United States: Supreme Court Holds That Bayh-Dole Act Does Not Override Third-Party IP Agreements

Last Updated: June 10 2011
Article by Antoinette F. Konski and Stephen B. Maebius

In Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., __ U.S. __ (2011)(Roberts, C.J.), affirming 583 F.3d 832 (Fed. Cir. 2009), the U.S. Supreme Court affirmed the Federal Circuit's decision that the Bayh-Dole Act does not automatically vest title to federally funded inventions in federal contractors or authorize contractors to unilaterally take title to such inventions. Justices Breyer and Ginsberg dissented. This ruling signals that universities and research institutions receiving federal monies and electing to retain title to inventions made with federal monies should carefully monitor third-party inventor agreements and continue to obtain assignments of inventions from employee inventors. Licensees and others seeking an interest in federally supported inventions should confirm that title is properly vested in the contractor institution.

Stanford, PCR, and Patents

The technology arose from a collaboration between the Board of Trustees of Stanford University's (Stanford) Department of Infectious Diseases and Cetus Corporation, the predecessor-in-interest to Roche Molecular Systems (Roche). Working with Cetus employees, Dr. Holodniy, a Stanford scientist, devised a PCR-based procedure to measure the amount of HIV present in a patient's blood. Upon returning to Stanford and over the next few years, Dr. Holodniy and other Stanford researchers tested the procedure. Three Stanford patents were procured. Some of the Stanford patented technology was supported by a grant from the National Institutes of Health (NIH) and therefore subject to the restrictions of the Bayh-Dole Act (35 U.S.C. § 200, "Act"). Meanwhile, Roche conducted clinical trials on the technology and commercialized the procedure. Roche's HIV test kits are used in hospitals and AIDS clinics worldwide.

As a condition for working with Cetus, Dr. Holodniy signed an agreement stating that he "will assign and do[es] hereby assign" to Cetus his "right, title and interest in ... the ideas, inventions, and improvements" made as a consequence of [his] access to Cetus. However, previous to the collaboration and the assignment agreement with Cetus, Dr. Holodniy signed an agreement stating that he "agree[d] to assign" to Stanford his "right, title and interest in" inventions resulting from his Stanford employment. Subsequent to his return to Stanford, the university obtained written assignments of rights in the inventions from the Stanford employees, including Dr. Holodniy for the patented technology.

The Patent Infringement: Lower Courts

Stanford sued Roche for infringement of the Stanford patents relating to the PCR-based procedures for measuring the amount of HIV in a patient's blood. Roche countered that Stanford lacked standing to sue for patent infringement because Roche was a co-owner of the technology by virtue of the previous assignment from Dr. Holodniy to Roche's predecessor-in-interest, Cetus Corporation. Stanford countered that the Roche assignment was void because Stanford had superior rights under the Bayh-Dole Act. The District Court agreed with Stanford and held that under the Act, Stanford's rights were superior to Roche's. The Court of Appeals for the Federal Circuit reversed, holding that the Bayh-Dole Act did not automatically void an inventor's rights in federally funded inventions. The Federal Circuit stated that the Act did not extinguish Roche's ownership interest in the invention and thus, Stanford was deprived of standing. In addition, the assignment provision in Dr. Holodniy's employment agreement was a mere promise to assign rights in the future, unlike Dr. Holodniy's agreement with Cetus, which assigned any rights in inventions to Cetus. Therefore, as a matter of contract law, Cetus obtained Dr. Holodniy's rights in the inventions by this agreement.

The Bayh-Dole Act

The Supreme Court focused its analysis on the congressional intent of the Bayh-Dole Act. In 1980, Congress passed the Bayh-Dole Act to "promote the utilization of inventions arising from federally supported research," to "promote collaboration between commercial concerns and nonprofit organizations," and to "ensure that the Government obtains sufficient rights in federally supported inventions." 35 U.S.C. §200. The Act allocates rights in federally funded "subject invention[s]" between the federal government and federal contractors, defined as any person, small business firm, or nonprofit organization that is a party to a funding agreement. A "subject invention" is any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.

Contractors under the Act may elect to retain title to any invention. To retain title, contractors must fulfill obligations under the statute such as disclosure of the invention to the relevant federal agency within a reasonable amount of time, make a written election within two years after disclosure stating that the contractor elects to retain title, and file a patent application prior to any statutory bar date. The federal government may receive title to the invention if a contractor fails to comply with any of the obligations. Some of the research relating to the patented technology was supported by NIH funding. Stanford fulfilled its Bayh-Dole obligations and elected to retain title to the inventions and patents.

The Court noted that although much in intellectual property law has changed since the first Patent Act of 1790, the basic idea that inventors have the right to patent their inventions has not. "Under the law in its current form, '[w]hoever invents or discovers any new or useful process, machine, manufacture or composition of matter ... may obtain a patent therefore." 35 U.S.C. § 101." Slip Op. at 6. In most cases, a patent may only be issued to an applying inventor, because an inventor's interest is assignable in law by an instrument in writing.

The Supreme Court disagreed with Stanford and the United States as amicus curie that the Act reorders the normal priority of rights in an invention when the invention is conceived or first reduced to practice with the support of federal funds. The Court found no support in the Act for such construction, noting that past explicit divestitures of inventor rights were notably absent from the language of the Bayh-Dole Act. Instead, the Act provides that contactors may elect to retain title to any subject inventions.

The Court also disagreed with Stanford's construction of the Act's language to mean that all inventions made by the contractor's employees with the aid of federal funding vest with the contractor. The Court also stated that the limited scope of the Act's procedural protections supports its conclusion, noting that Act does not provide a single procedural protection for third parties that have neither sought nor received federal funds nor allow inventors employed by federal contractors to contest their employer's claim to a subject invention. This lack of procedural protection only makes sense if the Act applies only when a federal contractor has already acquired title to an inventor's interest. Finally, the Court stated that although unnecessary for its conclusion, the Court's construction is consistent with common practice among parties operating under the Act. Even with the Act in operation, contractors generally institute policies to obtain assignments from their employees. The Court noted that indeed, in guidance documents made available to contractors, the NIH has made clear that by law, an inventor has initial ownership of the invention, and that therefore, contractors should have in place employee agreements requiring an inventor to assign or give ownership of an invention to the organization upon acceptance of federal funds.

Justices Breyer and Ginsburg Dissent

Justices Breyer and Ginsburg began their dissent by noting that in their view, a federal contractor university's statutory right in inventions arising from federally funded research cannot be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor's rights to a third party. However, because the issue, among others, of whether equitable title had passed to Stanford by virtue of the employment agreement was not briefed by the parties, the dissent would vacate the judgment of Federal Circuit and remand the case to provide the parties with an opportunity to more fully argue this issue or related matters.

The dissent began by noting that Congress enacted the Act against a background that often, but not always, denies individual inventors patent rights growing out of research for which the public has already paid. Patents, the Justices opined, sometimes discourages further innovation and competition rather than spurring research and development, citing Justice Breyer's dissent in Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc. 548 U.S. 128 (2006). Thus, an important public benefit can be reflected in legal rules that may deny or limit the award of patent rights had the public already paid to produce the invention. Legal rules of this kind, the Dissent noted, have precedent, for example in an executive order that ordinarily gives the government title to any invention made by government employees who perform research for the government and statutes in specific areas of research that give the government title to inventions made pursuant to government contracts.

Justices Breyer and Ginsburg also disagreed with the Federal Circuit's holding that the Stanford employment agreement did not assign the rights to Stanford, noting that when Dr. Holodniy executed his agreement with Stanford in the late 1980s, patent law appeared to have long specified that a present assignment of a future invention conveyed equitable but not legal title. Under this rule, the Justices reasoned, both the initial Stanford and later Cetus agreements would have only given rise to equitable interests and not legal title. Legal title, therefore, would have been conveyed by the post-invention assignment executed by the inventors to Stanford. The Justices also criticized the 1991 Federal Circuit opinion in FilmTec v. Corp. v. Allied Signal, Inc., 939 F.2d 1568 (Fed. Cir.1991), reh'g. denied, 1991 U.S. App. LEXIS 22407, which appeared to have adopted a new rule that does not distinguish between equitable and legal title without giving any explanation for the change.

The full ruling is available online at http://www.supremecourt.gov/opinions/10pdf/09-1159.pdf

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