Supreme Court Affirms Precedence of Inventor’s Personal Patent Rights Over Those of a University Employer

By Samuel Petuchowski, Ph.D.. A member of our Patent Practice Group

June 2011 IP Update

Samuel J. Petuchowski, Ph.D.Last November, the U.S. Supreme Court took up competing questions of patent ownership arising from the Small Business Patent Procedures Act of 1980 (known as the Bayh-Dole Act):

Does the Act assure that rights derived from government-sponsored research always flow to the university or small business that receives a government research grant? Or is the contrary true, that an inventor may, by agreement, vest those rights in another party?

The Supreme Court has now ruled, in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems Inc., that the Bayh-Dole Act governs only the rights of a university (or small business grantee or contractor) vis-à vis the government. That law does not, however, operate to allocate to the university, or small business, any rights in the invention belonging, under U.S. law, to the inventor.

As we earlier recounted, Stanford University researcher Mark Holodniy had, in 1988, “agree[d] to assign” to Stanford all rights in any invention that he may “conceive or first actually reduce to practice” while working for Stanford.

Just months later, Cetus Corporation, which was collaborating with Dr. Holodniy’s research team, also asked him for a signature, asking him to turn over anything he would invent in the course of his research.  This agreement recited: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of [my] ideas, inventions and improvements.” (Emphasis added.)

Stanford obtained three patents on the technology in question, covering the use of polymerase chain reaction (PCR) in monitoring HIV in the blood plasma of AIDS patients taking drugs such as AZT. The case that wended its way to the Supreme Court started with Stanford suing Roche, successor to Cetus’s rights, for infringement of these patents.

Roche argued in its defense that Stanford had no standing to bring the lawsuit. The law requires, said Roche, that all patent rights be represented in bringing an infringement action, and while other co-inventors had duly assigned their rights to Stanford, the university lacked Dr. Holodniy’s rights.

Indeed, the Federal Circuit Court of Appeals concluded that Dr. Holodniy’s initial agreement with Stanford (“I agree to assign”) was a mere promise to assign rights in the future, whereas his agreement with Cetus (“I hereby assign”) actually acted to assign rights to Cetus. Thus, the Federal Circuit instructed the trial court judge to dismiss Stanford’s claim because the university could not bring suit without Dr. Holodniy’s share of the patent rights.

Before the Supreme Court, Stanford leaned hard on the language of the Bayh-Dole Act in arguing that it did not matter that the university lacked an express assignment of Dr. Holodniy’s interest. So did the U.S. Government, arguing as anamicus curiae.

The Act, contended Stanford, served to convey ownership from the inventor to the contractor—that is, the university– by providing that contractors may “elect to retain title to any subject invention” (35 U.S.C. § 202(a)), where a “subject invention” is defined as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.” (35 U.S.C. § 201(e)).

In its 7-2 decision, the court addressed only the question of whether the Bayh-Dole Act, absent any agreement, confers title to its employees’ inventions on a contractor whose research is federally funded.

The court’s majority held that the Act fails to show any intention of Congress to deprive inventors of their interest in federally funded inventions. In particular, the court was persuaded that the statutory phrase allowing the contractor to “elect to retain title” refers to such title as has been duly assigned to the contractor by the inventor.

The question of whether Dr. Holodniy could convey equitable title in his invention to Cetus after promising to assign it to Stanford was not argued in the lower court, and so was not before the Supreme Court on appeal. The dissenters, Justices Breyer and Ginsburg, would have vacated the judgment of the Federal Circuit and remanded the case to allow the parties to argue issues of equitable title.

The dissenters, noting that the Act defines a “subject invention” by reference to “any invention of the contractor,” reasoned that a university or small business is unlikely to conceive of an idea, hence the “invention of the contractor” necessarily refers to the work of its employees. In her concurrence, Justice Sotomayor acknowledged that the issues of equitable title might be addressed in a future case, but agreed that the majority ruling was compelled by the arguments actually presented to the court.

In the meantime, it remains the case that to be assured of title to an invention, it is incumbent upon a government grantee or contractor to obtain a written assignment of rights from an inventing employee, and to work with counsel in recording actual legal title to an invention upon filing a patent application. Especially where multiple parties collaborate in research, it is imperative that documents recorded at the time of filing reflect the intended allocation of rights.