The Supreme Court recently granted of a writ of certiorari in a long-running dispute between Stanford University and Roche Molecular Systems, a case which involves competing claims of patent ownership between a federally funded research institution and a for-profit corporation. The question on which the Court granted certiorari concerns whether the Bayh-Dole Act provides universities with statutory rights to inventions developed with federal funding that can pre-empt agreements between individual inventors and third parties. The Court framed the issue as follows:

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 separation agreement purporting to assign the inventory rights to a third party.

With billions of dollars of federal funds invested annually in scientific research, the outcome of this case is important to research institutions, their private partners, and patent practitioners. Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., No. 09-1159 (cert. granted Nov. 1, 2010).

The Federal Circuit’s Holding

Background

The three patents-at-issue are directed to methods for measuring HIV levels in human blood samples and correlating the measurements to the effectiveness of antiretroviral drugs using polymerase chain reaction (PCR) technology. The subject matter of the patents was developed in the late 1980s and early 1990s by researchers at Stanford and Cetus, a private company. A series of “Materials Transfer Agreements” between the lead Stanford researcher, Stanford, and Cetus allowed Stanford to use certain materials and information supplied by Cetus in exchange for licenses to any technology developed through the use of Cetus’s resources. One of the researchers, Mark Holodniy, made regular visits to Cetus. His work there led to the development of an assay that used PCR to measure the amount of plasma HIV RNA in human samples. Holodniy and the other Stanford researchers determined that HIV RNA, measured by PCR techniques, was a useful marker for measuring the effectiveness of antiretroviral drugs. These methods were the basis of the patents.

In 1991 Roche purchased Cetus’s PCR business and succeeded to the agreements with Stanford and the researchers. Roche began manufacturing PCR-based HIV detection kits. Stanford filed the parent application common to all three of the patents in May 1992. In June 1992 Stanford filed an invention disclosure for the HIV RNA assay with the National Institutes of Health, which had provided funding for Stanford’s HIV research. Stanford notified the government that it chose to retain title to the inventions under the Bayh-Dole Act in 1994. The patents issued in 1999, 2003, and 2006.

Stanford approached Roche about a possible licensing agreement in 2000. Talks continued for several years, but Stanford ultimately filed suit against Roche in 2005, alleging that Roche’s PCR HIV detection kits infringed the patents. Among other defenses and counterclaims, Roche asserted that Stanford lacked standing to sue on the patents, claiming that Roche possessed an ownership interest in the patents as well. Roche also pled the ownership theory as a declaratory judgment counterclaim and an affirmative defense.

The Agreements

Although the Federal Circuit agreed with the district court that the statute of limitations barred Roche’s claim for a declaratory judgment of ownership, it reversed the rejection of the ownership theory as a standing argument, noting that questions of standing can be raised at any time and are not subject to statutes of limitation. In the court’s view, the issue of ownership, and thereby whether Stanford had standing to sue on the patents, revolved around two agreements signed by Holodniy. He signed the first agreement, a “Copyright and Patent Agreement” (“CPA”), upon joining a Stanford research laboratory. By the terms of the CPA, Holodniy “agreed 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.” Citing previous Federal Circuit cases construing “agree to assign” language as only a promise to assign at a future time, the court reasoned that this language had not given Stanford title to the invention.

Holodniy executed the second agreement, a “Visitor’s Confidentiality Agreement” (“VCA”), when he began visiting Cetus. This agreement contained present-tense assignment language: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements.” The court held that this language was an assignment to Cetus of Holodniy’s future inventions. According to the court, Cetus’s equitable title vested no later than the date of filing for the common parent application for the three patents-in-suit, because there could no argument that Holodniy’s contribution to the invention was conceived later than that date. By this reasoning the court concluded Holodniy’s later assignment of his rights to the parent application to Stanford was therefore negated by Cetus’s first-vested title. The Court held that Roche, by its acquisition of Cetus, had an ownership interest in the patents that defeated Stanford’s standing to sue Roche for infringement.

The Bayh-Dole Act

The court also considered Stanford’s argument that the Bayh-Dole Act rendered Holodniy’s assignment of the patents to Cetus void because it allowed Stanford to take full title to the invention. As quoted from 35 U.S.C. § 200 by the court, the Bayh-Dole Act was passed “to promote the utilization of inventions arising from federally supported research or development” and “to ensure that the Government obtains sufficient rights in federally supported inventions.” The court explained that the Act “provided the Government with, at most, a discretionary option to [Holodniy’s] rights.”

The court rejected Stanford’s theory, stating that “Stanford was entitled to claim whatever rights were still available after the Government declined to exercise its option, including the rights of [Holodniy’s co-inventors].” In the court’s analysis the sticking point for Stanford was that Holodniy had transferred his rights to Cetus several years before Stanford notified the government that it elected to retain title; Stanford could not elect to retain rights that had been transferred. The court further clarified that the purpose of the Bayh-Dole Act did not automatically void Holodniy’s grant of rights to Cetus, because the primary purpose of the Act was to regulate the relationship between the government and grantees of government funding, not to regulate the relationship between grantees and their employees.

Stanford’s Petition for Certiorari

Stanford’s petition characterized the goal of the Bayh-Dole Act as alleviating the uncertainty regarding title to and promoting the commercialization of inventions that had been developed with the aid of federal funding. Stanford highlighted certain restrictions on the assignment to commercial entities of inventions subject to the Act. Quoting the Act, Stanford specifically pointed out a prohibition of assignment to commercial entities without government approval, and a requirement that royalties resulting from subject inventions be used to support scientific research and development. Stanford further claimed that the Act effected a quid pro quo in which universities could elect to retain ownership of an invention in exchange for agreeing “to use their best efforts to commercialize those inventions for public benefit,” which created certainty as to title in a manner that encouraged collaboration between universities (or other non-profit research institutions) and private companies.

Stanford’s petition then argued that the Federal Circuit’s decision allowed private companies to obtain the benefit of federal funding while avoiding the Act’s requirements on the use of royalties. Stanford argued that the Federal Circuit’s decision relied at heart on an erroneous premise, namely that “Holodniy had a right to make an assignment that could extinguish Stanford’s interests in the inventions.” Under Stanford’s theory the Act provided a right to claim title to federally funded inventions that could not be defeated by “a side agreement with a for-profit third party.”

With respect to the scope of inventions subject to the right provided by the Act, Stanford argued that the definition of subject invention – one that is “conceived or first actually reduced to practice” in the course of federally funded work – was broad and inclusive. Stanford’s formulation included inventions that were conceived without federal funding and later reduced to practice through the use of federal funding. Although Stanford argued that the inventions in dispute in the case were both conceived and reduced to practice with the use of federal funds, its argument as to scope would capture the inventions even if the work done by Holodniy at Cetus had not utilized any federal funds.

Stanford further argued that whatever ability Holodniy might have had to assign title was hampered by his earlier agreement with Stanford, even though that agreement might be viewed to be a promise to assign title in the future. Stanford also criticized what it perceived as the court’s lack of explanation as to why the present assignment to Cetus “could trump the Bayh-Dole Act’s restrictions as to how an inventor could claim title,” arguing that the Act allowed Holodniy to obtain title only if Stanford had declined to retain title. Stanford also raised the possibility that “the Federal Circuit’s holding means that the federal government has no rights unless the inventor consents.”

Roche’s Brief in Opposition

Roche’s opposing brief argued that the issue framed by Stanford – whether its rights to the inventions were “terminated unilaterally” by Holodniy’s assignment to Cetus – was not presented by the case. Roche argued that Stanford had not lost its rights to the inventions as a result of the Federal Circuit’s decision, but rather had remained a co-owner with Roche as a result of the assignments Holodniy’s co-inventors executed. As co-owner, Roche argued, Stanford had no reason to be concerned that Roche would keep the invention from the public: Stanford was free to practice the inventions in further research, and it was free to license the invention for whatever price it saw fit “without accounting” to Roche. Roche characterized Stanford’s real complaint as not being the sole owner of the invention, and accused Stanford of having anti-competitive motives. Roche also emphasized that the purpose of the Bayh-Dole Act was “to remedy an inefficient system under which the government hoarded inventions in ways that made it difficult for the private sector (including universities and industry) to use them without navigating labyrinthine bureaucracy.”

Roche went on to criticize Stanford’s argument that the Federal Circuit’s opinion could allow an inventor to terminate the government’s right in an invention. Roche pointed out a lack of reasoning on the issue in Stanford’s petition, as well as the fact that neither the arguments of the parties nor the court’s opinion had addressed “what would happen if the government exercised its statutory option to take title to an invention subject to a prior assignment by an inventor.” Roche noted that the court reserved the possibility that the government might have “a discretionary option to [the inventor’s rights].” It further noted that the court left open the possibilities that “the government might have remedies against Stanford or that Stanford might have remedies against Dr. Holodniy.”

Conclusion

The Supreme Court’s grant of Stanford’s petition in this case is the latest development in a long conflict that has generated volumes of commentary and debate. The resolution of this case will shape the direction of federal funding of scientific research and the practices of non-profit research institutions regarding their relationships with inventors and private partners. The complex issues of patent law, contract law and federal policy raised by both Stanford and Roche, as well as the competing interests of the constituencies represented by the parties, will certainly present the Court with challenging questions to answer when it hears arguments and rules in the first half of 2011.