Supreme Court Interprets Bayh-Dole Act
A recent decision by the United States Supreme Court could greatly impact the rights of inventors and their federally funded employers. In Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, Inc. (No. 09-1159) (“Roche”), the Court provided guidance in interpreting the University and Small Business Patent Procedures Act of 1980 – more commonly known as the Bayh-Dole Act. 35 U.S.C. § 200 et seq. (2006).
Congress passed the Bayh-Dole Act in 1980, and it provides that universities, nonprofit organizations, and small or start-up businesses that receive federal research funding, are able to “elect to retain title” to any invention that is developed using these federal funds. The scope of the fund recipient’s rights to any inventions created using federal funds has been unknown, however, until Roche.
The invention at issue in Roche was a procedure used to measure the amount of HIV in a patient’s blood. Dr. Holodniy, while holding a research fellow position at Stanford, and with Stanford’s permission, researched the procedure at a company called Cetus. As a pre-condition to conducting research at Cetus, Dr. Holodniy signed an agreement with Cetus stating that he assigned to Cetus his right, title and interest in the ideas, inventions and improvements made as a consequence of [his] access” to Cetus. However, earlier, when Dr. Holodniy had began working at Stanford, he had signed an agreement with Stanford stating that he “agreed to assign” to Stanford his right, title and interest in any inventions that resulted from his employment there.
Ultimately, Stanford acquired three patents to the measurement procedure on which Dr. Holodniy was a named inventor. Cetus was ultimately purchased by Roche who then commercialized the HIV testing kit that Dr. Holodniy had developed.
In 2005, Stanford filed suit against Roche claiming that its commercialization of an HIV testing procedure infringed several patents. Roche answered this allegation by arguing that the agreement signed by Holodniy gave Cetus (and therefore Roche) co-ownership of the procedure, and thus Stanford lacked standing to bring a patent infringement suit. Stanford countered by arguing that Holodniy had no right to assign. Moreover, Stanford asserted that they had superior rights to the invention under the Act because the HIV research conducted was federally funded. The District Court sided with Stanford, but the Federal Circuit Court of Appeals reversed this decision.
The Supreme Court granted certiorari to resolve the issue. In rejecting the interpretation advocated by Stanford, the Court stressed the rule that rights in an invention belong to the inventor. Moreover, the Court noted that mere employment was insufficient to vest title to an employee’s invention in the employer. Instead, an employee-inventor must expressly grant title to his employer.
Important to the Court’s analysis was the fact that the Act stated that federal contractors may “elect to retain title” to any subject invention rather than say that federal contractors were “vested with title” to any subject inventions. In the Court’s view, one could only retain something if they held possession of it at some point in time. The Court found that Stanford never held possession of the rights to the HIV testing kit, because no effective contractual agreement had been signed by Holodniy and Stanford.
Consequently, the Court held that the Act does not automatically vest title to federally funded inventions in federal contractors or authorize contactors to unilaterally take title to the inventions. Instead, the Court found that the Act permits federal contractors to retain title to patents only if the patent rights were acquired via an effective contractual agreement between the employer and inventor.
It appears that the future practical effects of this decision may be tied directly to the issue that the Court did not address. Namely, the meaning attributed to the two assignment agreements signed by Holodniy. As noted above, the research that led to the patent infringement litigation was conducted by Holodniy after he had signed two agreements assigning invention rights to Cetus and Stanford. The Federal Circuit had held that the language in the Stanford agreement reflected a promise to assign rights in the future while the language from the Cetus contract effected a present assignment of Holodniy’s future inventions. Because Stanford did not raise this argument on its appeal, the Court declined to address the issue. The dissent, however, called into question this reasoning and recommended that the case be remanded for further discussion of this issue.
Until this issue is resolved more clearly, third parties seeking to purchase patent rights should conduct due diligence to ensure that the employee-inventor is contractually able to assign the rights of his invention to the seller
and has not already assigned these patent rights to another entity. This case also reaffirms the notion that employers need to carefully draft employment agreements such that they are entitled to the intellectual property created
by their employees. Moreover, our clients need to ensure that their assignment agreements are drafted in a manner that results in an immediate transfer of invention rights rather than a future assignment of rights.
If you work for an organization that receives federal funding to conduct research, or purchases patent rights from other companies and you have any questions about the practical implications of Roche on your particular situation,
please do not hesitate to contact us.
Troutman Sanders represented an amicus in the merits briefing stage in the Supreme Court appeal.