Supreme Court Will Tackle Interplay of University and Inventor Patent Rights

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

November 2010 IP Update

Under U.S. law, invention rights ultimately derive from the personal rights of one or more inventors. In fact, unlike practice in the rest of the world, U.S. patents issue in the name of their inventors, not the entities that employ them. Inventors, in turn, may assign their rights, and, in some cases, are required to do so, whether by contract, by judicial precedent or by statute.

Patent rights have attributes of personal property (35 U.S.C. § 261), subject, however, to specific provisions of the Patent Act, one of which is being scrutinized this term by the U.S. Supreme Court, in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems Inc., U.S. No. 09-1159, cert. granted11/1/10.

The specific question is whether the Small Business Patent Procedures Act of 1980, more commonly known as the Bayh-Doyle Act, assures that rights derived from government-sponsored research always flow to the university or small business that actually receives a government research grant or contract. The statute provides that if the contractor/grantee declines to assert title, the government may waive its own rights, leaving ownership to the inventor.

The schoolyard affords well-established notions of tangible property: If you give something to someone, particularly with a written confirmation, it’s theirs to keep. But, what if the property is an idea? Rights in less tangible property are less easily intuited, as is evidenced by widespread misunderstanding of rights associated with subject matter posted to the Internet.

When Dr. Mark Holodniy joined the faculty at Stanford University, in June 1988, Stanford asked him to “agree to assign” to the university all rights in any invention that he may “conceive or first actually reduce to practice” while working for Stanford. Holodniy agreed to do that.

Several months later, Cetus Corporation, where Dr. Holodniy was conducting research collaboratively with his Stanford research team, also asked Dr. Holodniy for a signature, asking him to assign 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.”

While both contracts addressed future inventions that had yet to be made, only the Cetus contract “effected a present assignment” of a future invention, whereas the Stanford contract merely promised that he “would” assign a future invention. Thus, by dint of more felicitous lawyering, Cetus was left with an actual assignment while Stanford was left with a bare promise.

Research progressed, jointly at Stanford and at Cetus, into the early 1990s. The university, which was receiving research funds from the National Institutes of Health (NIH), asserted its prerogative, under the Bayh-Dole Act, to retain patent ownership, and filed a patent application, naming Dr. Holodniy as one of the inventors.

A separate agreement that had been signed in 1989 (at the time Dr. Holodniy began his work at Cetus), licensed Cetus to use Stanford technology created as a result of access to Cetus materials. Three patents ultimately issued from Stanford’s patent application, covering the use of polymerase chain reaction (PCR) in monitoring HIV in the blood plasma of AIDS patients taking drugs such as AZT.

One final circumstance completes the picture: Cetus sold its PCR business, including its patent rights, to Roche, in 1991.

Skip forward to 2005.  Stanford sues Roche in the Northern District of California for infringement of the three PCR patents. Among other defenses, such as that the patented inventions were obvious, Roche raised the argument 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.

While promising to assign his rights to Stanford, Dr. Holodniy had, in fact, assigned them to Cetus, who had sold them to, of all possible buyers, the very defendant in the lawsuit, namely Roche.  In fact, Roche went so far as to claim that it should properly own the patent, but the district court, applying California law, held that Roche’s claim to title was barred by the statute of limitations (Stanford v. Roche, 487 F.Supp.2d 1099 (N.D.Cal., 2007).

The Federal Circuit Court of Appeals instructed the district court to dismiss Stanford’s claim on grounds that the university could not bring suit without Dr. Holodniy’s piece of the ownership interest. (Stanford v. Roche, 583 F.3d 832 (Fed. Cir. 2009)).

Stanford has appealed to the Supreme Court. Friend-of-the-court briefs supporting Supreme Court review were filed by a consortium of universities and, separately, by MIT, and by the Solicitor General on behalf of the United States. The Supreme Court has agreed to hear the appeal.

Stanford’s principal argument on appeal is that the Bayh-Dole Act trumps banal contractual considerations such as whether an inventor assigned his rights elsewhere while subject to an obligation to assign his rights to a university.

Congress, with due deliberation, put in place a system to encourage small businesses and universities to make the most of ideas generated during the course of research funded with public moneys. The policy objectives are expressly stated in the Patent Act, at 35 U.S.C. § 200:

It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; . . . and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area.

Indeed, Bayh-Dole has been demonstrably effective in incenting universities to convert research into societally useful innovation through the mechanism of obtaining and licensing patents. Thousands of new companies, and hundreds of thousands of jobs, have resulted (see Pressman et al., J. Assoc. Univ. Tech. Managers, 28, 37 (1995)).

It is the government’s position that when Stanford exercised its rights under Bayh-Dole to assert title to the invention, Holodniy retained no further rights. The government and other amici argue that a larger societal benefit is achieved by ensuring certainty in the process of establishing the intellectual property rights of small business and non-profit entities, that these entities are best suited to advance the state of the art, and that an inventor should not be permitted to defeat those rights by side arrangements.

When it comes to rights in ideas, public policy concerns push themselves to the fore, and common-law notions of property may not decide the outcome.