Today the Supreme Court ruled that the Bayh-Dole Act, 35 U.S.C. §§ 200-212, does not automatically vest a university with title to a faculty invention made in the course of federally-funded research. Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., Case No. 09-1159 (June 6, 2011). In a 7-2 decision delivered by Chief Justice Roberts, the Court affirmed the Federal Circuit's ruling that the university inventor had assigned the invention to Roche Molecular Systems before his employer, Stanford University, managed to obtain title as required by its university patent policy. We reported on the oral argument in a client advisory on April 21.

Unfortunately for Stanford, its patent policy at the time provided that faculty and research staff "agree to assign," rather than "hereby assign," their inventions to the university. Research fellow Dr. Holodniy made a written patent assignment to Cetus (later acquired by Roche) before making the assignment to Stanford required by the Stanford policy. The Federal Circuit held that, while the researcher may have had an obligation to assign to Stanford, he had not yet done so, and the assignment to Cetus was effective.

Universities can, and almost universally do, require faculty to assign inventions to the institution, often allowing the inventor to share in royalties. The Bayh-Dole Act generally allows a federal contractor or grantee, such as a university, to retain patent rights in a "subject invention," with the government obtaining a perpetual, royalty-free license for government use. A "subject invention" is one conceived or first actually reduced to practice in performance of a federal funding agreement. With the support of friends of the court briefs from the U.S. Solicitor General and the university community, Stanford argued before the Supreme Court that the Bayh-Dole Act automatically vests patent title in a university performing federal research, thereby trumping any purported assignment of the same invention by the inventor to a third party.

The Court majority disagreed, focusing on the fundamental principle of the Patent Act that vests title in inventors – here Dr. Holodniy. While universities typically do obtain title, that is by assignment from the inventor pursuant to university policy, not by statutory mandate. Contrary to Stanford's contention, the Court ruled that Bayh-Dole allocates patent rights as between the institution and the government, not between the inventor and the institution. If the institution fails to obtain a timely assignment from its employee, the Bayh-Dole Act does not rescue it from that error.

The two dissenters, Justices Breyer and Ginsburg, would have returned the case to the Federal Circuit for further briefing. They stopped just short of stating they would have ruled for Stanford, expressing instead "tentative" views that the Court's interpretation of Bayh-Dole was "likely" wrong.

The good news for universities, other research institutions, and companies performing federal research and development, is that they can protect their ownership interest by requiring a valid advance assignment of inventions as a condition of employment. Unfortunately, during a transitional period in which some institutions revise their patent policies, some may find themselves in a position akin to Stanford's as to certain inventions that predate the revisions.