Tag Archives: CETUS

Supreme Court Upholds Inventor’s Ownership of Patent Rights Under the Bayh-Dole Act

On Monday, June 6, 2011, the Supreme Court held that the Bayh-Dole Act does not disturb the long-standing rule of patent law that ownership of patent rights vest in the inventor. In Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,the Supreme Court affirmed the Federal Circuit’s ruling and held that the Bayh-Dole Act clarified “the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.” (Slip. Op. at 12). For the contractor to have rights in a patent, the inventor must have executed a valid assignment in favor of the contractor.

The Stanford case arose from a joint research program in which a Stanford researcher conducted HIV-related research at Cetus Corp. Roche is the successor of Cetus. The researcher had “agree[d] to assign” any inventions to Stanford, and later did execute an assignment to Stanford for the specific patents. However, in the interim, the researcher signed a confidentiality agreement that provided he “will assign and do[es] hereby assign” to Cetus inventions arising out of the use of Cetus’s facilities. Following its precedent, the Federal Circuit ruled that the language in Stanford’s agreement to assign did not actually effect an assignment whereas the language of the assignment to Cetus did. Accordingly, Roche was the owner of the invention unless the Bayh-Dole Act vested ownership in Stanford. The Federal Circuit held it did not. (See our previous alert for a more detailed history.)

In affirming, the Supreme Court characterized the concept that the inventor owns the patent rights as basic to our patent laws since the passage of the first Patent Act in 1790. It found that Congress has divested inventors of this right in the past only by unambiguous language. It cited two instances, inventions concerning nuclear material or atomic energy and inventions made pursuant to contracts with NASA, where Congress unambiguously specified that the title would vest in the government. The Court observed that the language that divested the inventor’s rights in those instances was notably absent from the Bayh-Dole Act. Further, the Supreme Court found other language in the Bayh-Dole Act supported its view.

Justice Sotomayor wrote a concurring opinion to make clear that she did not view the majority opinion as resolving whether the Federal Circuit’s precedent was correct in interpreting Stanford’s agreement to assign as not actually effecting an assignment, particularly where the Bayh-Dole Act is implicated. Since Stanford did not challenge the Federal Circuit’s decision on that ground, she nonetheless agreed affirmance was appropriate.

Justice Breyer, joined by Justice Ginsburg, dissented. The dissent would have vacated and remanded the case because in their view, the answer to the question presented turned on matters on which the parties had not had a full opportunity to argue. One such matter was the Federal Circuit’s precedent on the interpretation of assignment agreements. The dissent did not view the majority opinion as foreclosing argument on this point by similarly situated parties in the future. The second matter not fully addressed was whether the Bayh-Dole Act should be interpreted to create a presumption of assignment by federally funded employees. While the concurring and dissenting Justices made clear their view that the Federal Circuit’s case law regarding the proper construction of agreements to assign remains open to challenge, the Federal Circuit’s precedent will remain controlling unless overruled by that court en banc or by the Supreme Court. Both are unlikely.

Thus, the first and best line of protection for academic and research institutions as well as private recipients of federal research dollars is the same as for other employers: review with competent counsel your policies and practices regarding assignments of inventions and the forms and agreements used in connection with such assignments and with agreements to assign. These must be drafted with the understanding that ownership initially vests with the inventor or, where more than one person contributes to the conception of the invention, with the inventors jointly.

A Four-Step Guide for Securing Patent Portfolios after Stanford v. Roche

On June 6, 2011, the U.S. Supreme Court issued its highly anticipated decision in the Stanford v. Roche case. The facts behind Roche are easily replicated on college and university campuses around the nation, forewarning institutions of the potentially problematic IP issues that lurk behind each of their patent and technology transfer agreements. Today, most major research universities boast of vast IP portfolios, including dozens of patents, which were invented by professors and the like during the course of their employment. Oftentimes, these patents allow universities to generate a critical revenue stream by licensing the patents through established licensing offices or policies. However, under Roche, the ownership of the patents may not be as clear as universities previously thought. Though a serious review of existing patent portfolios and potential modifications of boilerplate patent agreement language is likely necessary, first understanding the facts behind Roche will clarify why these steps are strongly advised for universities.

Research fellow, Dr. Holodniy, signed a Copyright and Patent Agreement with Stanford University agreeing to assign his “‘right, title and interest in’ inventions resulting from his employment at the University.” Stanford, like many institutions, received federal funding from the National Institutes of Health for the HIV measurement technique research that Dr. Holodniy participated in. Dr. Holodniy, in pursuit of developing an improved method for quantifying HIV levels in blood samples, later collaborated with Cetus, a California research company that worked with Stanford’s scientists. Equally wary of patent laws and eager to get the right to the findings, Cetus had Dr. Holodniy sign a Visitor’s Confidentiality Agreement stating he “‘will assign and do[es] hereby assign’ to Cetus his ‘right, title and interest in each of the ideas, inventions and improvements’ made ‘as a consequence of [his] access to Cetus.’”

Two research entities. Two patent right agreements. One patent. Who wins?

According to the majority opinion in Roche, authored by Chief Justice Roberts, Cetus prevailed. This opinion is by no means groundbreaking. Rather, the decision merely reinforces the historical rule that “rights in an invention belong to the inventor.” Any institution involved with research and potential IP issues traditionally has their employees sign copyright and patent agreements since an employer has no right to their employees’ inventions without an express grant. Barring such agreement, employee inventions “remain the property of him who conceived it.” Thus, Roche mirrors the general principle that inventors own their inventions by holding, “mere employment is [not] sufficient to vest title to an employee’s invention in the employer.”

Next, Roche is not fodder for major legislative change since it simply provides a straightforward reading of the Bayh-Dole Act. An undoubtedly landmark piece of legislation, Bayh-Dole recognized the need for the commercialization of inventions that federal money was heartily supporting. Bayh-Dole has promoted and facilitated federal collaboration with commercial and nonprofit organization research by specifying what rights each party has when federal funding is involved. The relevant part of the Act cited in Roche provides that federal contractors (which include individuals, small business firms or nonprofits that are a party to the funding agreement) may “elect to retain title to any subject invention.” “Subject invention” is then defined as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.” The Roche opinion begins to sound more like a grammar lesson than a ruling from the highest court as Roberts explains what the phrase “of the contractor” means. Just as it reads, an “invention of a contractor” would be an invention that a contractor owns. And for the contractor to own such invention in the university context, its employees who participated in the federally funded research would have had to sign an agreement transferring their ownership rights. Thus, the Act is simple: federal contractors can elect to retain title to any invention they own.

Thus, Roche does not change the fact that universities still need to obtain express agreement from employees in order to acquire the rights to any inventions of their employees. The case also does not change any of the traditional interpretations or precedents involving the Bayh-Dole Act. However, the case does clarify the technology transfer and related rights between universities with federally funded research and the private companies with which they collaborate. This clarification signals the need for a stricter approach that universities should take in terms of drafting and ensuring their rights under patent agreements. In light of Roche, an immediate four-step plan should be implemented by colleges and universities.

First, institutions must examine their existing patent portfolios. As the marketability of portfolios increases with the sheer volume of patents, many universities strive to possess a wealth of patented inventions. The value of portfolios thus is not generally linked to a single patent, but the number of patents that outside firms are willing to invest in or collaborate with. Universities therefore capitalize on their portfolios through technology transfers, facilitating the commercialization of research and incentivizing future research through income generation. Thus, examining existing portfolios requires universities to determine what patent rights they currently possess. For those universities that receive federal funding for research, verify whether such funding was acquired before or after the development of each patented invention. If the patent was developed under the funding, check to see whether the employee solely assigned their rights to the university and whether the university has elected to retain the rights to such patent. As Roche explicitly held, “the Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.”

Further, determine which patents were developed collaboratively with outside research firms and institutions. Because academia, private firms and the government are the holy trinity for innovation, universities must be clear on which of their patents were developed by their sole efforts. Creating a framework of mutual benefit that technology transfer ultimately desires requires an examination of the actual benefits universities have afforded themselves through their existing patents.

Second, institutions should closely scrutinize their previously signed employment agreements. Begin by checking whether employees even had rights to transfer in the first place. If the employee came from other institutions or private firms, are they now conducting research at their current university employer that was started elsewhere? Are current employees starting from scratch or building upon existing inventions developed through the funding, efforts and resources of outside entities with which the university has no connection? Finding these answers may require a look into the backgrounds of employees who joined the university as experienced researchers and professors, since they are likely to have signed prior patent agreements. Speak with employees who raise concern and inquire about any past employment agreements they signed. As part of inspecting existing patent agreements, determine the scope of the agreement- does it cover only the original invention or does it extend to any other inventions developed based off the underlying research? Answering these questions is vital in guaranteeing that a university actually retains rights to the patents marketed in their portfolios.

Third, develop a plan for amending existing agreements, or obtaining written intellectual property agreements if none exist. Start by finding out which employees have not signed patent and copyright agreements. Of those employees who have not signed, determine whether any have, or are in the process of, researching and developing inventions. Work with an attorney to develop specific agreements that will assign all existing rights to the university and will also transfer the employee’s rights to future inventions developed during their employment to the university. Any professor who knows that if they invent it, they own it, may be reluctant to hand over such rights. However, patent marketability and the benefit of commercialization of inventions that comes with university technology transfers should leverage some bargaining power over a hesitant employee. Alternatively, incentive provisions may be warranted in certain instances.

Further, refine or amend existing assignments that do not operate under the assumption that the university owns the patent rights. As part of this change, determine whether there are any employees who have transferred departments since the original patent or copyright agreement was signed. If a professor is currently in a research capacity but was not previously, determine whether that departmental change necessitates a revision of their previous agreement or the execution of a new one. Also research and ensure that employees have not assigned their rights to underlying inventions elsewhere or at any previous point during their current employment. Develop a plan for handling employees who are unwilling to sign modified agreements, as reluctance from some employees should be expected. Finally, care should be given in regard to the potential tax implications of amendments to existing agreements and additional incentives offered in connection with any transfer of existing rights in an invention.

Fourth, institutions should draft future employment agreements with more stringent language to prevent the type of patent right quandary exhibited in Roche. The problem in Roche could have been solved by conforming the tense of the verbs to the intention of the university- had Dr. Holodniy’s agreement with Stanford read that he “does” assign his rights, the ownership would have immediately transferred to Stanford. However, the language that Dr. Holodniy “agree[d] to assign” his rights was only a promise to do something in the future. That expectancy did not vest, however, because the Dr.’s subsequent agreement with Cetus included language immediately transferring ownership rights. The “will assign and do[es] hereby assign” phrase gave priority of ownership to Cetus, serving as partial justification for Stanford losing the suit. Thus, it is not an exaggeration to say that each agreement signed with professors and research fellows must be ironclad and reviewed to make certain the existing agreement accomplishes its intended purpose. This may require terminating the old form of agreement and replacing them with individualized agreements that definitively establish a status quo transfer of rights. The use of present tense verbs is imperative to ensure that rights actually are assigned, rather than just promising to be assigned subsequently.

In addition, incorporate provisions within the new agreements to handle situations where researchers work with other institutions in order to prevent an inadvertent transfer of rights. Employ language that specifically requires consent from the university before any employee signs over their rights to an outside institution. Also, include provisions requiring the disclosure of previously signed patent agreements at the outset of employment so that universities will be aware of potential litigation arising from contract and patent disputes.

With a large enough patent portfolio, the process of reviewing and updating patent agreements may appear daunting. However, based on the undisputable message of inventor rights in Roche, a serious assessment of existing agreements and the need for heightened specificity in the future is paramount. The decision in Roche encourages vigilance on the part of universities and requires steps to be taken to reduce liability to patent infringement and contract violation claims. The four above recommended steps above are not an exhaustive list of actions universities could take; instead, they provide a necessary starting point for universities in navigating patent portfolio review and reform.

Agree to Assign vs. Hereby Assign: In Stanford v. Roche, the Wording of Assignment Agreements Determines Patent Ownership

In yet another decision by the U.S. Supreme Court to impact intellectual property rights, the Court now maintains a centuries-old law that the rights to an invention belong to the inventor. In a decision issued on June 6, 2011, in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., the Supreme Court held the rights to inventions supported by federally funded research are not vested with the institutional recipient of those federal funds.

In 1980, Congress enacted The Bayh-Dole Act to allocate the rights to federally funded inventions between the Federal Government and the recipient of the federal funds. In Stanford v. Roche, Stanford argues that one consequence of the Bayh-Dole Act is that institutional recipients of federal funds for research are automatically vested with the ownership rights to inventions made by their employees from those funds.

The issue in Standford v. Roche begins in 1988 with a research fellow at Stanford University, Dr. Holodniy, developing an assay for quantifying HIV levels in patients using PCR. Because he was unfamiliar with the technique, Holodniy went to the company that developed PCR, Cetus. Holodniy worked at Cetus developing the assay, and then returned to Stanford where he pursued the research further. Stanford eventually obtained the assignment rights for the invention from Holodniy and acquired three patents as a result. In 1991, Roche acquired Cetus, and Roche commercialized the assay developed by Holodniy while he was at Cetus.

Importantly, Holodniy signed an agreement upon joining Stanford that stated he “agree[d] to assign [his] right, title and interest in” inventions resulting from his employment to Stanford. However, in order to initially gain access to Cetus, Holodniy signed a confidentiality agreement that stated he “will assign and do[es] hereby assign [his] right, title and interest in each of the ideas, inventions and improvements [made] as a consequence of [his] access” to Cetus. Thus, it was at issue to whom Holodniy had actually assigned his rights.

In 2005, Stanford brought suit against Roche asserting that Roche’s commercial assay infringed on the patents held by Stanford. Roche argued that they were co-owners in the patents because Holodniy had assigned his rights to Cetus when he signed the confidentiality agreement. Thus, Stanford could not sue Roche for infringement of patents they co-owned. Stanford countered that they had already acquired Holodniy’s rights under the Bayh-Dole Act because the research was federally funded. Therefore, Holodniy had no rights to assign. The District Court agreed that Holodniy had assigned his rights to Roche. However, the court agreed with Stanford that Holodniy had no valid rights to assign because of the Bayh-Dole Act. On appeal, the U.S. Court of Appeals for the Federal Circuit concluded that Holodniy’s agreement with Stanford to “agree to assign” his rights was a promise to assign his rights at some point in the future. Whereas, in his agreement with Cetus to “hereby assign” his rights,he actively assigned them away right then and there. Furthermore, the Federal Circuit found Agree to Assign vs. Hereby Assign: I that under the Bayh-Dole Act, an inventor’s rights are not automatically relinquished to his employer when the invention is federally funded. Therefore, Roche was part owner of the patents in question, and Stanford lacked standing to file suit.

In a 7-2 decision, the Supreme Court agreed with the Federal Circuit that the Bayh-Dole Act did not supersede centuries of patent law and automatically assign an inventor’s ownership rights to his employer as a consequence of using federal funds. The Court found that the Bayh-Dole Act only confers to recipients of federal funding the right to retain that which they already have the rights to hold, and that the Act’s main purpose is to prevent a “Government-imposed impediment to retaining title” to federally funded inventions. Consequently, because Stanford never received Holodniy’s rights due to the wording of his employment agreement, they could not retain that which they never had the right to hold. Put another way, under Bayh-Dole, Stanford could not re-obtain that which Holodniy had already given away. The dissent stated that under the majority’s opinion, inventors working from federal funds could assign their rights to a third-party who never was a recipient of the federal money. Thus, circumventing the purpose of the Bayh-Dole Act. Furthermore, the dissent contended that since the parties had not fully argued the assignment question, the case should be remanded back to the Federal Circuit.

The decision in Stanford v. Roche will certainly have an impact in the area of technology transfer. Employers generally have policies to insure that the inventions of their employees will be assigned to the employer. However, if employers want to better protect themselves as eventual owners of the inventions of their employees, it will be necessary to draft better employment agreements that assign patent ownership rights in an active manner at the start of employment. The use of the phrase “agree to assign” will likely not protect an employer against an employee’s inadvertent assignment of their invention rights to another party.

Supreme Court: Bayh-Dole Act Does Not Eclipse Inventor’s Rights

On June 6, 2011, the United States Supreme Court ruled that the Small Business Patent Procedures Act of 1980 (a/k/a the Bayh-Dole Act)1 does not displace the centuries-old maxim that “rights in an invention belong to the inventor.” Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys(opens in a new window)., 563 U.S. —, 2011 WL 2175210, at *4 (June 6, 2011). “Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not.” Id. at *6. “[U]nless there is an agreement to the contrary, an employer does not have rights to an invention which is the original conception of the employee alone.” Id. at *7. This rings true even when the Federal Government is footing the bill.

In 1985, scientists at Cetus Corp. developed a revolutionary method that allows billions of copies of DNA sequences to be made from a small initial blood sample. This technique became known as the polymerase chain reaction or PCR. In 1988, Dr. Mark Holodniy, a professor at Stanford University, sought to work with Cetus to use the PCR method in an effort to develop a method for quantifying HIV levels in patient blood samples. As a condition of accessing Cetus’ facilities and methodology, Holodniy signed a Visitor’s Confidentiality Agreement (“VCA”), which stated that Holodniy “will assign and do[es] hereby assign” to Cetus his “right, title and interest in each of the ideas, inventions and improvements” made “as a consequence of [his] access” to Cetus.

Upon returning to Stanford, Holodniy disclosed his new method of quantifying HIV to Stanford and Stanford filed a series of patent applications. In 1991, Roche Molecular Systems acquired Cetus’s PCR-related assets, including the rights Cetus obtained through the VCA signed by Holdoniy. Roche subsequently developed and commercialized the procedure. Standford then filed suit against Roche contending that Roche’s HIV test kits infringed Stanford’s patents. In response, Roche claimed that it was a co-owner of Holdoniy’s inventions based on Holdoniy’s assignment of rights in the VCA, while Stanford argued that it had superior rights to Holodniy’s inventions under the Bayh-Dole Act. The District Court agreed with Stanford, finding that although “the VCA effectively assigned any rights that Holodniy had in the patented invention to Cetus, . . . Holodniy had no interest to assign” because of the operation of the Bayh-Dole Act. Id. at *5 (internal quotation marks and citation omitted). The Court of Appeals for the Federal Circuit, however, disagreed. The court determined (1) that the Bayh-Dole Act “does not automatically void ab initio the inventors’ rights in the government-funded inventions and (2) that Holodniy’s assignment to Roche, with the “hereby assigns” language, trumped the one he made earlier to Stanford’s because Stanford’s assignment stated that Holodniy “agree[d] to assign” to Stanford his “right, title and interest in” inventions resulting from his employment at Stanford. Id. at *1, *6 (internal quotation marks and citation omitted). Stanford appealed, arguing that the Bayh-Dole Act gave Stanford superior rights.

In affirming the Federal Circuit, Chief Justice Roberts concluded that “[t]he Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.” Id. at *9. That is, the Act “serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.” Id. Simply put, absent an express written agreement to the contrary, an inventor’s rights to an invention reign supreme over an employer’s interest, even when the invention is financed by the Federal Government.2

This holding poses particular challenges for universities and other educational institutions, which often receive federal funding leading to patentable inventions. Such institutions cannot assume that ownership rights are certain by virtue of receiving federal funding. Thus, these institutions must “enter into agreements with their employees requiring the assignment to the university of rights in inventions” to ensure their ownership stake. Id. at *11.

In addition, the Supreme Court’s decision exposes a vulnerability in the Bayh-Dole Act that enables organizations to avoid the Act’s “marching orders” by ensuring that federally funded inventions remain assigned to their individual inventors. Indeed, as Justice Roberts makes clear, inventions only fall within the scope of the Bayh-Dole Act if federally funded and effectively assigned to the contracting organization. It is now up to Congress to patch this loophole by amending the Act to expressly vest title in federally funded inventions in the contracting organizations.

For now, however, this decision acts as a guidepost and warning to all employers to ensure that those involved in the inventive process have signed written agreements specifying employer rights with respect to each invention. Moreover, it underscores the importance of a company meticulously requesting visitors to execute confidentiality agreements in which the visitor assigns all rights, title and interest to inventions made as a result of the access provided by the company. Without such agreements, organizations risk being able to ensure their own rights, which in turn threatens their future ability to license or transfer their rights to third parties. Accordingly, all organizations (but especially federal contractors) should undertake the following protective measures:

  1. Inventory all inventions arising out of past and present research and development projects;
  2. Identify all employees and independent contactors involved in inventive processes relating such inventions;
  3. Ensure that all employees and independent contractors involved in the inventive processes have signed written agreements specifying the employer’s rights to any related inventions; and
  4. Keep track of all confidentiality agreements executed by employees seeking to gain access to third party facilities.

This list may also prove beneficial when conducting due diligence of an acquisition target, a potential licensing deal, or technology transfer opportunity.

Supreme Court Attempts to Clarify Bayh-Dole Act

The Supreme Court issued its much anticipated decision in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. et al. on June 6, 2011.  In a 7–2 decision, the Supreme Court determined that the University and Small Business Patent Procedures Act (“Bayh-Dole Act”) clarifies the priority of rights regarding ownership of patents arising from federally funded research.  In particular, the Court held that federal contractors do not gain automatic patent rights to federally funded inventions because inventors have the initial claim to ownership.

The Bayh-Dole Act allows for the transfer of exclusive control over many government-funded inventions to universities, nonprofit organizations and small businesses operating with federal contracts for the purpose of further development and commercialization.  The contracting universities, organizations and businesses are then permitted to exclusively license the inventions to other parties.  The federal government, however, retains “march-in” rights to license the invention to a third party, without the consent of the patent holder or original licensee, where it determines the invention is not being made available to the public on a reasonable basis—in other words, to issue a compulsory license.

The Court affirms the Federal Circuit decision that Stanford lacked standing to sue Roche because a Stanford researcher had assigned his rights to his invention to Cetus, a company who later became part of Roche.  The researcher had signed a visitor’s confidentiality agreement while working at Cetus, which stated that he “will assign and do[es] hereby assign” inventions to Cetus.  The Federal Circuit held that the visitor’s agreement superseded a copyright and patent agreement with Stanford in which the researcher “agree[d] to assign” inventions to Stanford.

On appeal, both Stanford and the solicitor general argued that the Federal Circuit decision would allow individual inventors to unilaterally terminate the exclusive rights of the university and other contractors.  However, the Supreme Court found that the position of Stanford and the solicitor general would move the inventor “from the front of the line to the back,” suggesting that inventors have the initial rights to their inventions and must explicitly assign any rights to an employer or a third party.

What ramifications does this decision have for federally funded inventions?

According to the Court, the Bayh-Dole Act merely gives contractors the right to “retain” ownership, which suggests that contractors must first obtain ownership.  Unfortunately, the issue of assignments was not before the Supreme Court.  The Federal Circuit interpreted the Cetus assignment where the inventors “will assign and do hereby assign” to be an explicit (present) assignment of future inventions, whereas the Stanford assignment, where the inventors “agree[d] to assign” inventions to Stanford, was a promise to hand over future inventions.

For now, companies may wish to ensure that their patent assignments explicitly state that inventors affirmatively assign their invention rights by incorporation of self-executing language.  Furthermore, it is advisable that employment agreements indicate that inventors are contractually obligated to and by their signature do assign their inventions to the company.

Even Under Bayh-Dole, Employee Inventor Has First Dibs

The Supreme Court of the United States recently delivered a blow to the university technology transfer world by holding 7-2 that federal contractors do not have an automatic right to claim title to inventions.  Because all ownership rights stem initially from the inventor, even in the case of federally funded research, the inventor’s ownership rights trump the Bayh-Dole vesting provision.

In its second affirmance of a U.S. Court of Appeals for the Federal Circuit decision in the span of two weeks, the Supreme Court of the United States, in a blow to the university technology transfer world, held (7-2) that federal contractors do not have an automatic right to claim title to inventions.  The statutory rights of the inventor, even in the case of federally funded research, trump the Bayh-Dole vesting provision.  Stanford Junior University v. Roche Molecular Systems, Case No. 09-1159, 563 U.S. ____ (June 6, 2011) (Roberts, Chief Justice) (Sotomayor, Justice, concurring) (Breyer, Justice, dissenting).

The Bayh-Dole Act dates back to 1980 and is largely responsible for the vast increase in university licensing of the fruits of federally funded research.  In the present case, the issue is raised as to whether the patent rights ownership provision of Bayh-Dole immediately vests ownership in a federally funded invention in the contractor, in this case Stanford University (See Cert Alert; IP Update, Vol. 13, No. 11).  On June 6, the Supreme Court answered it does not.  While Bayh-Dole clarifies the priority of allocation of rights as between the government and the contractor—all ownership rights stem initially from the inventor.

Background

Stanford sued Roche for infringement of three patents that claim methods for using the polymerase chain reaction (PCR) to measure the amount of HIV in blood samples and using those measurements to infer the effectiveness of antiretroviral drugs.

The standing question arose because Mark Holodniy, one of the named inventors of the patents, “signed multiple contracts defining his obligations to assign his invention rights.”   First, upon joining Stanford, Holodniy signed a Copyright and Patent Agreement (CPA) in which he agreed “to assign or confirm in writing to Stanford and/or Sponsors that right, title and interest in” any inventions he conceived of or first reduced to practice.  At the behest of Stanford, however, Holodniy also visited Cetus Corp., a company collaborating with Stanford, to acquire background knowledge about PCR technology.  In doing so, Holodniy signed a Visitor’s Confidentiality Agreement (VCA) with Cetus, which stated: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements” (emphasis added).

In 1991 Roche purchased Cetus’s PCR business, including its agreements with Stanford and its researchers, and began making HIV detection kits.  In 1992 Stanford filed the patent application to which the three patents-in-suit claim priority.  After extensive negotiations between the two entities, Stanford filed suit against Roche in 2005.  In its defense, Roche alleged, inter alia, that it possessed ownership rights in the patents-at-issue and, as a result, Stanford lacked standing.  In response, Stanford argued that it was a bona fide purchaser and that the Bayh-Dole Act superseded any transfer of rights from Holodniy to Cetus.

The Federal Circuit Decision

The Federal Circuit found that Stanford did not possess standing to sue for infringement of the patents-in-suit because the CPA between Stanford and Holodniy was merely a promise to assign, while the VCA was a present transfer of Holodniy’s future inventions to Cetus.  (IP Update, Vol. 12, No. 10).  Thus, according to the Federal Circuit, “Cetus immediately gained equitable title to Holodniy’s inventions” and any subsequent assignment to Stanford was negated.  The Federal Circuit also dismissed Stanford’s claim that it was a bona fide purchaser.  Because “[a]n organization can be charged with notice of its employees’ assignments” the court found that “Stanford had at least constructive or inquiry notice of the VCA.”  Therefore, Stanford did not qualify as a bona fide purchaser.  Finally, the Federal Circuit rejected Stanford’s argument that “the Bayh-Dole Act negated Holodniy’s assignment to Cetus because it empowered Stanford to take complete title to the inventions.”  Rather, the Federal Circuit concluded that while Bayh-Dole empowers the government to take title to certain inventions under specified circumstances, it neither “automatically void[s] ab initio the inventors’ rights in government-funded inventions” nor “voids prior contractual transfers of rights.”  Similarly, “claiming title under Bayh-Dole does not override prior assignments.”

The Supreme Court

In affirming the Federal Circuit, Chief Justice Robert, writing for the majority, explained that since its genesis, U.S. patent laws have “operated on the premise that rights in an invention belong to the inventor” and that Bayh-Dole does not “displace” that norm and “automatically” vest title to federally funded inventions in federal contractors.

Specifically, the Supreme Court rebuffed the argument posed by Stanford (and supported by the United States as amicus curiae) that Bayh-Dole reorders the normal priority of rights in an invention conceived or first reduced to practice in the course of federally funded research by vesting title in such inventions to the federal contractor, i.e., the inventor’s employer.  As concluded by the Supreme Court, “nowhere in the Act are inventors deprived of their interest in federally funded inventions.  Instead the Act only provides that contractors may elect to retain title to any subjection invention” (emphasis added).

According to the provision of Bayh-Dole, granting a right to “elect” confirms that the act does not vest title.  Rather, as explained by Chief Justice Roberts, at the time of conception, rights to an invention lie with the inventor.

Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not.  Our precedents confirm the general rule that rights in an invention belong to the inventor.  It is equally well established that an inventor can assign his rights in an invention to a third party.  Thus, although others may acquire an interest in an invention, any such interest – as a general rule – must trace back to the inventor.

In accordance with these principles, we have recognized that unless there is an agreement to the contrary, an employer does not have rights in an invention ‘which is the original conception of the employee alone.’  Such an invention ‘remains the property of him who conceived it.’  In most circumstances, an inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights.

Dissent and Concurrence

Justice Breyer, joined by Justice Ginsburg, dissented.  Quoting the order granting cert, Justice Breyer noted “the question presented is whether rights in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor’s rights to a third party.”

In the view of the dissent, “the answer to this question is likely no.  But because that answer turns on matters that have not been fully briefed (and are not resolved by the opinion of the Court) [Justice Breyer] would return this case to the Federal Circuit for further argument.”

The dissent explained that Congress enacted Bayh-Dole “against a background norm that often, but not always, denies individual inventors patent rights growing out of research for which the public has already paid.  This legal norm reflects the fact that patents themselves have both benefits and costs.”  Citing back to the letters of founding fathers Jefferson and Madison to the effect that patent monopoly was a “compensation” for the “community benefit” that a patent bestowed, Justice Breyer explained “the importance of assuring this community ‘benefit’ is reflected in legal rules that may deny or limit the award of patent rights where the public has already paid to produce an invention, lest the public bear the potential costs of patent protection where there is no offsetting need for such protection to elicit that invention.  Why should the public have to pay twice for the same invention?”

Justice Sotomayor agreed with the majority because Stanford didn’t raise the issues raised in the dissent, but noted her understanding that “the majority opinion [would] permit consideration of these arguments in a future case.”

Case Law Review: Board of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.

Board of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc. 563 F. Supp. 2d 1016 (N.D. Cal. 2008)

The United States Supreme Court has granted a petition for a writ of certiorari in a case with the potential to have a significant impact on the commercialization of technology where government funding has been provided in its development.  The Supreme Court has agreed to hear docket number 09-1159, Board of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.  The question presented in the case is:  “Whether a federal contractor university’s statutory right under the Bayh-Dole Act, 35 U.S.C. §§ 200-212, in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor’s rights to a third party.”

The Bayh-Dole Act was passed and signed into law in 1980.  The Act states:

It is the policy and objective of the Congress 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 development 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 without unduly encumbering future research and discovery; 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. 35 U.S.C. § 200.

The Act, among other things, requires the disclosure of inventions made subsequent to the use of federal funding at nonprofit organizations and small businesses.  35 U.S.C § 202.  Nonprofit organizations, as defined by the Act, include universities and other institutions of higher learning.  35 U.S.C. § 201.  The Act further provides for a process of election of rights by inventors, small businesses, nonprofit organizations, and the federal government.  35 U.S.C. §§ 202-20.  The election of these rights and the role of the Bayh-Dole Act in joint University-private business technology development relationships is at issue in this case.

The background of the case is helpful to understand the question presented to the Supreme Court.  The case is, at its essence, a patent infringement suit.  The subject matter of the patents of the underlying suit includes methods of measuring Human Immunodeficiency Virus (“HIV”) in blood samples and correlating the measurements to the effectiveness of antiretroviral drugs.  The technology of the patents was developed between Stanford University and Cetus, a company involved in the development of biochemical measurement techniques.  Roche Diagnostics Operations, Inc. (“Roche”) purchased part of Cetus’s business in 1992, including its agreements with Stanford and the related researchers.  One researcher instrumental in the development of the patented invention is Mark Holodniy.

Holodniy joined Stanford’s research laboratory as a Research Fellow in the Department of Infectious Disease in 1988.  When joining the lab, Holodniy signed a copyright and patent agreement that obligated Holodniy to assign his inventions to the University.  Upon beginning to work on the development of the technology of the patents, Holodniy interacted with and visited Cetus’s researchers and laboratories to learn biochemical measurement techniques.  Before beginning that interaction, however, Holodniy signed a visitor’s confidentiality agreement with Cetus.  The agreement stated that Holodniy will “assign and does hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions, and improvements” that Holodniy may devise as a consequence of the relationship.  See Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 837 (Fed. Cir. 2009).

Holodniy went on to develop the technology that resulted in four patents relating to HIV detection kits and their use.  Roche, after its purchase of Cetus’s interest in HIV detection, began manufacturing kits using the technology of the patents.  Stanford, after applying for the patents at issue, elected under the Bayh-Dole Act to retain title to the inventions and granted the federal government a license to the technology.  The election and grant of a license was required of Stanford because of the provisions under the Bayh-Dole Act for technology development that is completed, as was the case here, with the help of federal funding.

Stanford then approached Roche and asserted its ownership of the inventions and offered Roche an exclusive license.  But, after four years of negotiating, talks broke down and Stanford filed suit in the Northern District of California alleging infringement of its patents.  Roche counterclaimed and asserted defenses against the suit.

The District Court granted Roche’s motion that the asserted claims were invalid for obviousness.  Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 563 F. Supp. 2d 1016 (N.D. Cal. 2008).  Stanford appealed the ruling, and Roche cross-appealed as to the parties’ respective rights in the patents.  The Federal Circuit then vacated the District Court’s ruling of invalidity but, to Stanford’s dismay, ordered the suit dismissed for Stanford’s lack of standing, due to Roche’s ownership interest in the asserted patents.  Stanford, 583 F.3d at 849.  The Federal Circuit held that the visitors confidentiality agreement between Holodniy and Cetus was an immediate grant of equitable title to Cetus of Holodniy’s interest in his inventions which Roche subsequently purchased.  Id. at 842.  The Court further decided that the copyright and patent agreement between Stanford and Holodniy, in contrast, was only a “promise to assign rights in the future, not an immediate transfer of expectant interests.”  Id. at 841.  With this contract language interpretation, the Court found that Roche had an ownership interest in the asserted patents, and this resulted in Stanford’s lacking standing for the underlying suit.  Dismissal was therefor ordered.  Id. at 848.  The Court considered the impact of the Bayh-Dole Act on the ownership interests of the parties, and it ultimately decided that the statutory scheme of the Act did not void the assignment of Holodniy’s rights in the invention to Cetus and the subsequent purchase by Roche.  Id. at 844-45.

The Supreme Court has agreed to hear the case regarding the question concerning the Bayh-Dole Act.  Where the traditional law topics of contracts and property would normally guide the decision in a case like this, the Bayh-Dole Act has injected some uncertainty and disagreement.  On one side is a party such as Roche, who argues that the Bayh-Dole Act was intended to foster technology development relationships that use federal funds.  This would include private organizations such as Roche.  Roche argues that, if the government or the nonprofit organization such as Stanford can trump an assignment made by an inventor to that private organization, then private organizations will be reluctant to cooperate with universities, and the development of technology will suffer.  See Appellee, Roche, Reply Brief to Fed. Cir. 23-24.

On the other side are parties such as Stanford who argue that the cost of the federal funds is a restricted right to the inventions produced by the individual inventors.  The argument further states that the nonprofit organization may elect to retain rights and the individual inventor may retain rights but only subject to the provisions and outlined process of the Act.  See Appellant, Stanford, Br.-Markman to Fed. Cir. 50-53.  Stanford argues that individual inventors who participate in federally funded projects covered by the Bayh-Dole Act have limited rights in their inventions, and thus, when Holodniy assigned his interest, he assigned only this limited interest, which was subject to Stanford’s election to retain ownership.  Id.

While the Supreme Court will take on this issue of statutory interpretation, the real problem between the litigants arose because of unclear agreements between the parties involved in the original technology development.  The Supreme Court, however, will likely act cautiously because of the influence of a decision regarding the Bayh-Dole Act on technology development relationships in the future.  While sophisticated organizations will learn how to deal with the legal environment after a decision is reached in this case, existing and future technology agreements and assignments may need revision or rethinking.

Practice Tip:

Always clearly define and clearly state the legal rights of all parties involved in a technology development agreement.  Further, whether you are involved in development projects involving federal funding or not, a review of technology agreements is likely a prudent course of action.

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