Supreme Court Confirms Ownership Under Bayh-Dole

Supreme Court Confirms Established Rule That Inventor is Initial Owner of Invention    

In Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 179 L. Ed. 2d 91;79 U.S.L.W. 3475 (2011), Stanford owned patents related methods for quantifying Human Immunodeficiency Virus (HIV) in human blood samples using polymerase chain reaction (PCR) and correlating those measurements to the therapeutic effectiveness of antiretroviral drugs (hereinafter the PCR patents). The inventors, Mark Holodniy, Thomas Merigan, and David Katzenstein, were Stanford researchers who signed an agreement with Stanford agreeing to assign their rights to inventions to the university.           

One of the inventors, Mark Holodniy, later signed an agreement with Cetus, a private company, as a condition of working on PCR.  The Cetus agreement required the signor to “hereby assign” all present rights to Cetus at the time of the agreement, as well as “title, and interest in each of the ideas, inventions and improvements” that he may devise “as a consequence of” his work at Cetus.  Subsequent to signing the agreement, Mr. Holodniy returned to Stanford to continue the research, and reported his invention as a subject invention to Stanford as being within a funding agreement with National Institutes of Health.  It is unclear from the record as to whether Mr. Holodniy conceived or first actually reduced to practice the invention while at Cetus, but it is clear that the patent application was filed as if the invention were first conceived and first actually reduced to practice at Stanford and that Cetus was not aware of this filing. Inventors Thomas Merigan, and David Katzenstein did not work at Cetus and there is no issue as to whether their assignment to Stanford was affected by Mr. Holodniy’s agreement with Cetus.

Stanford also reported to NIH that the invention was a subject invention in which the Government would obtain rights under Bayh-Dole, and notified the Government it was retaining title to the inventions as allowed under the Bayh-Dole Act, 35 U.S.C. §202. Stanford duly required the inventors to assign the inventions, which each did. The issued patents list Stanford as the assignee.

Several years afterwards, Roche purchased Cetus, which therefore gave Roche ownership of Cetus’ intellectual property. When Roche began selling HIV assay kits based on the Cetus’ intellectual property, Stanford disclosed the patents-in-suit to it and offered a license. Based on Holodniy’s VCA and the fact that the techniques he learned and applied in developing the assay came from Cetus, Roche claimed that it had co-ownership, or at least a shop rights license (Stanford held joint title at least through the other Stanford researcher inventors), of the patents-in-suit and refused to take the license. Stanford sued and the trial court found, in part, that Mr. Holodniy could not have transferred any title to Cetus/Roche, because title had transferred to Stanford automatically, or by operation of law, under Bayh-Dole once the inventions arose. Roche appealed and prevailed, with the Federal Circuit ruling that the Bayh-Dole Act only regulates the legal relationships between Federal agencies and their contractors, and not as between inventors and the Federal contractor. The Federal Circuit held that because the Cetus VCA executed an immediate assignment of future inventions, it vested equitable title in Cetus before any title vested in Stanford. While Mr. Holodniy had signed Stanford’s CPA before signing the VCA, it only imposed a contractual obligation on him to assign inventions when they arose and at Stanford’s request. Thus, Mr. Holodniy essentially breached the CPA when he signed the VCA, because he assigned away the then future inventions and would not be able to fulfill his obligation to Stanford when the inventions later arose.

Specifically the district court had held the Bayh-Dole Act negated the second assignment between Cetus and Mr. Holodniy because the Bayh-Dole Act empowered Stanford to take complete title to the inventions by reason of the holding in Central Admixture Pharmacy Services, Inc. v. Advanced Cardiac Solutions, P.C. 482 F.3d 1347 (Fed.Cir.2007).  The Federal Circuit disagreed and noted that Cent. Admixture had held that when the Bayh-Dole Act’s provisions are violated, the government could choose to take action and title to the patent may be voidable. It is not void: title remains with the named inventors or their assignees. Nothing in the statute or regulations indicates title is automatically forfeited.  Id., 1352-53. Thus, the Bayh-Dole Act and the holding in Cent. Admixture did not automatically void the second assignment to Cetus as it at most provided the Government a discretionary option to patent rights owned by the contractor, and did not reach into situations where the inventor could not provide ownership to the contractor.

The district court had also ruled that under 35 U.S.C. § 202(d), the inventor could keep title to his inventions only if a contractor did not elect to retain title to a subject invention. Stanford argued the inventor’s rights were contingent on his obligations to assign them to Stanford, and that Stanford’s subsequent election of title gave it all patent rights. 

The Federal Circuit disagreed since, under Federal common law, the Cetus assignment was a present assignment for all inventions of the inventor, whereas Stanford had only an agreement to assign what was available in the future. As such, Stanford was entitled to claim whatever rights were still available, including the rights of the co-inventors who had not transferred their rights prior to the election. However, as Mr. Holodniy had already transferred his rights to Cetus more than six years before Stanford formally notified the government of its election of title, Stanford could not obtain the assignment from Mr. Holodniy despite his earlier agreement to assign these same rights. Citing Cent. Admixture, the Federal Circuit noted that as the Act does not automatically void ab initio the inventors’ rights in government-funded inventions, it saw no reason why the Act voids prior contractual transfers of rights Cent. Admixture, 482 F.3d at 1352-53.

The Federal Circuit also noted that Stanford’s interpretation had already been rejected by another circuit.  Specifically, the Federal Circuit noted that its interpretation was in accord with that of the Sixth Circuit in University of Pittsburgh v. Townsend. 542 F.3d 513 (6th Cir.2008).  As such, the Federal Circuit held that Bayh-Dole does not create a mechanism to allow a contractor to void prior valid transfers of patent rights and consolidate ownership in the contractor merely by declaring the invention a subject invention.  As Mr. Holodniy had previously assigned title to the invention to Cetus, Mr. Holodniy could not later fulfill his agreement to later assign title to the same invention to Stanford.  Therefore, any rights obtained by the Government were subject to whatever rights the contractor actually had at the time of the conception or first actual reduction to practice.

Subsequently, Stanford petitioned for certiorari to the Supreme Court, which was granted on November 1, 2010 on the following question: 

Question on Certiorari

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 separate agreement purporting to assign the inventor’s rights to a third party.

Supreme Court Decision

Delivering the opinion of the Court, Chief Justice Roberts began the analysis by noting that the presumption in patent law has been since 1790 that the inventor is the first owner of the invention, which was when the first law enacting Article I, Section 8 was enacted.  As such, the basic assumption has always been that the inventor was the first owner, subject to a subsequent assignment.  Therefore, the mere employment of an inventor does not vest ownership in the employer absent an agreement.  United States v. Dubilier Condenser Corp., 289U.S. 178 (1933).

Moreover, while Congress also possess the power to change this initial ownership rule and divest the inventor’s first ownership right, it has always done so clearly.  As such, under 42 U.S.C. §2182, title to inventions relating to nuclear and atomic energy “shall be vested in, and be the property of, the [Atomic Energy] Commission.”  Similar language is used when allocating ownership of NASA inventions under 51 U.S.C. § 20135 and DOE inventions under 42 U.S.C. §5908.

In contrast, the Court noted that “[s]uch language is notably absent from the Bayh-Dole Act [35 U.S.C. §202].”  Moreover, the Bayh Dole Act does not expressly state that the inventors are not the first owners, or that the contractors have more than an option to retain title in subject inventions.  While the term “subject invention” includes “inventions of the contractor”, this phrase does not work to divest inventors of their initial ownership as such a reading “assumes that Congress subtly set aside two centuries of patent law in a statutory definition.”  Instead, the Court noted that the tem “of” means whatever is already owned by the contractor, which is more consistent with prior case law in Poe v. Seaborn, 282 U.S. 101 (1930); Flores v. United States, 556 U.S. ____(2009); and Eillis v. United States, 206 U.S. .246 (1907).
Further, to the extent that this phrase could be interpreted to mean any invention made by the employee, this interpretation is contrary to existing patent law.  Thus, the Court rejected the idea that “mere employment is sufficient to vest title to an employee’s invention in the employer.”

While the Bayh-Dole Act does allow contractors the option to “retain title”, the Court found that this language actually confirms its interpretation of “inventions of the contractor.”  Specifically, while Stanford asserts that this phrase means “acquire”, the Court found that the common definition relates to keeping what you already own: “You cannot retain something unless you already have it.”  Thus, the Bayh-Dole Act only allows contractors to retain title where they already have it, and does not automatically divest ownership from inventors of subject inventions in order to give the contractors something to retain.

Lastly, the Court noted that, while the Solicitor General suggested that 35 U.S.C. §210 supersedes the background rule, this provision provides only that the provisions of the Bayh-Dole Act takes precedence over other acts in relation to “subject inventions.”  Thus, while this provision does require that the Bayh-Dole Act supersedes other acts in dispositions of rights, it only does so to the extent that the invention is a subject invention (i.e., which is an invention of the contractor).  Therefore, 35 U.S.C. §210 does not affect rights in non-subject inventions, such as where the contractor did not own the invention in the first place.

Significance for Patent Owners

As previously noted in the Stein McEwen Newsletter, Volume 7, Issue 1 (March 2011), the Supreme Court’s rejection of Stanford’s argument in Stanford confirms that Universities as well as companies who use Federal funding for research projects will need to be extra careful in ensuring a clear record of assignment.  Otherwise, should the assignment be defective, the University could be liable for any damages experienced by the Government.  Moreover, Universities will need to be much more careful in ensuring that any consultant work performed by University inventors are carefully scrutinized to ensure that potential subject inventions will be assigned to the University, and that the agreement is clear as to that effect.   Lastly, the ruling confirms that inventors remain owners absent an agreement or law which alters the existing rule, and thereby allows the Government to alter the background rule as it has in the past.

It also leaves open the issue of why Federal common law was used in the first place, as well as the application.  These issues were expressly left open in note 2 of the opinion, and were criticized in the Justice Breyer’s dissent and Justice Sotomayor’s concurrence as not being adequately briefed.  These issues may well be decided in another case on petition for certiorari: APP Pharmaceuticals, LLC v. Navinta LLC, which was filed on June 17, 2011 on the question of whether the Federal Circuit erred in creating Federal common law in order to interpret patent assignments.  Thus, it may be possible that, while Stanford did not prevail on the issue of Bayh Dole, it could prevail ultimately by using California as opposed to Federal common law.

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