On June 6, 2011 in a 7–to-2 decision, the U.S. Supreme Court in Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, Inc., ruled that the Bayh-Dole Act does not automatically vest title to inventions resulting from research funded by the federal government in federal contractors such as universities.  Under the ruling, an individual researcher can deprive a federal contractor, such as a university, of the ownership of federally funded inventions by unilaterally transferring his or her interests to a third party.  The decision is also an important reminder for universities and private companies that a patent assignment must contain a present assignment to be effective.

The Court predicated its ruling in part on the Federal Circuit’s interpretation of two invention assignment agreements signed by Dr. Mark Holodniy, a Stanford University researcher and one of the inventors of a family of HIV diagnostic patents that were assigned to Stanford.  In 1988 Holodniy became a research fellow at Stanford and signed Stanford University’s Copyright and Patent Agreement ("CPA").  Under the CPA, he “agree[d] to assign” to Stanford his “right, title and interest in” inventions resulting from his employment at Stanford.

At Stanford Holodniy undertook the development of an improved method for quantifying HIV levels in blood samples using polymerase chain reaction technology (PCR).  Some of this research was funded by the National Institutes of Health, thereby subjecting Stanford to the Bayh-Dole Act.  Because Holodniy was largely unfamiliar with PCR, his supervisor arranged for him to conduct research at Cetus.  In 1989 he signed a Visitor’s Confidentiality Agreement ("VCA") to gain access to Cetus.  That agreement stated that Holodniy “will assign and do[es] hereby assign” to Cetus his “right, title and interest in each of the ideas, inventions and improvements” made “as a consequence of [his] access” to Cetus.

In 1991 Roche purchased Cetus’s PCR business including the Holodniy VCA.  Thereafter Roche commercialized the HIV test procedures that were invented by Holodniy and Cetus employees.  In 1992 Stanford filed the first of a series of patent applications claiming the PCR-based HIV test resulting from the research conducted by Holodniy.  Stanford asserted patents issuing from these applications against Roche in 2005.

In the suit Roche raised the affirmative defense of joint ownership of the subject patents by virtue of Holodniy’s assignment of his rights in the VCA.  The district court rejected that argument.  On appeal, the Federal Circuit reversed.  In assessing Roche’s claim of joint ownership, the Federal Circuit held that Roche was a co‑owner of the patents‑in‑suit by virtue of the VCA.  It held that the language in the Stanford CPA “agree to assign” reflected a mere promise to assign rights in the future, not an immediate transfer of interests, whereas the VCA’s “do hereby assign” language effected a present assignment of Holodniy’s future inventions to Cetus.  Thus, the Federal Circuit held that Cetus’ VCA gave Cetus a prior legal right to the Holodniy inventions and the Bayh-Dole Act could not defeat Cetus’ right.  Therefore, Roche was a joint owner of the subject patents.

On appeal to the U.S. Supreme Court, Stanford asserted that, when an invention is conceived or first reduced to practice with the support of federal funds, the Bayh-Dole Act vests the title to those inventions in the inventor’s employer – the federal contractor, in this case Stanford.  The Court rejected Stanford’s assertion, stating that since 1790 U.S. patent law has operated on the premise that the rights in an invention belong to the inventor, and the Bayh‑Dole Act does not alter that premise.  In particular, Stanford could not point to any provision of the Bayh‑Dole Act that expressly states that “[t]he Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.”

The majority also rejected Stanford's argument that this result would fundamentally undermine the Bayh-Dole Act:  “With an effective assignment, those inventions – if federally funded – become ‘subject inventions’ under the Act, and the statute as a practical matter works pretty much the way Stanford says it should.”

Justice Stephen G. Breyer (joined by Justice Ginsburg) dissented, predicting that the majority’s decision will hinder the commercializing and marketing of an invention made with federal funds because a potential purchaser/licensee will not know if the university possesses the patent right in question or whether the individual, inadvertently or deliberately, had previously assigned title to a third party.

 This decision suggests several important practice tips:

• To assess the possibility or risk, current licensees of patents derived from federal funding should carefully review the chain of title to their licensed patents to determine whether present assignments from the inventor and prior owners were obtained.
• Prospective licensees of federally funded technology should carefully investigate, as part of a thorough due diligence process, the possibility that an inventor may have assigned rights elsewhere, and consider protective license provisions that minimize the risk of loss in the event of future ownership claims from third parties. 

• Universities and other recipients of federal funds for research should carefully review employee invention assignment agreements to ensure that they contain language that uses a present, not future, assignment of inventions.  Such agreements also should include a prohibition against assigning to third parties those inventions covered by the employment agreement.  

• Universities and other recipients of federal funds for research should caution their employees not to execute third-party agreements without prior approval.  As the Federal Circuit pointed out, employers may have constructive notice of their employees’ entering into third-party assignment agreements.  All third-party agreements should thus be prospectively reviewed and approved by counsel. 

• Companies entering into consulting agreements with university personnel should consider whether prior invention assignments by the consultant to the university may restrict or prohibit invention assignments that may be included in the consulting agreement.

©2011 Perkins Coie LLP