The U.S. Supreme Court ruled today that Stanford University can’t win its patent infringement case against Roche Molecular Systems because Roche holds an ownership interest in the patents. Board of Trustees of The Leland Stanford Junior University v. Roche Molecular Systems, Inc., et al., Supreme Court of the United States, 563 U. S. ____ (2011).

Question Presented:

“Whether an inventor who is employed by a contractor that elects to retain rights in an invention may defeat the contractor’s right to retain title under the Bayh-Dole Act by contractually assigning his putative rights in the invention to a third party”

Stanford sued Roche and its subsidiaries in 2005, contending 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 the inventor’s assignment of his rights in a Visitor’s Confidentiality Agreement (VCA) that he signed. Stanford claimed that 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.

In 1988, Cetus collaborated with scientists at Stanford University’s Department of Infectious Diseases to test the efficacy of new AIDS drugs. Dr. Holodniy joined Stanford and signed an agreement stating that he “agree[d] to assign” to Stanford his “right, title and interest in” inventions resulting from his employment there.

Holodniy’s supervisor arranged for him to conduct research at Cetus to learn about PCR. As a condition of gaining access to Cetus, Holodniy was required to sign an agreement stating that he “will assign and do[es] hereby assign” to Cetus his “right, title and interest in . . . the ideas, inventions, and improvements” made “as a consequence of [his] access” to Cetus. Working with Cetus employees, Holodniy devised a PCR-based procedure for measuring the amount of HIV in a patient’s blood. Upon returning to Stanford, he and other Stanford employees tested the procedure. Stanford secured three patents to the measurement process.

The District Court held that the “VCA effectively assigned any rights that Holodniy had in the patented invention to Cetus,” and thus to Roche. But because of the operation of the Bayh-Dole Act, “Holodniy had no interest to assign.” The court concluded that the Bayh-Dole Act “provides that the individual inventor may obtain title” to a federally funded invention “only after the government and the contracting party have declined to do so.”

The Court of Appeals for the Federal Circuit disagreed. First, the court concluded that Holodniy’s initial agreement with Stanford in the Copyright and Patent Agreement constituted a mere promise to assign rights in the future, unlike Holodniy’s agreement with Cetus in the Visitor’s Confidentiality Agreement, which itself assigned Holodniy’s rights in the invention to Cetus.

Therefore, as a matter of contract law, Cetus obtained Holodniy’s rights in the HIV quantification technique through the VCA. Next, the court explained that the Bayh-Dole Act “does not automatically void ab initio the inventors’ rights in government-funded inventions” and that the “statutory scheme did not automatically void the patent rights that Cetus received from Holodniy.” The court held that “Roche possesse[d] an ownership interest in the patents-in-suit” that was not extinguished by the Bayh-Dole Act, “depriv[ing] Stanford of standing.” The Court of Appeals then remanded the case with instructions to dismiss Stanford’s infringement claim.

A majority of Supreme Court justices affirmed that holding.  Justice Roberts, writing for the Supreme Court, said Stanford wasn’t automatically entitled to its researcher’s rights to the invention and the researcher’s agreement with Cetus trumped the contract he had signed with Stanford.

Stanford had based its patent-rights claims on a 1980 federal law that gives schools the ability to retain patent rights on inventions created with federal funding. Stanford argued that universities’ ownership of countless inventions could be threatened if the school loses the case. The current administration and several leading universities filed briefs supporting Stanford’s high-court appeal:

“Here, Holodniy had no patent rights to assign to Cetus because title to the invention vested in Stanford and Stanford exercised its Bayh-Dole rights. The court of appeals decision- which holds that Holodniy’s assignment to Cetus limited the patent rights that Stanford could assert under the Bayh-Dole Act- turns the Act’s framework on its head.” ~Solicitor General

The University and Small Business Patent Procedures Act of 1980 (Bayh-Dole Act) allocates rights in federally funded “subject invention[s]” between the Federal Government and federal contractors. 35 U. S. C. §§201(e), (c), 202(a). The Act defines “subject invention” as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement,” and provides that contractors may “elect to retain title to any subject invention,”

The Bayh-Dole Act provides that contractors may “elect to retain title to any subject invention.” §202(a). To be able to retain title, a contractor must fulfill a number of obligations imposed by the statute. The contractor must “disclose each subject invention to the [relevant] Federal agency within a reasonable time”; it must “make a written election within two years after disclosure” stating that the contractor opts to retain title to the invention; and the contractor must “file a patent application prior to any statutory bar date.” §§202(c)(1)–(3). The “Federal Government may receive title” to a subject invention if a contractor fails to comply with any of these obligations.

The Government has several rights in federally funded subject inventions under the Bayh-Dole Act. The agency that granted the federal funds receives from the contractor “a nonexclusive, nontransferrable, irrevocable, paid-up license to practice . . . [the] subject invention.” §202(c)(4). The agency also possesses “[m]arch-in rights,” which permit the agency to grant a license to a responsible third party under certain circumstances, such as when the contractor fails to take “effective steps to achieve practical application” of the invention. §203. The Act further provides that when the contractor does not elect to retain title to a subject invention, the Government “may consider and after consultation with the contractor grant requests for retention of rights by the inventor.” §202(d).

Some of Stanford’s research related to the HIV measurement technique was funded by the National Institutes of Health (NIH), thereby subjecting the invention to the Bayh-Dole Act.  Stanford disclosed the invention, conferred on the Government a nonexclusive, nontransferable, paid-up license to use the patented procedure, and formally notified NIH that it elected to retain title to the invention.

In finding that invention rights go to the inventor, Justice Roberts wrote:

Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not. Our precedents confirm the general rule that rights in an invention belong to the inventor. It is equally well established that an inventor can assign his rights in an invention to a third party. Thus, although others may acquire an interest in an invention, any such interest—as a general rule— must trace back to the inventor.

In accordance with these principles, we have recognized that 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.” Such an invention “remains the property of him who conceived it.”. In most circumstances, an inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights.

Stanford and the United States as amicus curiae contend that the Bayh-Dole Act reorders the normal priority of rights in an invention when the invention is conceived or first reduced to practice with the support of federal funds. In their view, the Act moves inventors from the front of the line to the back by vesting title to federally funded inventions in the inventor’s employer—the federal contractor. See Brief for Petitioner 26–27; Brief for United States as Amicus Curiae 6.

Roberts then uses linguistic jujitsu to come up with a scenario in which the Bayh-Dole Act only convers the contractor (the university) and somehow not the university employees who inherently must make the invention (unless the invention is made entirely by machine, I guess).

Stanford’s reading of the phrase “invention of the contractor” to mean “all inventions made by the contractor’s employees” is plausible enough in the abstract; it is often the case that whatever an employee produces in the course of his employment belongs to his employer. No one would claim that an autoworker who builds a car while working in a factory owns that car. But, as noted, patent law has always been different: We have rejected the idea that mere employment is sufficient to vest title to an employee’s invention in the employer. Against this background, a contractor’s invention—an “invention of the contractor”— does not automatically include inventions made by the contractor’s employees.

The Bayh-Dole Act’s provision stating that contractors may “elect to retain title” confirms that the Act does not vest title. 35 U. S. C. §202(a) (emphasis added). Stanford reaches the opposite conclusion, but only because it reads “retain” to mean “acquire” and “receive.”  That is certainly not the common meaning of “retain.” “[R]etain” means “to hold or continue to hold in possession or use.” Webster’s Third, supra, at 1938; see Webster’s New Collegiate Dictionary 980 (1980) (“to keep in possession or use”); American Heritage Dictionary 1109 (1969) (“[t]o keep or hold in one’s possession”). You cannot retain something unless you already have it.  The Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have. Such a provision makes sense in a statute specifying the respective rights and responsibilities of federal contractors and the Government.

My guess is that the Supreme Court did not like the proposed scope of the Act if read to its possible extremes:

The Bayh-Dole Act applies to subject inventions “conceived or first actually reduced to practice in the performance of work” “funded in whole or in part by the Federal Government.” 35 U. S. C. §§201(e), 201(b) (emphasis added). Under Stanford’s construction of the Act, title to one of its employee’s inventions could vest in the University even if the invention was conceived before the inventor became a University employee, so long as the invention’s reduction to practice was supported by federal funding. What is more, Stanford’s reading suggests that the school would obtain title to one of its employee’s inventions even if only one dollar of federal funding was applied toward the invention’s conception or reduction to practice.

It is also relevant that the Court really wanted clear agreements in place:

Stanford contends that reading the Bayh-Dole Act as not vesting title to federally funded inventions in federal contractors “fundamentally undermin[es]” the Act’s framework and severely threatens its continued “successful application.” Brief for Petitioner 45. We do not agree. As just noted, universities typically enter into agreements with their employees requiring the assignment to the university of rights in inventions. With an effective assignment, those inventions—if federally funded—become “subject inventions” under the Act, and the statute as a practical matter works pretty much the way Stanford says it should. The only significant difference is that it does so without violence to the basic principle of patent law that inventors own their inventions.

Justice Breyer, joined by Justice Ginsburg, dissented saying that the question presented in this case is whether rights in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor’s rights to a third party.

In his view, the answer to this question is likely no. But because that answer turns on matters that have not been fully briefed (and are not resolved by the opinion of the Court), he would return this case to the Federal Circuit for further argument.

Congress enacted this statute against a background norm that often, but not always, denies individual inventors patent rights growing out of research for which the public has already paid. This legal norm reflects the fact that patents themselves have both benefits and costs.

The importance of assuring this community “benefit” is reflected in legal rules that may deny or limit the award of patent rights where the public has already paid to produce an invention, lest the public bear the potential costs of patent protection where there is no offsetting need for such protection to elicit that invention. Why should the public have to pay twice for the same invention?

Justice Sotomayor agreed with the opinion but only because Stanford didn’t raise the issues of Breyer and said “I understand the majority opinion to permit consideration of these arguments in a future case.”

 

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