Bayh-Dole Act Does Not Automatically Transfer Ownership of Patents Resulting from Federally-Funded Research, Bloomberg Law Reports®
In a 7-2 decision, the U.S. Supreme Court held that the University and Small Business Patent Procedures Act of 1980, 35 U.S.C. §§ 200-212, more commonly known as the Bayh-Dole Act, does not automatically transfer ownership of patented inventions created during the course of federally-funded research to the college, university, or other institution that contracted to perform the research. The Court cited the long-standing principle that inventors own their inventions and resulting patents, noting that although Congress has changed that rule in other statutes involving federally-sponsored research, it has not done so with respect to the Bayh-Dole Act. Accordingly, the Court reiterated that a contracting institution must obtain an effective assignment from the inventor in order for a patent to fall within the Bayh-Dole Act’s requirements.
Dr. Holodniy’s Research
While working as a researcher at the Board of Trustees of Leland Stanford Junior University (“Stanford”), Dr. Mark Holodniy signed a “Copyright and Patent Agreement” in which he “agree[d] to assign” the rights to any future invention resulting from his employment at Stanford. At Stanford, Holodniy worked on a research project funded by the National Institutes of Health (“NIH”) applying polymerase chain reaction (“PCR”) technology to measuring HIV levels in human blood samples. During the course of his work, Holodniy conducted some research at Cetus, a California company specializing in PCR technology. Holodniy signed Cetus’s standard Visitor’s Confidentiality Agreement (“VCA”), which included a provision stating that he “will assign and do[es] hereby assign” to Cetus any inventions made as a consequence of the visit. The Stanford research project resulted in several patent applications and three issued patents, U.S. Patent Nos. 5,968,730 (the ’730 patent),6,503,705 (the ’705 patent), and 7,129,041 (the ’041 patent), all covering PCR-based HIV assay technology and naming Holodniy as a co-inventor.
Cetus subsequently sold its PCR-related assets to Roche Molecular Systems, Inc. (“Roche”), which began marketing a diagnostic test kit for HIV detection. Stanford sued Roche in the U.S. District Court for the Northern District of California, alleging that Roche’s PCR assay products infringed the ’730, ’705, and ’041 patents. Roche defended on the grounds that the patents were invalid and that Stanford lacked standing to sue because Roche possessed ownership, license, and shop rights to the patents as a result of Roche’s acquisition of Cetus’s PCR assets. The district court ruled that Roche’s claim to rights in Stanford’s patents was time-barred and that Stanford never consented to Roche’s acquisition of rights in the patents. The court also granted summary judgment that the patents were obvious. See Bd. of Trs. v. Roche Molecular Sys., Inc., 487 F.Supp.2d 1099, 1124 (N.D.Cal.2007). Stanford appealed to the Federal Circuit, and Roche cross appealed on the standing issue.
In a December 2009 decision, the U.S. Court of Appeals for the Federal Circuit reversed the district court’s ruling on the standing issue. Although the Federal Circuit ruled that Roche’s claim for a declaration of ownership was time barred, the VCA executed by Holodniy in favor of Cetus was a valid present assignment of Holodniy’s interest in future patents, including the patents in suit, and did not violate the provisions of the Bayh-Dole Act. Accordingly, the court ruled that Stanford lacked standing to bring an infringement action against Roche, Cetus’ successor-in-interest. Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 848 (Fed. Cir. 2009). For a full discussion of the Federal Circuit’s decision, see Bloomberg Law Reports – Intellectual Property, Vol. 3, No. 42 (Oct. 19, 2009). Stanford petitioned for a writ of certiorari, which the Supreme Court granted.
Supreme Court Finds Bayh-Dole Act Silent on Transfer of Patent Title
In an opinion written by Chief Justice John Roberts, the Supreme Court affirmed the Federal Circuit, ruling that Holodniy assigned his invention rights to Cetus and rejected Stanford’s argument that the Bayh-Dole Act automatically transferred title to the patent from the inventors to Stanford.
The Bayh-Dole Act was enacted in 1980 to encourage universities and other institutions conducting federally-funded research to protect and commercialize any intellectual property that resulted from the research activities. Under the Act, a contracting institution must disclose inventions to the funding government agency and elect whether or not to “retain” title to the invention. If the institution opts to retain title, it must file a patent application, pursue patenting of the invention, and endeavor to commercialize the technology through licensing. The U.S. government retains a limited interest in the technology, including a royalty-free license to practice the technology for government purposes and “march-in” rights that, in some circumstances, permit the government to grant licenses to others.
On appeal, Stanford argued that the statutory scheme established by the Bayh-Dole Act only functions when the contracting institution obtains title to all patents resulting from federally-funded research. Without title, the contracting institution could not enforce its patents or effectively commercialize the technology through licensing. Roche contended, on the other hand, that the Bayh-Dole Act is silent regarding automatic transfers of title to patents, and in the absence of Congress’ creation of that right, contracting institutions must obtain title through effective assignments.
The Supreme Court observed that for over 200 years, courts have recognized that a patent belongs to the named inventors. Although an inventor may assign his or her interest to a non-inventor, “any such interest—as a general rule—must trace back to the inventor.” Board of Trustees at 7. See United States v. Dubilier Condenser Corp., 289 U.S. 178, 189 (1933) (unless there is an agreement to the contrary, an employer does not have rights in an invention which is the original conception of the employee alone).
In light of the long-standing principle of inventor ownership of patents, the Court found it notable that the Bayh-Dole Act lacks express language automatically transferring title to a contracting institution. Congress has inserted such automatic transfer provisions in other statutes, including patents covering inventions arising from contracts with the Atomic Energy Commission, 42 U.S.C. § 2182, the National Aeronautics and Space Administration, 51 U.S.C. § 20135(b)(1), and the Department of Energy, 42 U.S.C. § 5908. The Bayh-Dole Act, however, omits such a provision:
Such language is notably absent from the Bayh–Dole Act. Nowhere in the Act is title expressly vested in contractors or anyone else; nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions.
Id. at 8. Stanford argued that specific provisions in the Act should be construed to recognize that the contracting institution acquires title to patents in the first instance. For example, the Act refers to the “invention of the contractor,” and allows institutions to “elect to retain title.” See 35 U.S.C. §§ 201(e) and 202(a). Parsing the language of the statute, however, the Court ruled that those provisions could not be stretched to automatically transfer ownership of patents resulting from federally-funded research. The phrase “of the contractor” alone could not “subtly set aside two centuries of patent law in a statutory definition,” and if so construed would be superfluous. Id. at 9. A more meaningful interpretation of the term would be to distinguish between patents that the contracting institution had acquired through assignment, and those that it did not own.
In addition, the Court ruled that the provision allowing the contracting institution to “retain title” did not suggest automatic transfer of ownership. Observing that, “[y]ou cannot retain something unless you already have it,” the Court ruled that:
The 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. Such a provision makes sense in a statute specifying the respective rights and responsibilities of federal contractors and the Government.
Id. at 11. The Court noted that the requirements of the Bayh-Dole Act only come into play when an invention belongs to the contracting institution, and then only “serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.” Id. at 12. In practice, universities implementing the Act have instituted policies requiring researchers to execute effective assignments of their inventions, and the funding agencies expect those assignment to be in place. Therefore, the Court reasoned that interpreting the Act to not automatically transfer ownership would not severely undermine Bayh-Dole’s framework or operation. In sum, the Court held that:
It would be noteworthy enough for Congress to supplant one of the fundamental precepts of patent law and deprive inventors of rights in their own inventions. To do so under such unusual terms would be truly surprising. We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly—not obliquely through an ambiguous definition of “subject invention” and an idiosyncratic use of the word “retain.”
Id. at 14. Accordingly, the Court affirmed the Federal Circuit in ruling that Roche owned Holodniy’s interest in the patents, and as a result Stanford lacked standing to sue.
Justice Breyer’s Dissent
Associate Justice Stephen Breyer filed a dissenting opinion, joined by Associate Justice Ruth Bader Ginsberg. Justice Breyer argued that the majority’s approach to the patent ownership question conflicted with the Bayh-Dole Act’s fundamental objective to allow society to benefit from the exploitation of federally-funded research without having to pay for the rights twice. Justice Breyer argued that the Court should have set aside the Federal Circuit’s ruling that Holodniy’s Copyright and Patent Agreement with Stanford was not a valid present assignment of his rights in future patents. Justice Breyer suggested that in distinguishing that agreement from the Cetus VCA, the Federal Circuit made “too much of too little” and he expressed skepticism about the basis for that result, the Federal Circuit’s decision in FilmTec Corp. v. Allied–Signal, Inc., 939 F.2d 1568, 1572 (Fed. Cir. 1999). Board of Trustees, Breyer, J., dissenting at 7. Alternatively, Justice Breyer argued that the Court should more readily infer an assignment of inventions made by a researcher employed specifically to carry out federally-funded research that would otherwise be subject to the Bayh-Dole Act. See U.S. v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933) (a person who is “employed to make an invention, who succeeds, during his term of service, in accomplishing that task, is bound to assign to his employer any patent obtained”).
Federally Funded Inventions
Medical Devices & Imaging
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. Bloomberg Finance L.P. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.