On June 6, 2011, in a rare instance where the U.S. Supreme Court had invited participation of the Solicitor General and addressed the rights of the federal government and its contractors to preempt the rights of individual inventors, the high court held that the Bayh-Dole Act does not automatically vest title to federally funded inventions in the federal government or government contractors, or reach through the federal agency-federal contractor relationship to permit either extension of federal governmental power to unilaterally divest from an individual inventor title to such inventions. The Court’s decision in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. underscores the universal importance of using precise language when crafting invention assignments, such as those often utilized in employment and consulting agreements, university patent policies, and other collaborative arrangements that contemplate the development and vesting of title to intellectual property.
The case arose from a dispute between Stanford University and Roche Molecular Systems, Inc., a subsidiary of Roche Diagnostics Corporation. In 1988, Stanford hired Dr. Mark Holodniy to conduct research regarding methods for quantifying HIV levels in blood. The research was funded in part though federal grants from the National Institutes of Health (NIH). As a condition of his employment, Dr. Holodniy executed the University’s Copyright and Patent Agreement (CPA), which stated “I agree to assign” to the University “all of my right, title and interest in” any inventions resulting from that employment. Under the CPA, he also agreed to not enter into any agreement that would conflict with the terms of the CPA. While still employed at Stanford, Dr. Holodniy conducted research at a small biotech company, Cetus, which Roche later acquired. As a condition to gaining access, Dr. Holodniy signed Cetus’s Visitor Confidentiality Agreement (VCA), which provided that he “will assign and do[es] hereby assign to Cetus all of [his] right, title and interest in each of the ideas, inventions and improvements” made “as a consequence of [his] access” to Cetus. During his time at Cetus, Dr. Holodniy, together with Cetus employees, devised a novel HIV quantification method. Following his research at Cetus, Dr. Holodniy returned to Stanford and continued testing and refining the method. Stanford went on to obtain additional written assignments from Dr. Holodniy and other Stanford employees and secured three patents to the method. Roche subsequently acquired the assets of Cetus pertaining to the method, conducted clinical trials, and commercialized HIV test kits based upon the quantification method developed, in part by Dr. Holodniy, at Cetus. Stanford sued Roche, claiming that the test kits infringed Stanford’s patents. Roche responded that it co-owned the patented methods and thus Stanford lacked standing to sue.
The District Court for the Northern District of California found in favor of Stanford, concluding that although the VCA operated to assign to Cetus any rights that Dr. Holodniy had in the patented invention, Dr. Holodniy had no interest as an individual inventor because part of the invention had been funded by federal grant money, thus implicating the Bayh-Dole Act, which effectively vested all of Dr. Holodniy’s rights in Stanford. See Stanford v. Roche 487 F.Supp. 2d 1099, 1119 (N.D. Cal. 2007). On appeal, the Federal Circuit reversed, concluding that the language “agree to assign” in the CPA reflected a mere promise to assign rights in the future, not an immediate transfer of expectant interests. Stanford v. Roche 583 F. 3d 832, 842 (Fed. Cir 2009). Whereas by contrast, the language in the VCA “do hereby assign” effected a present assignment of Dr. Holodniy’s present and future inventions to Cetus. See id. The Federal Circuit further rejected the District Court’s analysis of the Bayh-Dole Act, explaining that the Act does not void an inventor’s rights in government-funded inventions or contracts (such as the VCA) that attempt to transfer those rights. See id. at 843. The Supreme Court granted certiorari on the issue of Roche’s co-ownership claim in the context of whether the Bayh-Dole Act worked to reorder those ownership interests. Stanford v. Roche, 563 U.S. ___ at 6 (2011).
In a 7-2 decision, Chief Justice John G. Roberts, Jr., delivered the Court’s opinion. Anchoring the opinion to fundamental notions of jurisprudence with references to the founding fathers, the first Congress, and even the first patent, issued to Sam Hopkins for a method for making potash, the Chief Justice wrote, “Although much in intellectual property 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.” 563 U.S. at 6. The Court rejected Stanford’s argument that the language in the Act enabling the federal contractor to “elect to retain title to … any invention of the contractor conceived or first reduced to practice … under a funding agreement” demonstrates Congress’s intent that a federal contractor may unilaterally acquire an inventor’s interest to a federally funded invention. In reaching its result, the Court analyzed instances where Congress intended to abandon the general rule that the presumptive owner of a patentable invention is the single human inventor in favor of governmental rights, such as through legislation dealing with nuclear and atomic energy contracts and contracts with NASA. See Id. at 8. In such cases, the Court explained, Congress had used express language to make clear that title to such inventions “shall vest in the United States.” See id. See also 42 U.S.C. Sections 2182 and 5908. Absent similar clear language in Bayh-Dole, the Court rejected Stanford’s arguments to construe “retain” as providing it with any automatic vesting of title by operation of law or any right to unilaterally acquire an employee-inventor’s rights in his or her invention.
The case is also notable in that it represents a somewhat rare instance in which the Solicitor General submitted a brief at the Court’s invitation. Brief for United States as Amicus Curiae, p.1. Interestingly, at the risk of executive sanction, the Court declined to adopt the administration’s views that Bayh-Dole reorders the ownership of inventions to presumptively put the federal contractor first, the federal government second, and the inventor at the back of the line. 563 U.S. at 8, See also, Timothy R. Johnson, “The Supreme Court, the Solicitor General, and the Separation of Powers” at 428 (American Politics Research. Vol. 31, #4 (July 2003) (discussing occurrence of Supreme Court invitations to executive branch to submit briefs as a function of the Court’s perception of executive political capital).
Justice Stephen G. Breyer, joined by Justice Ruth Bader Ginsburg, dissented, essentially siding with the reordering of rights advocated by Stanford and the United States. Justice Breyer wrote that the Act should be construed to ensure that government-funded inventions provide a community benefit. Citing legislation such as the Executive Order 10096, which provides that government owns the inventions of government employees without need of an assignment, and the nuclear and aerospace legislation also cited by the majority, Justice Breyer dissented that in general, individual inventors should be denied rights “growing out of research for which the public has already paid.” Suggesting that payment may not even be a requisite to his conclusion, he further wrote, “but patents sometimes mean unnecessarily high prices or restricted dissemination; and they sometimes discourage further innovation and competition by requiring costly searches for earlier related patents or by tying up ideas, which, were they free, would more effectively spur research and development.” See id. at 2 (Breyer, J., dissenting) (emphasis added).
Although the decision can clearly be viewed as a victory for the individual inventor and a defense of the rights of the individual inventor in his or her inventions, both the Federal Circuit and the majority’s decisions are also important to underscore the need for precise drafting in agreements relating to the transfer of intellectual property rights. The Federal Circuit made clear in its decision that anything less than words of present assignment are inadequate to create a valid transfer of rights in a patentable invention. 583 F. 3d at 842. And, although not specifically an issue on which the Supreme Court granted certiorari, the majority concluded its opinion by suggesting that if only Stanford had obtained a valid assignment when it initially hired Dr. Holodniy, the practical result for which Stanford advocated could have been achieved, only “without violence to the basic principle of patent law that inventors own their own inventions.” Id. at 15.