What you need to know

A recent US Supreme Court decision underscores the profound intellectual property risk associated with inartful drafting of employment agreements.  Under current law, minor variations in assignment language determine whether you do or do not own your employees’ inventions.  As Stanford University has learned in the decision, failure to use “magic language” can permit inventor employees to assign their inventions to someone else.

What you need to do

All employers and patent applicants should review their portfolios and employee agreements (including seemingly innocuous agreements between employees and third parties) to ensure that their ownership of intellectual property assets is not at risk.

The United States Supreme Court issued a decision this week in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. reminding us that very minor differences in employment agreement language can change everything when it comes to ownership of employee inventions.

Stanford hired a research fellow, Dr. Mark Holodniy, as an employee under an agreement in which he "agree[d] to assign" his discoveries to Stanford.  As part of his research for Stanford, Dr. Holodniy did a stint at Cetus Corporation, where he signed a Visitors Confidentiality Agreement that said he "will assign and do[es] hereby assign" his discoveries to them.

Dr. Holodniy's research led to inventions that relate to detecting levels of HIV in infected individuals, and can be used, for example, to monitor a patient’s response to therapy.  Stanford obtained patents on these inventions.  Separately, Cetus sold the inventions to Roche Molecular Systems, and Roche incorporated them in certain HIV diagnostic tests.  Stanford sued Roche for patent infringement.  Resolution of the dispute turned on whether Stanford or Cetus owned Dr. Holodniy's rights: if Stanford owned Dr. Holodniy's rights in the inventions, then Roche owed royalties to Stanford; if Cetus owned Dr. Holodniy's rights, no royalties were owed.  The difference in Stanford’s versus Cetus’ assignment language became the critical question.

The Supreme Court held that Cetus' language wins.  The Court pointed to a prior decision by the Court of Appeals of the Federal Circuit in Filmtec Corporation v. Allied-Signal, Inc. and UOP, Inc. holding that language agreeing to assign, as had been used by Stanford, was merely a promise to assign in the future, whereas Cetus' "do[es] hereby assign" language in fact transferred the inventions automatically as soon as they were made.  This modest language difference controlled the case.  Cetus owned the inventions; Roche did not owe royalties.

Much press has been devoted to the Stanford v. Roche decision and the question of whether it singles out and penalizes universities.  This question arises because at least some of the research done at Stanford was federally funded and therefore subject to the Bayh-Dole Act, which says that recipients of federal funding may “elect to retain title” to inventions made using the funding.  Stanford had made such an election with respect to Dr. Holodniy’s inventions.  As part of its position that it, and not Cetus, owned the inventions, Stanford argued that the Bayh-Dole Act gave title to Stanford regardless of any agreement language.  The Court disagreed.  The Court held that the Bayh-Dole Act does not grant any ownership rights; basic patent law provisions vesting ownership in inventors, absent agreements to the contrary, control.  The agreement language, therefore, is paramount.

Patent holders and applicants should not be distracted by the discussion of the Bayh-Dole Act into believing that the Stanford v. Roche  decision relates only to inventions made with federal funding.  To be clear, the decision applies to all patent applicants.  The fundamental holding is a reminder that there is a right way and a wrong way to craft patent assignment provisions.  Inartful drafting can put your ownership rights at risk.

Interestingly, the Supreme Court was not unanimous in its holding in Stanford v. Roche.  Justice Roberts filed a dissent, joined by Justice Ginsburg, that points out the absurd implications of holding that such trivial linguistic changes control a critically important outcome.  Moreover, Justice Sotomayor filed a concurrence agreeing with the dissent that the Filmtec linguistic rule raises "concerns."  Justice Sotomayor ends her concurrence by noting "I understand the majority opinion to permit consideration of these arguments in a future case."

So, stay tuned, as the rules may change.  For the moment, however, we encourage all employer patent holders and applicants to review their portfolios and the agreements relating to them to make sure you really do own your employees' inventions.