University Patent Rights Could Rely More On Contracts Than Bayh-Dole, Supreme Court Suggests

In oral arguments in Stanford v. Roche, justices question why inventors cannot directly assign their inventions; government is concerned universities could eliminate its share of royalties.

Supreme Court justices heard oral arguments on Feb. 28 as to whether a university researcher can assign rights to an invention created with federal funding to a third party. The justices repeatedly questioned if the university could have avoided the dispute at hand by entering an explicit contract with its employee.

The case, Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, concerns the ownership of three patents for monitoring the effectiveness of HIV treatments. Stanford researcher Mark Holodniy, who helped develop the process at Stanford, had assigned rights to any future invention to both Stanford and Cetus. Cetus later transferred the interest in its agreement with Holodniy to Roche.

Stanford sued Roche claiming its HIV detection kits infringed the university's patents and Roche in turn claimed ownership of the patents through its agreement with Holodniy. Holodniy's agreement with Stanford stated "I will assign" rights to an invention while his agreement with Cetus said "I hereby do assign." The U.S. Court of Appeals for the Federal Circuit concluded that the agreement with Stanford was a promise to assign rights and trumped by the "present assignment" to Cetus.

The court was asked to determine if the Federal Circuit's ruling went against the Bayh-Dole Act of 1980, which specifies that an inventor can receive title to a federally-funded invention only when the contractor (the university) chooses not to retain the title and the government authorizes the inventor to take title. The pharma and biotech industries were concerned that the case could undermine the legal principle that the original ownership of the inventions vests with the inventor.

Would There Be A Case With Different Contract Language?

Several justices suggested that Stanford could have avoided the conflict through contract law rather than relying on Bayh-Dole.

"There was a standard Stanford agreement that said 'I will assign any patent,'" Justice Ruth Bader Ginsburg stated. "So why isn't that the beginning and end of this case?"

Ginsburg said Cetus would have come second in time and therefore would not have prevailed over Stanford except that the Federal Circuit said one agreement was a future conveyance and the other was an immediate conveyance. She later asked if there would be a case if Stanford had instead used the "I hereby do assign" terminology instead of "I will assign."

Noting that he had the same concern, Justice Anthony Kennedy asked Stanford's attorney Donald Ayer, of Jones Day: "Why can't we resolve this case in a simple way? What you're asking for, based on submissions to us of amicus briefs, means a very great change in how patents are held. If we can resolve this case on a simple contract basis, why not do it?"

Chief Justice John Roberts Jr. asked Roche's attorney Mark Fleming, of Wilmer Culter Pickering Hale and Dorr: "Is there a reason that the federal government can't just say, from now on we're not going to give any money to Stanford or anybody else until they have an agreement making clear that the inventor is going to ensure that title rests with the university, which then triggers the Bayh-Dole Act?"

Industry Is Concerned With Automatic Assignment Of Rights

The Biotechnology Industry Organization and the Pharmaceutical Research and Manufacturers of America each filed amicus briefs in support of Roche. Hans Sauer, deputy general counsel of intellectual property at BIO, said the organization does not know who should win the case but believes the right approach is to determine the inventor's obligation under contract with the university rather than interpreting Bayh-Dole as immediately assigning ownership of an invention to the university.

"The big ask by Stanford and the government was that Bayh-Dole be interpreted as a vesting statute where the title automatically passes to the university without the need for assignment," Sauer said.

Sauer, who attended oral arguments, said his impression from the justices' questions was that they were looking for a narrower way to resolve the case.

Justice Stephen Breyer cited an amicus brief filed by the Association of American Universities and the Advancement For Science and the Council on Education which made an analogy to government employees. Breyer said the government does not deny an employee the right to have the invention but insists upon assignment of an exclusive license.

Government Is Worried Universities Could Undercut Its Rights

The Solicitor General had submitted an amicus brief in support of Stanford, arguing that Holodniy had only a contingent interest in obtaining a title to the invention if Stanford did not exercise its rights (Also see "Supreme Court Gets Nudge On Bayh-Dole Case; Denies HRT Petition; Will Review Infringement “State Of Mind”" - Pink Sheet, 18 Oct, 2010.).

At oral arguments, Deputy Solicitor General Malcolm Stewart argued in support of Stanford but also expressed concern that universities could abrogate the rights of government to some return on their investment.

"We're worried not just about what can be done to universities, but what universities could do to us," Stewart stated. "Under respondent's theory, universities could make a conscious, calculated decision that, rather than obtain an assignment for their inventors, they would simply agree with the inventor that royalties would be split. . .that the inventor would retain title and, perhaps with the assistance of the university's technology transfer office, would negotiate with commercial entities. And the effect would be to contract around Bayh-Dole."

Chief Justice Roberts also raised the potential for government to be left out of the loop. He asked Stanford's attorney if the university would be willing to negotiate less than a full assignment of inventions in order to get a prominent researcher. "In other words," he asked, "wouldn't you be willing to sell the interests of the United States down the river to advance your interests?"

Ayer responded, "Well, we would not, I think, be willing, and I wouldn't think anybody would be willing, to break the law."

-Brenda Sandburg ([email protected])