Unintended Consequences: GAO Report Questions Impact of Exercising March-In Rights for Drug Pricing

Last month, the GAO issued a report to Congress evaluating the NIST 2024 draft guidance on exercising march-in rights under the Bayh-Dole Act. Bayh-Dole allows federal agencies, in certain circumstances and consistent with statutory criteria, to exercise "march-in rights" when an invention that arose from federally funded research is involved, and thus requires a recipient of its funding to issue a nonexclusive license to a third party for patents covering the invention. The guidance is of particular interest to the pharmaceutical industry, as biomedical research accounts for a significant share of federal research funding, with the National Institutes of Health alone providing $44 billion—about 43% of all federal funding for research—in fiscal year 2023.

The NIST draft guidance proposed that federal agencies could consider product price as a factor when determining whether to "march in" and require patent holders to license patents for federally funded inventions (or "government interest patents") to third parties. Although issued as part of a broader government effort to lower drug prices, the draft guidance, if finalized without change, would be applicable to all federally funded inventions. The GAO's findings on the draft guidance and related comments reveal a "lack of interagency consensus" and potential risks of undermining the broader innovation ecosystem enabled by Bayh-Dole.

The GAO report highlighted the limited impact of exercising such rights to lower prescription drug costs. Despite widespread public interest in using march-in rights to address pharmaceutical costs, the GAO found that exercising march-in based on price would likely affect only a small number of drugs. Studies cited in the report estimate that as few as 18 out of 883 FDA-approved drugs since 1985 (approximately 2%) are covered entirely by government interest patents that could qualify for march-in. Among these few are some high-value, specialized drugs approved for use in oncology, rare disease, and chronic conditions management. Under the draft guidance, a federal agency could exercise march-in rights based on product price only if a product resulting from a federally funded invention has an unexpired patent subject to Bayh-Dole.

However, most drugs have patents that are not subject to the statute or are primarily protected as trade secrets. Further, it is likely that the percentage of biologics, which are disproportionately represented among high-cost drugs, subject to march-in rights would be even less than that of small molecule drugs, although there is limited availability of biologics patent information to confirm this hypothesis. Because many drug and biologic products involve a mix of government interest and other patents, the complexity of exercising march-in rights on such products further limits practical utility of using Bayh-Dole to address high drug prices.

The report also highlighted potential adverse effects. While march-in rights have historically been debated in the drug pricing context, the GAO emphasized that government interest patents span multiple industries, including computer technology, electrical machinery, chemical engineering, and biotechnology. University stakeholders and other opposing commenters warned that introducing price-based intervention could create a "chilling effect" on commercialization of federally funded inventions across sectors.

Concerns include, but are not limited to, reduced university licensing activity, diminished venture capital investment in startups working with federally funded intellectual property, reduced access for the government to innovations (and especially cutting-edge technologies) that instead will be developed exclusively at private expense, and potentially fewer innovations reaching the market.

Practical Implications

NIST has not finalized the guidance and has no timeline to do so, citing a lack of interagency consensus. While the current administration does not appear to be aligned with the former administration's policies of using march-in rights to influence pricing, the August 8, 2025, letter from Commerce Secretary Howard Lutnick to Harvard University announcing the initiation of a comprehensive compliance review and march-in process on the university's federally funded patent portfolio demonstrates that the current administration appears willing to use the threat of march-in as leverage over federal contractors, grantees, and recipients for other purposes.

While the guidance is not yet finalized, companies licensing federally sponsored university-developed technologies, universities with technology transfer operations, and investors in early-stage R&D-dependent businesses should monitor developments closely. Likewise, companies with established patent portfolios would be well advised to review them to assess for potential risks if the guidance is ultimately finalized. The uncertain regulatory environment and ongoing interest for new strategies to lower drug prices warrants proactive assessment of portfolios involving federally funded inventions, such as pharmaceuticals, artificial intelligence, quantum computing, and other information technologies.