According to a recent Supreme Court decision, the answer may be “Yes” if you’re relying too heavily on the standard patent clause to protect your rights.
Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., involved a patent infringement battle over HIV testing technology developed by a Stanford University researcher after he worked at a private company to learn the underlying techniques. At issue was whether a federal contractor’s statutory right under the Bayh-Dole Act, 35 U.S.C. §§ 200-212, in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through an agreement purporting to assign the inventor’s rights to a third party. The Court answered the question in the affirmative, holding that the Act (and the standard patent clauses implementing it) does not automatically vest title to federally funded inventions in federal contractors or authorize contractors to unilaterally take title in such inventions.
In the Stanford case, the researcher in question, Dr. Holodniy, had signed an agreement promising to assign the University his “right, title and interest in” inventions resulting from his employment there. In pursuit of his research in the Department of Infectious Diseases, Holodniy worked for a time at Cetus, a small California research company that had developed PCR, a Nobel prize winning technique for quantifying levels of HIV in the blood. Before gaining access to Cetus, Holodniy was required to sign an agreement assigning the company his “right, title and interest in . . . the ideas, inventions, and improvements made “as a consequence of [his] access” to Cetus. Working with Cetus employees, Holodniy developed a new procedure for measuring HIV in the blood.
Holodniy retuned to Stanford and worked with colleagues there to test the procedure funded in part by a National Institutes of Health grant. The University subsequently secured three patents to his measurement process. After acquiring Cetus’ PCR assets, Roche Molecular Systems conducted clinical trials and commercialized the procedure, ultimately selling its HIV test kits worldwide. When Stanford sued Roche for patent infringement, Roche responded that Holdniy’s agreement with Cetus gave it co-ownership of the procedure so that the university lacked standing to sue for infringement. Stanford countered that Holodniy had no rights to assign because the Bayh-Dole Act gave it superior rights.
The District Court sided with Stanford, but the Federal Circuit Court of Appeals reversed, concluding that Holodniy’s agreement with Cetus assigned his rights to Cetus, and thus to Roche. The Federal Circuit also found that the Bayh-Dole act did not automatically void an inventor’s rights in federal funded work.
The Supreme Court upheld the Federal Circuit, noting that the Bayh-Dole Act allows federal contractors to elect to retain title in a “subject invention” but does not grant such title to the contractor. Further, the Act defines a “subject invention” as “any invention of the contractor conceived or first actually reduced to practice in the performance of” a contract or grant. Rejecting Stanford’s argument that the phrase “of the contractor” refers to “all inventions that a contractor’s employee make with federal funds”, the Court instead read it to mean “owned by” or “belonging to” the contractor. And since patent law has long operated on the premise that patent rights go to the inventor – so that an employer does not take rights in an employee’s invention absent an express grant by the employee – the contractor has no subject invention to retain title to under the Act unless it has already acquired that title from the inventor. According to the Supreme Court, “[t]he Act’s disposition of rights does nothing more than clarify the order of priority of rights between the Federal Government and a federal contractor in a federal funded invention that already belongs to the contractor.”
The Stanford decision makes clear that federal contractors (both commercial companies and universities) cannot simply rely on the Bayh-Dole Act to give them title to their employees’ inventions. Going forward, contractors who wish to retain title to those inventions must implement effective procedures to ensure that researchers expressly grant such title to the contractor via valid assignment agreements. In many cases, current agreements and procedures may be sufficient. However, contractors should analyze those agreements and procedures in light of this decision and modify them where necessary.
Unfortunately, even after making such modifications, a federal contractor cannot be certain that it has title in a given invention going forward. Depending on the frequency with which researchers sign agreements like that Cetus offered Holodniy – and the extent to which their employers lack of awareness and visibility into such arrangements, many contractors may find themselves in the same position as Stanford: believing they have title when the inventor has already signed it away.
Ideally, a contractor could survey its employees and develop a thorough understanding of their contractual arrangements with third parties and how past agreements impact the employee’s ability to grant title to new inventions. As a practical matter, however, researchers have almost certainly not kept track – or retained a copy -- of every agreement they’ve signed. Thus, determining a contractor’s rights in a particular invention simply may not be possible. In the face of this new reality, federal contractors need to assess the degree to which this lack of complete information may realistically impact their patent rights and take that uncertainty into account when negotiating representations, warranties and risk allocations relating to inventions made in the performance of a contract or grant.
Eric Whytsell is responsible for the content of this article.