On June 6, 2011, the Supreme Court ruled that, under the Bayh-Dole Act, an individual inventor retains the initial rights to any patentable inventions he creates while conducting federally-funded research, absent a specifically-worded agreement assigning those rights to his employer.  Board of Trustees of Leland Stanford Junior University v. Roche Molecular Sys., No. 09-1159, 2011 WL 2175210 (June 6, 2011). A copy of the Court’s decision is available here.

The Bayh-Dole Act, which was co-authored by Venable partner and former U.S. Senator Birch Bayh, allows universities, small businesses, and nonprofit organizations to retain and manage patent rights in inventions created in their laboratories as a result of federal research grants.  Prior to Bayh-Dole, inventions arising from federally-funded research typically became the property of the funding agency, which would make them freely available to all competitors under nonexclusive licenses. This system removed the core incentive of limited exclusivity afforded by the patent system, resulting in thousands of new inventions sitting on government shelves, undeveloped and never commercialized. The Bayh-Dole Act enabled universities, small businesses, and nonprofit organizations to freely retain patent rights in inventions created in their laboratories as a result of federal research grants. By granting universities, small businesses, and nonprofit organizations the right to own and exclusively license these inventions, the Bayh-Dole Act sought to ensure that new technologies arising from federally-funded research would be delivered to the marketplace as efficiently as possible. Since its enactment in 1980, the Bayh-Dole Act has given rise to countless new jobs, new pharmaceuticals, and new technologies.

The Stanford case involved a patent dispute between Stanford University and Roche Molecular Systems over whether a Stanford university scientist could unilaterally terminate the university’s ownership rights under the Bayh-Dole Act by separately assigning his individual rights to a private laboratory.  In the late 1980s, a Stanford researcher named Mark Holodniy conducted HIV research under a federal grant at Stanford while contemporaneously conducting similar research at Cetus, a private laboratory later acquired by Roche.  When Holodniy joined Stanford, he executed an agreement with Stanford stating that he “agree[d] to assign” any patentable inventions to the university.  Holodniy thereafter conducted similar research at Cetus, where he signed another agreement stating the he “will assign and do[es] hereby assign” inventions arising from his work to Cetus.  Holodniy’s research at Stanford and Cetus resulted in three patents claiming methods for quantifying HIV in human blood samples. A subsequent patent dispute arose between Stanford and Roche, and the Federal Circuit ruled that Holodniy’s Cetus agreement trumped his Stanford agreement because the latter was only a “promise to assign in the future,” while the former was an “immediate transfer of expectant interests.”

On appeal, the Supreme Court ruled 7-2 that the Bayh-Dole Act does not displace the traditional patent law principle that rights in an invention belong initially to the inventor.  In the Court’s words, “unless there is an agreement to the contrary, an employer does not have rights in an invention which is the original conception of the employee alone.”  The Court acknowledged instances in the past where Congress has divested inventors of their rights but noted that each time Congress did so in unambiguous terms which are absent from Bayh-Dole: “We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly.” 

The Stanford case is a cautionary reminder to federally-funded research institutions to exercise great care when drafting employee-assignment agreements.  As the Supreme Court noted, the Bayh-Dole system will “work pretty much the way” it always has so long as research institutions obtain effective assignment agreements from their employee-researchers—a practice already employed by most research institutions.  The strength of the Bayh-Dole Act—a statute that in its 30 years neither Congress nor the Courts have seen fit to alter—is its ability to accommodate the divergent interests of its beneficiaries, including contractor-institutions, inventors, and private businesses.  Each party must diligently fulfill its Bayh-Dole obligations to ensure that federally-funded inventions reach the medicine cabinet as quickly as possible.