Is there a practical difference between “agreeing to” assign rights and actually assigning intellectual property rights? According to the Federal Circuit, and unopposed by the Supreme Court, yes. So important is the form of the language used in an intellectual property assignment clause that Justice Breyer warned that they present a “technical drafting trap for the unwary.” Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.Ct. 2188, 2203 (2011) (J. Breyer, dissenting) (hereinafter, Stanford II).

Background

The patents at issue involved methods for detecting HIV in human blood using PCR techniques, a way to analyze biological samples. Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 583 F.3d 832, 837 (Fed. Cir. 2009) (hereinafter, Stanford I). The technology was developed by researchers at Stanford University and Cetus Corp., a company involved with PCR, and a patent application was filed in 1992. Id. The research was funded in part by a Federal grant from the National Instatute of Health (NIH). Id. at 838. Dr. Holodniy, one of the inventors, joined Stanford in 1988 as a research fellow and signed an agreement to assign his patent rights to Stanford. Id. at 837. Holodniy began visiting Cetus to learn about PCR, and in 1989 signed an agreement that assigned his patent rights to them. Id.

In particular, the agreement between Holodniy and Stanford stated: “I agree to assign or confirm in writing to Stanford and/or Sponsors [the] right, title and interest in . . . such inventions as required by Contracts or Grants.” Id. at 841. In contrast, the agreement with Cetus used different language: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements.” Id. at 842.

As government funding was used, Stanford elected to retain rights in the invention under the Bayh-Dole Act. Id. at 838. In a presentation at Cetus’s successor in interest, Roche, Stanford offered Roche a license to the patents at issue in the lawsuit. Id. Negotiations for a license continued until 2004, but were ultimately unsuccessful. Id. Stanford then brought suit in 2005, where Roche contested Stanford’s ownership of the patents in suit. Id. However, the district court dismissed Roche’s ownership claims as barred by the statute of limitations and found the claims invalid. Id. Both issues were appealed. Id. at 838 39.

Federal Circuit Decision

The Federal Circuit noted that the ownership issue had been raised as both a declaratory judgment counterclaim and an affirmative defense challenging standing. Id. at 840. As standing can be challenged at any time, the Federal Circuit found the issue was preserved. Id. at 841. The Federal Circuit applied the FilmTec rule and found that, although Stanford had an earlier-in-time agreement, the language of Roche’s agreement granted an immediate right in the patent. Id. at 841 42. Therefore, Stanford’s ownership was defective and they did not have standing to bring suit. Id. at 842, 848 49.

In particular, the court drew a distinction between the language used in the two assignment, i.e., “I agree to assign” and “I will and do hereby assign.” While the latter “immediately granted equitable title to [the] inventions,” the former did not. Stanford I, 583 F.3d at 842. Because of this distinction, Stanford lost their rights to the invention, and thus the lawsuit. Id. at 841 42.

One challenge Stanford raised was that the Bayh-Dole Act had granted Stanford a right of second refusal such that if the government refrained from exercising its rights in federally funded research, Stanford had the next place in priority, not Cetus. Id. at 844 45. The Federal Circuit disagreed, and found that when Stanford provided notice to the government to retain rights in the research, it was to whatever rights were left, subject to the assignment to Cetus. Id. Stanford was second in line because Cetus’s agreement had the critical language “do hereby assign.” Id. at 848 49.

Supreme Court Decision

In 2011, the Supreme Court handed down the decision in Stanford II affirming the Federal Circuit decision from below. Stanford II, 131 S.Ct. at 2199 (2011). While some commentators expected the Supreme Court to overturn this ruling, it did not – the distinction in assignment language still stands today. Stanford II, 131 S.Ct. at 2188, n.2 (“Because the Federal Circuit’s interpretation of the relevant assignment agreements is not an issue on which we granted certiorari, we have no occasion to pass on the validity of the lower court’s construction of those agreements.”).

Instead, the majority opinion dealt solely with the Bahy-Dole Act issue. In dissent, Justice Breyer, joined by Justice Ginsburg, expressed concern that the current rule regarding the language of assignment clauses “makes too much of too little.” Id. at 2202 03. Justice Breyer was also concerned that this rule “undercuts the objectives of the Bayh-Dole Act.” Id. at 2203. Further, “[w]hile the cognoscenti may be able to meet the FilmTec rule in future contracts simply by copying the precise words blessed by the Federal Circuit, the rule nonetheless remains a technical drafting trap for the unwary.” Id. at 2203. In like manner, Justice Sotomayor drafted a concurrence explicitly expressing concern with the Federal Circuit’s FilmTec rule. Id. at 2199.

Conclusion

In view of Stanford II, employers may be well served by reviewing their employment and patent assignment agreements to verify that important language - such as “do hereby assign” - is used in those agreements, rather than potentially looser alternatives.