reading Room on NIH Campus, Building

4A); Letter from Michael M.E. Johns and Dennis Liotta, Office of the Executive Vice President for Health Affairs, Emory University, to Harold Varmus, director, NIH (July 2, 1997) ("[T]he incentives for developing critical technologies in the medical field would be severely marginalized" by a march-in proceeding, and "the end result of granting 'march-in rights' would be a substantial loss to the general public") (on file at the Freedom of Information Reading Room on NIH Campus, Building 4A).

131. See supra notes 11-15 and accompanying text.

132. See Paepke, supra note 116, at 60; see also Promoting Technology Transfer by Facilitat ing Licenses to Federally Owned Inventions: Hearings on H.R. 2544 Before the Subcomm. on

Technology of the House Comm. on Science, 105th Cong. (1997) (statement of Daniel R. Passeri, vice president, Gene Logic, Inc.) ("The science-based industries rely heavily on

the patent system and exclusive licensing as a means of protecting their investment."); Herdman Statement, supra note 10. But see Linda R. Judge, Comment, Issues Surrounding the Patenting of Medical Procedures, 13 COMPUTER & HIGH TECH. L.J. 181, 203 (1997) ("Intellectual property protection tends to eliminate conventional scientific interaction

where information is freely disseminated, and therefore, conflicts with incentives provided




Moreover, the initiation of a march-in proceeding would disrupt the rela

tionship that federal laboratories have developed with the private sector. The

Government often plays a pivotal role in funding research, development, and

clinical trial support in the biotechnology industry.133 It has been estimated, for example, that "virtually every treatment available for HIV/AIDS, its op

portunistic infections, or cancer has involved important research in NIH labo

ratories."134 If the Government ever initiated a march-in proceeding, the bio

technology industry would likely be reluctant to enter into future research

agreements involving government-sponsored inventions.

If private industry no longer entered into research agreements with the

Government, the Government would lack a partner to continue the re

search, development, and eventual commercialization of its inventions. In

deed, Robert P. Blackburn, vice president and chief patent counsel of Chiron

Corporation, warned that "there would be a chilling effect on future collabo rations between the healthcare industry and laboratories subject to the

Bayh-Dole Act" if the Government were to exercise its march-in right against a biotechnology company.135

Congress shifted the presumption of ownership of federally sponsored inventions to the private sector, in part, out of a recognition that the Govern

ment was inefficient at commercializing its discoveries.136 By exercising its

march-in right, the Government potentially could create a substantial im

pediment to the future commercialization of government-sponsored inven tions in the biotechnology field. Considering the negative long-term effects on the biotechnology industry and ultimately on the health and welfare of

society, the Government should not exercise its right to march-in, even if it has the authority to do so.

B. The Continuing Need for the Government's March-In Right

Although the Government is not likely to exercise its march-in right, the mere existence of the march-in provision serves several important func tions and should not be abrogated.137 First, the existence of the Govern

to scientists to achieve advancements in science and medicine.") (citing Aryeh S. Fried

man, Law and the Innovation Process: Preliminary Reflections, 1986 COLUM. BUS. L. REV.

1, 7 (1986)). 133. See Suzanne S. Groet, Biotechnology and the U.S. Government: The Pot at the End

of the Rainbow?, in THE BUSINESS OF BIOTECHNOLOGY: FROM THE BENCH TO THE STREET 199 (R. Dana Ono, ed., 1991).

134. Herdman Statement, supra note 10.

135. See Letter from Robert P. Blackburn, vice president and chief patent counsel, Chiron Corp., to the Honorable Donna E. Shalala, secretary, DHHS (July 3, 1997) (on file at the Freedom of Information Reading Room on NIH Campus, Building 4A).

136. See supra notes 29-32 and accompanying text.

137. Alternatively, the Government could abolish the march-in right altogether and

rely on the theory of eminent domain as a means for exercising control over subject inventions. See U.S. CONST, amend. V. Exercising eminent domain over the subject invention could, however, raise many constitutional issues not present in a march-in

proceeding.




ment's march-in right notifies patent holders and potential licensees that the Government has certain rights in the subject invention. The Bayh-Dole

Act emphasizes the need for such notice by requiring that all patents made with government assistance contain a disclaimer that "the invention was made with Government support and that the Government has certain rights in the invention."138 This notice function helps to ensure that the patentee and its licensees act in accordance with the requirements of the Bayh-Dole Act, thereby eliminating the need for Government march-in.

Second, the Governments march-in right can be used as a persuasive threat during negotiations with a patent holder. For example, at least one contractor voluntarily reassigned a patent to the Government after the Government threatened to initiate a march-in proceeding against the con

tractor.139 Short of patent reassignment, Government pressure also can alter a company's marketing strategy of inventions made with government assis tance. This influence was illustrated by Burroughs Wellcome's marketing of the drug AZT.140 The Government funded a significant portion of the research and development costs of AZT.141 After it had been demonstrated that AZT prolonged the life of patients infected with the human immunodefi

ciency virus (HIV), Burroughs Wellcome began to market the drug,142 ini

tially charging approximately $10,000 for a yearly dosage.143 The company

subsequently lowered the price to approximately $6400 for a yearly dosage in response to strong government and public pressure.144

The most significant justification for preserving the march-in right, how

ever, might be to protect against the unforeseen circumstances in which the short-term health benefits of a march-in proceeding outweigh the long-term costs to the biotechnology industry. The march-in provisions ensure that the Government always possesses the power to exercise its domain over a subject invention should the need arise. Although it is difficult to foresee the exact circumstances warranting the drastic remedy of a march-in proceeding, the Government must retain its march-in right for precisely this reason.

V. Conclusion

Only two of the four enumerated grounds under which the Government

may initiate a march-in proceeding are particularly applicable to the biotech

nology industry. According to the first of these grounds, 35 U.S.C.

? 203(l)(a), the Government may initiate a march-in proceeding where the

company has failed to achieve practical application of the subject invention

138. See 35 U.S.C. ? 202(c)(6) (1994). 139. See Alstadt, supra note 71.

140. See Ackiron, supra note 17. 141. See Ackiron, supra note 17, at 166.

142. See Ackiron, supra note 17.

143. See Ackiron, supra note 17.

144. See Ackiron, supra note 17, at 146.



668 Public Contract Law Journal Vol. 27, No. 3 Spring 1998

within a "reasonable time." The situations in which the Government has the authority to initiate a march-in proceeding under this provision, how

ever, are the same situations in which biotechnology companies already have the greatest incentive to market the subject invention on their own.

Morever, because the "reasonable time" standard in section 203(l)(a) is so

expansive, the Government rarely will meet the statutory requirements for a march-in proceeding. As long as a biotechnology company continues to

expend resources on the research and development of the subject invention, the Government most likely will find that the company is seeking to achieve

practical application of the subject invention within a reasonable time.

According to the second ground for a march-in proceeding, 35 U.S.C.

? 203(1 )(b), the Government could march-in even after the subject invention reached the commercial marketplace if the Government sought to alleviate unmet health and safety needs. Even under these circumstances, however, the Government should not exercise its march-in right because of the nega tive long-term effects on society of such an action. If the Government did exercise its march-in right, the biotechnology industry would no longer be assured that it would recoup its costs of research and development. Biotech

nology companies, therefore, would no longer have the incentive to enter into agreements concerning government-sponsored inventions. Thus, "new

technologies would remain undeveloped and patients would be the losers."145

Indeed, several members of Congress best summarized these concerns when

they stated that granting a march-in petition "would set a dangerous prece dent" that would "undermin[e] the patent system and thereby imperil[]" the biotechnology industry.146

Although the Government refused to exercise its march-in right at CellPro's bequest, the CellPro petition exemplifies the ramifications that a march-in proceeding would have not only on the individual competitor but also on the biotechnology industry and society as a whole. It appears from Director Varmus's decision in the CellPro determination that the Govern ment's march-in right will once again drop back into relative obscurity ready, but never to be used.

145. See Huidekoper Letter, supra note 130.

146. See Letter from the Honorable John E. Porter, et al. to the Honorable Donna

Shalala, secretary, DHHS (July 30, 1997) ("[GJranting [a march-in] petition would set a dangerous precedent, undermining the patent system and thereby imperiling the Ameri can Biotechnology revolution set in motion by the Bayh-Dole Act.") (on file at the Freedom of Information Reading Room on NIH Campus, Building 4A).



implications of the "cellpro" determination on inventions made with federal assistance:...

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