Client Alert

On June 6, 2011, the Supreme Court of the United States, on appeal from the United States Court of Appeals for the Federal Circuit, issued its decision in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., No. 09-1159. In a 7-2 decision, the Court held that the University and Small Business Patent Procedures Act of 1980, 35 U.S.C. §200, also known as the Bayh-Dole Act, does not automatically vest title of federally funded inventions to federal contractors or "authorize contractors to unilaterally take title to such inventions." Rather, the Court held that the Bayh-Dole Act only allows federal contractors to elect to retain title to federally funded inventions that the federal contractor already owns, typically through the use of employee assignments.

Background
Plaintiff Stanford hired Dr. Mark Holodniy as a research fellow to develop an improved method of calculating levels of human immunodeficiency virus (HIV) in patient blood samples using polymerase chain reaction (PCR). Dr. Holodniy signed an agreement with Stanford stating that he "agree[d] to assign" his "right, title and interest in" any inventions resulting from his research and employment to Stanford. As part of his work at Stanford, Dr. Holodniy conducted some of his research at Cetus, a research company that developed the Nobel Prize winning PCR technique. Cetus required Dr. Holodniy to sign a Visitor’s Confidentiality Agreement (VCA) to gain access to Cetus. The VCA stated that Dr. Holodniy "will assign and do[es] hereby assign" his "right, title and interest in each of the ideas, inventions and improvements" made "as a consequence of [his] access" to Cetus.

Dr. Holodniy developed a PCR-based procedure for calculating the amount of HIV in a patient’s blood at Cetus and returned to Stanford where he tested and refined the HIV measurement technique. Stanford obtained written assignments of rights from employees involved in the refinement of the technique, including Dr. Holodniy, and obtained three patents to the technique. Defendant Roche acquired Cetus’s PCR-related assets and conducted clinical trials on the HIV measurement technique Dr. Holodniy developed at Cetus, ultimately commercializing the procedure with HIV test kits.

The Bayh-Dole Act regulates the ownership rights of federally funded inventions between the Federal Government and federal contractors. The Act applies to federally funded "subject inventions" and allows contractors to "elect to retain title to any subject invention" by fulfilling several statutorily imposed obligations. The Bayh-Dole Act applied to the HIV measurement technique developed by Dr. Holodniy because the National Institute of Health (NIH) funded some of Stanford’s research related to the invention.

In 2005, Stanford filed suit against Roche claiming that Roche’s HIV test kits infringed Stanford’s patents. Roche asserted that Stanford lacked standing to sue for patent infringement because Roche was a co-owner of the HIV measurement technique pursuant to Dr. Holodniy’s VCA with Roche. Stanford disagreed, arguing that it had exclusive and superior rights to the invention under the Bayh-Dole Act because the research was federally funded. The District Court held that Stanford had standing because Dr. Holodniy had no interest to assign to Cetus, as the Bayh-Dole Act only permits the individual inventor to obtain title "after the government and contracting party have declined to do so." On appeal, the Federal Circuit reversed the District Court and held that Stanford lacked standing because the Bayh-Dole Act did not automatically void Roche’s ownership interest in the patents-in-suit.

The Supreme Court Decision
The Supreme Court affirmed the Federal Circuit’s decision and held that the Bayh-Dole Act does not automatically vest title to federal contractors in federally funded inventions. To support its conclusion, the Court reviewed the history of patent law emphasizing that rights in an invention belong to the inventor, who can assign those rights to a third party. According to the Court, the Bayh-Dole Act does not expressly seek to divest inventors of their rights in federally funded inventions and vest title to such inventions in the inventor’s employer, the federal contractor. Rather, the Act serves to clarify the order of priority of rights between the Federal Government and a federal contractor.

Looking further at the language of the Bayh-Dole Act, the Court determined that the Act only applies to inventions that belong to the contractor, which do "not automatically include inventions made by the contractor’s employees." The Act applies to "subject inventions," defined as "any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement." Because mere employment is not sufficient to vest title to an employee’s invention in the employer, the Court concluded that "invention of the contractor" only refers to inventions the contractor already owns. Further, the provision of the Act stating that contractors may "elect to retain title" confirmed the Court’s construction of "invention of the contractor" because a party cannot "retain" something unless it already has possession.

Impact of the Decision
The Supreme Court’s decision in Roche Molecular Systems may prompt organizations and universities subject to the Bayh-Dole Act to construct more effective assignment agreements with their employees instead of relying on the Bayh-Dole Act to automatically confer title. If Stanford’s initial agreement with Dr. Holodniy assigned Dr. Holodniy’s rights in the invention to Stanford, rather than a mere promise to assign rights in the future, Stanford would have had ownership rights in the invention pursuant to the agreement and the invention would have constituted a "subject invention" under the Bayh-Dole Act. Additionally, Roche reinforces the need for organizations to review all assignments or agreements signed by employees during development of an invention before filing a patent application.

If you have any questions or wish to discuss how this decision may impact your company, please contact your attorney at Brinks Hofer Gilson & Lione. 

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