On February 28, 2011, the Supreme Court heard oral argument in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., Case No. 09-1159, wherein the parties sparred over the scope of a federal contractor university's statutory right to elect to retain title to a "subject invention" under the Bayh-Dole Act, 35 U.S.C. §§ 200-212. This update summarizes the Justices' commentary during oral argument and provides thoughts about best practices regardless of how the Court ultimately rules.
The facts of the case are as follows. In 1988, a Stanford University Research Fellow, Dr. Holodniy, signed a Copyright and Patent Agreement (CPA) which contained a future assignment whereby he "agree[d] to assign or confirm in writing to Stanford and/or Sponsors that right, title and interest in ... such inventions as required by Contracts or Grants." 583 F.3d at 837, 841. The following year, Dr. Holodniy signed a Visitor's Confidentiality Agreement (VCA) with Cetus Corporation, a Stanford collaborator, which contained a present assignment which stated that Dr. Holodniy "'will assign and do[es] hereby assign to CETUS, [his] right, title, and interest in each of the ideas, inventions and improvements' that [Dr. Holodniy] may devise 'as a consequence of' his work at Cetus," id. Dr. Holodniy subsequently invented a PCR-based assay.
Roche purchased Cetus's PCR business in 1991. The next year, Stanford applied for a patent on the above-described invention and, in 1995, elected to retain title to the invention pursuant to the Bayh-Dole Act, which Act allows a nonprofit organization, such as a university, to "elect to retain title" to an invention "conceived or first actually reduced to practice in the performance of work under a [federal government] funding agreement" so long as certain prior requirements are satisfied. Id. at 838. The government retains certain limited rights in these inventions. Three patents subsequently issued on the application, one each in 1999, 2003, and 2006. Id.
After negotiations with Roche over this patent portfolio failed, Stanford filed suit in district court alleging that Roche's sale of certain HIV detection kits infringed its patents. Id. Roche counterclaimed asserting, inter alia, that Roche had ownership rights in the patent due to its purchase of Cetus's PCR business. Id. The district court ultimately agreed with Stanford that the Bayh-Dole Act "empowered Stanford to take complete title to the inventions," id. at 844, but found the patents invalid. Stanford appealed and Roche filed a cross-appeal on the ownership issues, id. at 836-37. On appeal, the Federal Circuit rejected Stanford's view of the Act. Id. at 842. Stanford then petitioned for a writ of certiorari.
Stanford urges on appeal that under § 202(a) of the Act, title to the invention vested in Stanford, given that Stanford had satisfied all of the necessary prerequisites required by the Act. Petr. Br. at 30-34. Thus, Stanford argues, it should be able to "retain title" to the invention despite Dr. Holodniy's assignment to Cetus under the VCA. Id. In short, Stanford believes "[t]he [Bayh-Dole] Act altered the default ownership of a federally funded patent as between the Government and the research institution. It did not make the ownership of either subordinate to rights of the inventor." Id. at 26.
Roche, by contrast, urges that the Act does not vest title in a contractor given that the Act applies only to inventions owned by the contractor, and under traditional patent law theories the inventor, not his employer, is presumed to be the patent owner. Roche interprets "retain" as meaning "to keep hold or possession." Id. at 22. This and other statutory provisions, Roche argues, viewed in connection with Congress's failure to include any express vesting language in the Act, id. at 23-26, and the regulations promulgated in relation thereto, id. at 26-36, prove that "[n]othing in the Bayh-Dole Act purports to upset the ordinary patent-law processes by which inventions are owned and assigned." Id. at 15.
Based on the questions posed by the Justices at oral argument, one commentator believes that the Court seemed "skeptical of [a] federal interest in government-funded inventions." Justices Scalia and Alito, for example, seemed persuaded that the ordinary and plain meaning of "retain" cuts strongly against Stanford's position, as did the fact that Congress failed to expressly state that title vests automatically in contractors. Other Justices seemed unwilling to read in a vesting requirement given that the federal government routinely required and can "require assignments from employees to the university," and can condition federal funds on the basis that a university "get assignments of inventions by all the employees working on [a project]." Still others suggested that the vesting issue need not be reached as this case may be able to be resolved on a "simple contract basis" — i.e., on the "I will assign" and the "I hereby assign" language used, respectively, in the CPA and VCA.
Regardless of the Court's verdict, this case stresses the need for universities to use best practices when it comes to ownership of their employees' inventions. Namely, universities should ensure that they obtain written present assignments from their employees on inventions created by the employee during his or her scope of employment, even if such inventions are created, in whole or in part, with the assistance of federal funding. Assignments should be drafted in the present tense such that an employee "hereby assigns and agrees to assign to the university all of his or her right, title, and interest in and to all inventions, whether or not patentable, conceived or reduced to practice during, and arising out of, his or her appointment to the university's faculty, all applications for U.S. and foreign patents disclosing any such invention, all U.S. and foreign patents issued as a result of such applications, and the right to file a tent application in the name of the university or its designee on any such invention anywhere in the world."
Universities should also ensure that any companies collaborating with university employees on federally funded projects are on notice that the university's employees have assigned their rights in and to any inventions created in connection with any such projects to the university. Thus, universities could require employees to include the following in any third-party agreement: "The terms and conditions of this agreement, including any assignment of intellectual property rights hereunder, are subject to any and all policies of, and prior agreements with, [University] by which [employee] is bound." Such language will help ensure that a third party is not considered a later bona fide purchaser.
Finally, universities should consider how they approach licensing agreements with licensees. "[P]rospective licensees may push for deal structures that create tension with the institution's perceived or actual obligations under their grants, the act or their mission to benefit the public." This may be especially so if this case creates "other avenues to avoid the restrictions of Bayh-Dole, such as by [employees] entering into contracts that vest title with an entity other than the government funded institution."