Supreme Court Says Bayh-Dole Act Does Not Trump Individual Inventors' Patent Rights

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• Case Summary: Roche Molecular Systems Inc. has co-ownership rights in a patent on HIV detection kits, barring Stanford University from asserting patent infringement.

• Key Takeaway: The Bayh-Dole Act creates a framework for distributing patent rights among individual inventors, universities, and the government only for those federally funded inventions properly assigned by the inventors.

The Bayh-Dole Act does not bar inventors from assigning their individual rights in patents resulting from research funded by the federal government, the U.S. Supreme Court ruled June 6 (Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems Inc., U.S., No. 09-1159, 6/06/11).

In a dispute over patents on HIV technology, the court, in a 7-2 vote, rejected Stanford University's argument that the act automatically vests patent title to universities and other contractors for inventions resulting from research financed at least in part by federal funds.

“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,” said Chief Justice John G. Roberts Jr., writing for the majority. “Only when an invention belongs to the contractor does the Bayh-Dole Act come into play.”

The majority rejected Stanford's argument that this result would fundamentally undermine Bayh-Dole, asserting that current university practice resolves the problem.

Justice Stephen G. Breyer dissented. He argued that the Federal Circuit's focus on the assignment language in the employment and confidentiality agreements at issue “seems to make too much of too little.” He would instead treat both agreements as merely creating equitable rights, and then address the Bayh-Dole questions—not adequately briefed in the case below and so necessitating remand—within that context.

Invention Developed in University, Private Setting

Bayh-Dole—more formally the University and Small Business Patent Procedures Act of 1980, 35 U.S.C. §§200-212—has a comprehensive set of rules for allocating patent interests among the government, the “contractor”—generally a university or small business—that the government funded, and the individual inventors listed on the patents.

Just as with any private company, a contractor conducting research funded by the government can eliminate any question of individual researchers' rights to patents arising from the research through appropriate assignment contracts. The instant case arose because Stanford University's employment agreement required researchers to “agree to assign” patent rights to the university.

A Stanford employee, Mark Holodniy, on loan to a private research lab that is now part of Roche Molecular Systems Inc., signed a confidentiality agreement that immediately assigned to Roche patent rights in future inventions: “I will assign and do hereby assign” intellectual property rights.

The patents at issue (5,968,730; 6,503,705; and 7,129,041) involve correlating measurements of HIV nucleic acids to determine whether a particular therapy is effective. Holodniy conceived the procedure while at Roche, then returned to Stanford to conduct clinical studies. Stanford subsequently filed for and was issued the patents. After licensing negotiations with Roche failed, Stanford filed a lawsuit alleging that Roche's HIV detection kits infringed the patents.

The U.S. District Court for the Northern District of California granted Stanford's motion for summary judgment as to whether Roche was an owner of the disputed patents or had a license, thus rejecting Roche's claim that Stanford lacked standing without Holodniy's assignment.

Bayh-Dole vs. Individual Inventor Rights

On appeal, the Federal Circuit reversed. The court held that Roche was co-owner of the patents—along with Stanford—because Holodniy had assigned his rights to Roche prior to conception of the invention. 583 F.3d 832, 92 USPQ2d 1442 (Fed. Cir. 2009) (192 PTD, 10/7/09).

The appeals court relied on a 1991 decision, FilmTec Corp. v. Allied-Signal Inc., 939 F. 2d 1568, 19 USPQ2d 1508 (Fed. Cir. 1991), regarding the effect of the assignment language at issue in the two agreements.

The court further rejected Stanford's argument that the Bayh-Dole Act negated Holodniy's assignment to Roche since the invention proceeded from NIH-funded research, giving the government discretionary rights and Stanford the right to take complete title to the inventions as a “right of second refusal” under the act. “Bayh-Dole does not automatically void ab initio the inventors' rights in government-funded inventions,” the appellate court panel said, nor did the statute void Holodniy's rights, assigned to Roche, in the instant case.

The Supreme Court granted certiorari Nov. 1 on the question: “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.”

Oral arguments were held Feb. 28, with the U.S. solicitor general participating as amicus curiae in support of Stanford's position (40 PTD, 3/1/11).

Bayh-Dole Text Dooms Stanford's Arguments

Roberts first identified the court's precedents going back to 1851 that “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,” Roberts said, citing United States v. Dubilier Condenser Corp., 289 U. S. 178, 188, 17 USPQ 154 (U.S. 1933). Also, he asserted, the Dubilier court held “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.' ”

Rejecting the view of Stanford and the U.S. government that Bayh-Dole trumps those rules, the court distinguished other legislation that specifically vested intellectual property rights in the United States—certain inventions on nuclear materials and atomic energy, in 42 U.S.C. §2182; pursuant to NASA contracts, in 51 U.S.C. §20135(b)(1); or funded by the Department of Energy, in 42 U.S.C. §5908.

“Such language is notably absent from the Bayh-Dole Act,” the court explained. “Nowhere in the Act is title expressly vested in contractors or anyone else; nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions.”

The parties contested whether the phrase “any invention of the contractor” in the definition of “subject inventions” in Section 201(e) of the act, 35 U.S.C. §201(e), was meant to cover any invention made by the contractor's employees or any invention owned by or belonging to the contractor. The high court agreed with the latter rendering. Roberts said:

 

[I]t 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.

You Cannot ‘Retain' Unless You Already Have

Another part of the Bayh-Dole text working against Stanford is a provision, Section 202(a), that allows contractors to “elect to retain title” to a Bayh-Dole subject invention. “You cannot retain something unless you already have it,” the court said. “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.”

Section 210(a) begins, “This chapter shall take precedence over any other Act which would require a disposition of rights in subject inventions,” but the court rejected the solicitor general's argument that the phrase overturns the individual inventor's rights. The court noted again that the act applies only to “subject inventions,” as it had previously construed that term.

“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,” Roberts said. “Nothing more.”

After noting that Stanford's interpretation would, under certain circumstances, vest title in the university for inventions made by researchers prior to joining the school or if only one dollar of federal funding was applied, the chief justice concluded, “We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly—not obliquely through an ambiguous definition of ‘subject invention' and an idiosyncratic use of the word ‘retain.' ”

Current Practice Confirms Interpretation

The court then looked at current practice in university employment agreements and found further support.

For example, the court referred to guidance by the NIH to contractors, that “[b]y law, an inventor has initial ownership of an invention” and that contractors should therefore “have in place employee agreements requiring an inventor to ‘assign' or give ownership of an invention to the organization upon acceptance of Federal funds.”

Thus rejecting Stanford's contention that the court's decision threatens the continued success of Bayh-Dole, the court said, “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.”

The court thus affirmed the Federal Circuit's decision.

Justices Antonin Scalia, Anthony M. Kennedy, Clarence Thomas, Samuel A. Alito, Sonia Sotomayor, and Elena Kagan joined the opinion.

Dissent Contests Majority's Interpretation of Text

There were three parts to Breyer's dissent.

First, he argued that the ability of an individual inventor to assign to a third party inventions resulting from public funding is “inconsistent with the [Bayh-Dole] Act's basic purposes. It allows individual inventors, for whose invention the public has paid, to avoid the Act's corresponding restrictions and conditions. And it makes the commercialization and marketing of such an invention more difficult.”

Breyer next contended that the text of the Bayh-Dole Act was not so clear cut to support the majority's view. He concluded that the phrase “invention of the contractor” must refer its employees' inventions, since a contractor does not conceive of ideas or reduce them to practice “other than through its employees.” He left as an open question, though, whether “the term ‘subject invention' also include[s] inventions that the employee fails to assign properly.”

Rejecting the majority's reliance on “background norms of patent law,” Breyer posited that Bayh-Dole created “competing norms governing rights in inventions for which the public has already paid, [which] along with the Bayh-Dole Act's objectives, suggest a different result.”

Dissent Contests Federal Circuit's Contracts Rule

Finally, Breyer faulted the Federal Circuit for its rule on assignment language in contracts.

The majority said, in a footnote, “Because the Federal Circuit's interpretation of the relevant assignment agreements is not an issue on which we granted certiorari, we have no occasion to pass on the validity of the lower court's construction of those agreements.”

However, Breyer addressed squarely the appeals court's analysis that favored the Roche contract. “Given what seem only slight linguistic differences in the contractual language, this reasoning seems to make too much of too little.” Citing older treatises on patent law, he contended that “a present assignment of future inventions (as in both contracts here) conveyed equitable, but not legal title.”

With both Stanford and Roche thus having only equitable interests in Holodniy's invention, he said, Stanford's prior agreement meant that it should have prevailed.

Breyer thus criticized the Federal Circuit for making “a significant change in the law” in FilmTec. “While the cognoscenti may be able to meet the FilmTec rule in future contracts simply by copying the precise words blessed by the Federal Circuit, the rule nonetheless remains a technical drafting trap for the unwary.”

He interpreted the majority's footnote as not foreclosing a future challenge to the Federal Circuit's rule, and because it is “relevant to our efforts to answer the question presented here,” said that he would vacate the appeals court's judgment and remand the case for more adequate briefing on the issue.

Justice Ruth Bader Ginsburg joined Breyer in dissent. In a one-paragraph concurrence, Justice Sonia Sotomayor also criticized the Federal Circuit's FilmTec reasoning, but agreed with the majority because Stanford failed to challenge the decision on those grounds.

Donald B. Ayer of Jones Day, Washington, D.C., represented Stanford. Mark C. Fleming of Wilmer Cutler Pickering Hale and Dorr, Boston, represented Roche. Deputy Solicitor General Malcolm L. Stewart represented the government.

Roche Supporters Pleased

“I think the court reached the decision that will cause the least panic,” Steve S. Chang of Banner & Witcoff, Washington, D.C., told BNA. “By saying that Bayh-Dole does not automatically transfer ownership, ownership of inventions will be decided under the same terms they have been for many, many years—starting with the inventor, and looking for a chain of assignment agreements. Had the decision gone the other way, it could have raised questions in any assignment that was made by an inventor to someone other than the inventor's employer, something that often happens as companies partner with universities.”

Igor V. Timofeyev of Paul, Hastings, Janofsky & Walker, Washington, D.C., said that the court's textualist approach was not unexpected. “The traditional principles of statutory interpretation strongly favored Roche,” he said. “The majority of this court favors the plain-text approach, and was unwilling to depart from it.”

Timofeyev, who co-authored an amicus brief submitted by the Intellectual Property Owners Association in support of Roche's position, also was pleased with the majority's dismissal of the purported negative impact of the decision. “The court clearly did not find convincing Stanford and its amici's effort to argue that a contrary result will create a parade of horribles for the universities and create confusion in patent ownership where a university cooperates with a private company in a federally funded project,” he told BNA.

“The majority expressly—and correctly—said that university will be able to guard against any such confusion through contract agreements with employees,” he added, echoing Roberts's concluding statement. “As the court observed, that is already a common practice among companies funded by federal grants.”

Others See Problems Ahead

Carl Gulbrandsen of the Wisconsin Alumni Research Foundation in Madison, Wis., was disappointed with the result. “It's going to force all the universities to be much more careful in looking at the agreements their faculty are entering,” he said. He noted that the assignment in the instant case came in a confidentiality agreement, and WARF does not currently require faculty to disclose such agreements.

“It's going to make the job of making certain you've got title that much more difficult,” Gulbrandsen said. “We're going to have to be a lot more careful.”

William D. Coston of the Venable law firm, Washington, D.C., who wrote a brief on behalf of one of the bill's authors, Birch Bayh, had another concern as well. “The decision could add expense to what is already very expensive patent litigation by having discovery focused on whether all the paperwork is consistent with an inventor's assignment of his or her interest to the university,” he said.

He faulted the court for “its explicit focus on the text of the statute” and for not paying enough attention to the legislative intent of the Bayh-Dole Act. On the other hand, Coston said, “Going forward, the fundamental purpose of the act remains intact, and it is simply incumbent on universities to make sure their paperwork is in order.”

“From Sen. Bayh's perspective,” he said, “while that's an important issue, it's ancillary to the principle beauty of the act, getting inventions in the hands of the universities.”

By Tony Dutra

Opinion at http://pub.bna.com/ptcj/091159Jun6.pdf