Top Ten Column: Can the Government Use Bayh-Dole Enforcement to Boost Domestic Pharma Manufacturing?

Tariffs may not be the only tool at the federal government’s disposal to promote U.S. manufacturing of pharmaceuticals and medical devices. As the new administration continues to push for the onshore manufacturing of these products, the Bayh-Dole Act (the “Act”) could be another enforcement mechanism to bring life sciences manufacturing operations to the U.S., particularly for those products that relied on federal funding during research and development.

Many commercial drugs, biologics, and medical devices are developed with the support of federal funds, whether through federal grants or federally funded research labs. Under the Act, these federally funded inventions are subject to specific requirements, including that the inventions be “manufactured substantially in the U.S.” Failure to comply can lead to the government taking title to the invention by exercising its “march-in rights.” Historically, the definition of “manufactured substantially in the U.S.” has been undefined under Act and enforcement – which has been minimal – has been left to the funding agencies. However, with the federal government’s renewed focus on domestic manufacturing, the life sciences industry should be prepared for potential changes in enforcement and policy.

There have been recent legislative efforts to clarify the definition of “manufactured substantially in the U.S.” through the Invent Here, Make Here Act of 2024, but the definition was ultimately struck from the bill, which then died in Congress. In addition, as of July 28, 2023, the Biden administration’s Executive Order 14104 called for additional guidance for agencies in evaluating eligibility for manufacturing waivers when domestic manufacturing is not commercially feasible. The order also mandates enhanced reporting by funding recipients with respect to manufacturing operations. This includes annual submissions reporting the names of licensees and manufacturing locations, with all reporting for unclassified inventions to be centralized in the NIST’s iEdison system by the end of 2025. These reports will inevitably increase the agencies’ visibility of compliance with the manufacturing requirements.

With regulatory guidance in flux and the rapidly evolving trade market, it remains to be seen whether the government’s emphasis on domestic production will lead to more rigorous oversight and enforcement of the Act’s onshore manufacturing requirements. Since the responsibility for auditing under the Act primarily falls to the funding agencies, the availability of agency resources could significantly influence enforcement efforts. Given the layoffs and budget reductions affecting many agencies, their capacity to enforce compliance could be limited and priorities may vary across agencies. Nonetheless, universities and licensees of federally funded inventions should prepare for the potential of heightened scrutiny of manufacturing requirements by reviewing their manufacturing process for foreign components and assessing waiver eligibility. Organizations acquiring inventions should also conduct thorough due diligence and account for potential legal uncertainties with respect to any aspect of the manufacturing process that occurs outside the U.S.

Deborah Spranger, Troutman Pepper Locke, [email protected]