Clouds of Doubt Federally Funded Nonprofit/Small Business Inventions Under Stanford v. Roche
Article Date: Monday, February 28, 2011
Written By: Jason Condrasky
It seems oddly appropriate to be revisiting the University and Small Business Patent Procedures Act, better known as the Bayh-Dole Act, following its recent 30th anniversary celebration. The Bayh-Dole Act has been tagged by economists and technology transfer officers as “possibly the most inspired piece of legislation to be enacted in America over the past half-century, one that has helped reverse America’s precipitous slide into industrial irrelevance.” Economist Technology Quarterly, December 2002. But the Supreme Court has recently agreed to hear the appeal of Stanford University v. Roche Molecular Systems, Inc., Docket No. 09-1159, that, arguably, may spin the Bayh-Dole Act into one of the more clouded, despised pieces of intellectual property legislation.
Billions of federal dollars are invested annually in not-for-profit research institutions to support research projects. Often, these monies are dedicated to the institution’s objectives of enhancing educational and research programs. Occasionally, the government-funded projects develop into technologies appropriate for patent protection, and even ripen into commercial exploitation. The Bayh-Dole Act, 35 U.S.C. §200-212, governs the ownership/disposition of inventions made by nonprofits and small businesses under these situations.
Bayh-Dole was passed by Congress in 1980 as an amendment to the Patent Law. 37 C.F.R. §401. Under the Act, Congress created a uniform process where research institutions could elect title to inventions created under federal support, while promoting the commercialization and public availability of inventions made in the United States by United States industry and labor. 35 U.S.C. §200. Bayh-Dole preempts any other federal Act or federal funding agreement unless Congress, in plain language, overrides the Act. See 35 U.S.C. §210 for precedence of chapter; Also see, 35 U.S.C. §202(b) (a federal funding agency can declare an exceptional circumstance for a specific program which removes the federally-funded program from the operation of Bayh-Dole). And for the better portion of three decades, nonprofits and small businesses relied on the premise that Bayh-Dole initially vests ownership interest of subject inventions developed with federal funding in the nonprofit, rather than in the federal government or in the individual inventor. 35 U.S.C. §202. The Federal Circuit’s holding in Stanford v. Roche appears to question, if not circumvent, that statutory scheme.
Bayh-Dole Particulars – How is the Bayh-Dole Act triggered? Bayh-Dole = [federal financial assistance] [subject invention] + [conception OR first reduction to practice]
The patent obligations and restrictions guarded by Bayh-Dole are triggered when a nonprofit/small business receives financial assistance from the federal government. Traditionally, a federal agency, for example the National Institutes of Health as seen in Stanford v. Roche, serves as a distribution channel to provide financial assistance for a specific project. Next, the Act encompasses a broad scope of inventive subject matter, known as subject inventions. These subject inventions are defined as inventions which are, or may become, patentable or otherwise protectable under Title 35, or any novel variety of plant which is or may be protected under the Plant Variety Protection Act. 7 U.S.C. §2321 et seq. Lastly, the Act requires that the subject invention be either conceived or first reduced to practice in the performance of a grant, contract or cooperative agreement. See 35 U.S.C. §201(e), Also consider, most federal assistance programs are now funded through grant s, however cooperative agreements, which typically entail multiple institutions or an industry participant, and federal contracts are both commonly-used federal financial assistance vehicles. Therefore, the Act may be triggered even after an inventor has conceived the subject invention. For example, a government agency may step in to fund a project after an inventor conceives of the idea, but before the inventor is able to first reduce the idea to practice. In this instance, if the inventor relies on the federal funding to assist in the first reduction to practice, the provisions of Bayh-Dole apply to the ownership/disposition of the inventions.
After Bayh-Dole is triggered, how does the statute handle title? According to technology transfer officers, before Stanford v. Roche, the right to title vests initially in the nonprofit/small business. To retain title in these inventions, the organization must follow a procedural framework outlined in the Act; including notifying the federal funding agency of the subject invention, electing title and filing a patent application on the invention. See 37 CFR 401 et seq. for procedures/timelines that must be followed. However, the assumption that title vests initially in the nonprofit/small business by the statutory framework of Bayh-Dole has been called into question in Stanford v. Roche. And now, both technology transfer officers, on one side, and government-funded inventors and for-profit companies invested in their research, on the other side, wait for Supreme Court clarification.
Stanford v. Roche Background
Stanford and Roche dispute the patent ownership interest of one co-inventor of technology that was developed, at least in-part, under federal funding. The claimed subject matter was partially created at a nonprofit institution, Stanford, and partially created at a for-profit company, Cetus (predecessor of Roche). The co-inventor executed conflicting assignment agreements at both organizations.
The patents-in-suit claim methods for evaluating the effectiveness of anti-HIV therapies developed by Stanford researchers. One of the co-inventors, Dr. Holodniy, a Stanford post-doc, developed a claimed assay partially at Stanford and partially at a for-profit company. In 1988, Dr. Holodniy joined Stanford’s Department of Infectious Disease and executed the Stanford Copyright and Patent Agreement. This Stanford agreement provided that Dr. Holodniy “agree[d] to assign” inventions to Stanford. Further, the Stanford agreement prohibited creating “patent obligations in conflict with this agreement.”
In 1989, Dr. Holodniy continued his inventive work during collaboration with Cetus, a for-profit biotech company. Before beginning his work at Cetus, Dr. Holodniy executed the Cetus Visitor Confidentiality Agreement, which read “will assign and do[es] hereby assign” rights of inventions conceived and/or first reduced to practice as a consequence of access to company information and facilities. Dr. Holodniy spent nine months at Cetus developing the claimed assays, where he was assigned to a lab bench and had access to proprietary company materials and equipment. After Dr. Holodniy returned to Stanford, he and his co-inventors continued to develop the technology under the financial support, in part, of a National Institutes of Health grant. Stanford later filed a patent application naming Dr. Holodniy and other Stanford employees as inventors. No Cetus employees were named as co-inventors. This parent patent and two continuations are the patents-in-suit.
Roche subsequently acquired Cetus, including a transfer of its interests in Dr. Holodniy’s Visitor Agreement. Roche then began manufacturing HIV test kits that incorporated the technology that was partially developed at Cetus but was protected under Stanford’s patents. Years after Roche’s products had been on the market, Stanford sued for patent infringement, claiming approximately $250 million in royalties. Roche countered that it was a co-owner of the patents due to Dr. Holodniy’s assignment to Cetus. Stanford argued that the Bayh-Dole Act superseded all side-contracts from individual inventors, including Dr. Holodniy’s Visitor Agreement. Therefore, according to the university, Stanford owned the entire interest in the patents.
The district court agreed that Stanford had proper standing to bring patent infringement claims against Roche based on provisions in the Bayh-Dole Act. The district court explained that the Act gave Stanford ownership of Dr. Holodniy’s interest in the patents arising from the NIH-funded research. The Federal Circuit, however, rejected the district court’s judgment founded on the Bayh-Dole Act. The Federal Circuit concluded the Act has no effect on ownership disputes as between a research institution and an individual inventor. The Federal Circuit reasoned that government-funded inventors have the same patent rights enjoyed by any other inventor. And therefore, patent ownership vests initially with the inventor and the inventor has the freedom to convey those rights to a third party.
The court explained that the language in the Stanford Agreement in which the inventor ‘agree[d] to assign” his inventions to the university constituted only a promise to assign those rights in the future. The court further concluded Roche’s Agreement present tense “do[es] hereby assign” language conveys an ownership to the company immediately upon conception of the inventions. The Court awarded Roche title to Dr. Holodniy’s ownership interest. However, Stanford maintained co-ownership of the patents through assignments from the other named Stanford researchers.
Stanford and its Chorus of Amici’s Reliance on Bayh-Dole
Stanford and its amici rely on the provisions of the Bayh-Dole Act to explain the university’s right to Dr. Holodniy’s ownership interest in the patents. Stanford and its supporters submit that the claimed assays were subject inventions conceived and first reduced to practice under an NIH grant, and therefore, the protections and obligations of the Bayh-Dole Act were triggered. According to this statutory interpretation, Stanford’s right to Dr. Holodniy’s ownership interest supersedes his agreement with Cetus. On appeal to the Supreme Court, Stanford and its amici argue, among other issues, that (1) the Federal Circuit decision (hereinafter the “Decision”) fails to explain why a present assignment could trump Bayh-Dole’s clear statutory framework, and (2) the Decision creates uncertainty as to title and obligations under the Bayh-Dole Act.
According to Stanford, the Decision is contrary to clear statutory language. The technology transfer officers believe the Federal Circuit erroneously took the starting position that an individual inventor has a right to make a side agreement that would extinguish Stanford’s ownership interest in the co-inventor. They argue the Decision contravenes the plain language of the Act that provides Stanford the statutory right to make an ownership election that could not be overridden by any inventor’s side agreement. See 35 U.S.C. §202(a): “Each nonprofit organization…may, within a reasonable time after disclosure … elect to retain title to any subject invention.” The Act provides procedures to allow an individual inventor to gain an ownership right in the subject inventions, and Stanford argues Dr. Holodniy did not follow these procedures. The Act allows an inventor to acquire an ownership interest if the inventor actively approaches both the nonprofit and government funding agency. See 35 U.S.C. §202(d). In particular, an individual inventor’s ownership rights vests only if the research institution declines to exercise its right to elect title to the subject invention and the federal funding agency consents to the ownership exchange. Stanford and its amici submit that Dr. Holodniy did not properly satisfy these statutory requirements, and at most, the inventor could only provide an ownership interest that was subject to his contract with the university.
Stanford also argues the Decision creates uncertainty as to title, contrary to the goals of the Act. According to university supporters, under the Decision, an individual inventor may circumvent the Act by assigning his or her title to subject inventions yet to be conceived to a for-profit third party. Stanford claims such a radical change in technology transfer undermines Bayh-Dole’s goal of ensuring a uniform framework for the ownership of inventions made with government funding. They believe this uncertainty will cloud title during commercialization negotiations and impose unreasonable costs and efforts on research institutions to police individual inventor side agreements.
Further, Stanford urges the Decision contravenes the commercialization and manufacturing obligations provided by Bayh-Dole. Stanford explains that the provisions of the Act do not allow unrestricted use of subject inventions. They point to provisions such as the restrictions of march-in rights, the made-in-America restrictions, the obligation to use royalties to benefit education and research, and the government’s non-exclusive confirmatory license required under by Bayh-Dole. See 35 U.S.C. §202-204. According to Stanford, the Decision will enable for-profit companies to ignore these statutory requirements and take unfair advantages of federally-funded inventions otherwise protected from perceived abuses under Bayh-Dole.
Stanford and its amici urge the Supreme Court to begin its analysis with the provisions of the Bayh-Dole Act. Because the claimed assays were subject inventions conceived and first reduced to practice under an NIH grant, Stanford argues its right to Dr. Holodniy’s ownership interest supersedes his agreement with the for-profit company.
Roche and its Supporters
Roche counters that the Bayh-Dole Act does not alter an inventor’s basic freedom to assign his own rights in an invention to a third party. Instead, Roche and its supporters submit that Dr. Holodniy’s assignment to a private company extinguishes Stanford’s right to title, as was held by the Federal Circuit. According to Roche, Stanford’s real objective is to gain exclusive ownership in the patents. Stanford already co-owns the patents-in-suit through assignments from the other named inventors, but Stanford can only ensure exclusive ownership of the patents through Dr. Holodniy’s interest. Roche warns the Supreme Court that this dispute is not founded on statutory interpretation, but on Stanford’s greed to gain exclusivity of profitable patents.
Roche urges the Supreme Court to begin its analysis with the longstanding patent law principle that gives an inventor an express statutory right to assign his or her interest in patents. 35 U.S.C. §261. According to Roche, this right extends to expectant interests in future inventions, and in this case, Dr. Holodniy conveyed his interest in future inventions to Cetus. In support of this position, Roche claims the assignment of expectant interests automatically transfers the inventor’s rights in it to the assignee, without the need of any further action. FilmTec Corp. v. Allied-Signal Inc., 939 F.2d 1568, 1572-73 (Fed. Cir. 1991). Roche and its supporters believe the Bayh-Dole Act did not change these longstanding patent law principles.
Roche defends this statutory interpretation by explaining the distinction between “having title” under patent law principles and “retaining title” under the Bayh-Dole Act. According to Roche, the Act merely sets forth steps that a nonprofit/small business must take in order to have the ability to retain title. Roche submits that the Act, therefore only applies to situations in which the university would otherwise have title. Therefore, Roche and its supporters urge the Supreme Court to draw the distinction between initially vesting title in the inventor under the patent laws and the unique ability to retain title under the particular circumstances discussed under Bayh-Dole.
Further, according to Roche’s Brief in Opposition, nothing in the Act supports allowing Stanford to use federal funding as an offensive weapon to circumvent an inventor’s pre-existing contractual obligations. Univ. of Pittsburgh v. Townsend, 542 F.3d 513 (6th Cir. 2008). Instead, Roche argues that university bureaucrats and the university supporters in this case are overreaching the target goals of Bayh-Dole. Roche cautions that Stanford and its supporters are muscling for short term inappropriate financial and administrative interests unsupported by the Act.
Roche also opposes Stanford’s Bayh-Dole policy arguments. Roche submits that the underlying policies of the Act to “promote commercialization and public availability of inventions made in the United States by United States industry and labor” are better advanced by allowing Roche to continue to commercialize its products, as compared to Stanford’s interest in attaining exclusive ownership.
The Supreme Court will soon decide whether a nonprofit’s apparent right under the Bayh-Dole Act can be frustrated unilaterally by an individual inventor through a side agreement. The nonprofit and its amici urge that the Bayh-Dole Act supersedes the individual inventor’s side agreement, and if affirmed, the Federal Circuit ruling would create an unreasonable burden on technology transfer offices. The for-profit company and its supporters counter that the Act does not alter an inventor’s basic freedom to assign his own rights in an invention to a third party. Amending assignment agreements to eliminate future tense “promise to assign” problem language will likely minimize disputes highlighted in Stanford v. Roche moving forward. However, title to decades of technologies developed under federally financed/for-profit collaborations are potentially in doubt based on the Federal Circuit decision until we hear from the Supreme Court.
Jason Condrasky is an associate at MacCord Mason, 300 N. Greene St., Suite 1600, Greensboro, NC 27401 and can be reached at firstname.lastname@example.org. The content of this article reflects the current thoughts of the author and should not be attributed to the firm, nor any of its former, current or future clients. The author thanks Art MacCord and Kelly Robinson for their helpful comments.
Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.