Stanford v. Roche
The Supreme Court held Monday, 7-2, in a decision authored by Chief Justice Roberts that the Bayh-Dole Act does not automatically vest title to federally funded inventions in federal contractors or unilaterally authorize contractors to take title to such inventions. Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., et al ., 563 U.S. _____(2011). Justices Breyer and Ginsburg dissented in a separate opinion. Because the Bayh-Dole Act does not affect the ownership of inventions that obtain under private contracts, the status of legal title to an invention requires careful examination of particular language of and the practice under existing agreements.
The dispute had its genesis in the fact that a Stanford research fellow was simultaneously obligated under two contracts which both contained language relating to ownership of inventions. The research fellow, Dr. Mark Holodniy, first signed an agreement with Stanford, stating, “I agree to assign” to Stanford all “right, title and interest in” inventions resulting from employment at the university. Dr. Holodniy’s employment with Stanford focused on developing PCR (polymerase chain reaction) methods for quantification of HIV in blood. PCR was a breakthrough technology that had been developed by Cetus and, because Dr. Holodniy was unfamiliar with PCR, his Stanford supervisor arranged for him to conduct research at Cetus to learn about PCR methods. At Cetus, Dr. Holodniy was asked to sign and did sign a Visitor’s Confidentiality Agreement , stating, “I will assign and do hereby assign” to Cetus all “right, title and interest in each of the ideas, inventions and improvements” made “as a consequence of my access” to Cetus. While at Cetus, Dr. Holodniy devised a PCR-based procedure for measuring the amount of HIV in a patient’s blood. When he returned to Stanford, he tested the method with his colleagues, and Stanford filed for and obtained three patents relating to the process.
In 2005, Stanford filed suit against Roche (who had acquired Cetus’ PCR-related technology, including the right obtained from Dr. Holodniy) alleging that Roche’s HIV test kits infringed Stanford’s patents. Roche responded by asserting that it was a co-owner of the HIV quantification procedure based on Dr. Holodniy’s explicit assignment of his rights in the Visitor’s Confidentiality Agreement. Stanford claimed that Dr. Holodniy had no rights to assign because the university’s HIV research was federally funded, giving the school superior rights in the invention under the Bayh-Dole Act.
The United States District Court agreed with Stanford that Dr. Holodniy had no right to assign to Cetus under the Bayh-Dole Act. The Court of Appeals for the Federal Circuit reversed, concluding that Dr. Holodniy had the right to assign to Cetus and had actually assigned legal title to his invention to Cetus, not Stanford, and that the Bayh-Dole Act did not automatically void or alter the inventor’s rights in an invention.
In the Supreme Court, Stanford noted that language in Section 202(a) of the Bayh-Dole Act permitted the contractor to “elect to retain title to any subject invention,” which itself was defined in Section 201(e) of the Act as “any invention of the contractor conceived or first actually reduced to practice in performance of work under a funding agreement.” Stanford urged that these two provisions, taken together, should be interpreted to include all inventions made by the contractor’s employees with the aid of federal funding, regardless of the presence (or absence) of an explicit assignment from the inventor.
The Court disagreed, noting “the general rule that rights in an invention belong to the inventor” and stating that, in passing the Bayh-Dole Act, Congress did not intend to “subtly set aside two centuries of patent law in a statutory definition.”
The Court rejected the argument that “mere employment is sufficient to vest title to an employee’s invention in the employer” so that the phrase “‘invention of the contractor’ — does not automatically include inventions made by the contractor’s employees.”
The Court also noted that Stanford’s position would require that the word “retain” be construed idiosyncratically to mean “acquire” or “receive” and was particularly troubled that “Stanford’s contrary construction would permit title to an employee’s invention to vest in the University even if the invention was conceived before the inventor became an employee, so long as the invention’s reduction to practice was supported by federal funding. It also suggests that the school would obtain title were even one dollar of federal funding applied toward an invention’s conception or reduction to practice.” Rather, the Court concluded:
Only when an invention belongs to the contractor does the Bayh-Dole Act come into play. The Act’s disposition of rights—like much of the rest of the Bayh-Dole Act—serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.
Significantly, Stanford did not challenge on appeal the Federal Circuit’s conclusion that the Cetus agreement’s language of present assignment, though later in time than the Stanford agreement’s promise to assign, was the only language that conveyed legal title to the invention to Cetus. Therefore, the Supreme Court expressly declined to pass on the correctness of that holding.
Dissenting Justices Breyer and Ginsburg were sharply critical of the Federal Circuit’s interpretation of the competing ownership provisions, and the rule announced in FilmTec Corp. v. Allied-Signal, Inc., 939 F. 2d 1568 (Fed. Cir. 1991), calling it a “technical drafting trap for the unwary.” In FilmTec, the Federal Circuit created a distinction between contract language that automatically conveyed legal title to an invention and language that merely created an equitable expectancy of title, but required a further act to convey legal title. The Federal Circuit relied upon FilmTec to conclude that the later Cetus agreement “trumped” the Stanford agreement, which the Supreme Court dissent criticized as counter to the intent of the parties to the Stanford agreement as well as the drafters’ reasonable expectations regarding future likely interpretation. The dissent also noted concern about whether a contractor’s statutory right under the Act in inventions arising from federally funded research could be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor’s rights to a third party. Noting that the record was not fully developed on either issue, but arguing that the issues were sufficiently related to the question presented to be before the Court, the dissent would have remanded the case for further proceedings on these issues. While joining in the majority opinion, Justice Sotomayor also noted that the challenge to the contract interpretation issue was open to future parties in other cases.
The decision of the Supreme Court was not unexpected with respect to the narrow statutory interpretation question of the Bayh-Dole Act and, in that regard, the decision leaves present law and practice unchanged. However, the intense disagreement regarding the contract interpretation issues not presented to the Court (according to the majority) but sufficiently related and troubling (according to the dissent) highlights the importance of careful review of language and practice under all agreements regarding ownership of inventions at several key points.
Note first that the outcome did not turn on employment status even where there was an employee agreement to assign inventions. As the outcome of this case shows, it may be fatal to assume that having employee promises to assign in place is the end of the matter.
Also note that the Stanford agreement apparently contained a provision prohibiting the employee from entering into any agreement in conflict with the Stanford agreement, but query whether that provision was ever specifically pointed out to or explained to the researcher. Consider also the confusing situation that may have arisen when the Stanford employee was assigned to work at a private company as part of his employment at Stanford, apparently without any research agreement between the institutions that addressed the very foreseeable possibility that a Stanford employee would make an invention while working at Cetus.
The key to avoiding such problems, in addition to being aware of any “technical drafting traps for the unwary,” and a corporate best practice is to implement a program of regular and specific review and explanation of employee obligations with the employees, not only on ownership of inventions but on all employee obligations, including confidentiality, conflicts of interest, work place conduct and other employment policies.
For example, at the time of hiring, employers should ask individuals to identify all contracts that they have signed and review them with the potential employee for language relating to ownership of inventions. While employed, employers should instruct employees that they must notify the employer before they sign any other agreements that relate to the work of the employer and periodically remind employees of the obligations, requiring an express answer from the employer to indicate that the “reminder” actually got through the noise level of the inbox and was understood. Employers should review the status of invention disclosures and assignments regularly but without fail at the time of filing of patent applications. Finally, all of the same issues should be addressed specifically when an employee changes status, e.g., involvement in a joint research undertaking with includes access to third party facilities or information, promotions, and exit interviews.