Best Practices for Employee Assignments After Stanford v. Roche
Article Date: Thursday, March 08, 2012
Written By: Jocelyn Fina
Patent law in the United States saw many changes in 2011, including the new America Invents Act along with court decisions such as Stanford v. Roche. These changes are sure to affect patent protection and licensing in the coming years.
The Supreme Court’s 2011 decision in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. et al, 563 U.S. ___ (2011), draws attention to the need for precise, carefully drafted intellectual property assignment provisions in contracts between employers and employees, which include an agreement to assign and a present assignment of all inventions.
The question brought before the Supreme Court was whether the Bayh-Dole Act automatically vests title to federally funded inventions in federal contractors or authorizes federal contractors to unilaterally take title to inventions without a lawful assignment from the employee inventor to the employer. The Supreme Court held in a 7-2 decision that the Bayh-Dole Act does not automatically vest title in federally funded inventions in a federal contractor without an effective assignment.
Dr. Mark Holodniy joined Stanford University in the late 1980s as a research fellow to work on developing an improved method for quantifying HIV levels in patient blood samples using polymerase chain reaction (PCR) technology. As a condition of his employment, Dr. Holodniy signed a Copyright and Patent Agreement with Stanford University which stated that “he agree[d] to assign” to Stanford his “right, title and interest in” inventions resulting from his employment as a research fellow in Stanford University’s Department of Infectious Diseases.
Holodniy’s supervisor arranged for him to conduct research at the research company, Cetus, to learn more about the PCR technology. As a condition for gaining access to Cetus, Holodniy signed a Visitor’s Confidentiality Agreement which 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. At Cetus, Holodniy devised a PCR-based procedure for calculating the amount of HIV in a patient’s blood for doctors to determine whether a patient was benefitting from HIV therapy. At Stanford, Holodniy tested this HIV measurement procedure and Stanford secured three patents based on his work.
In 1991, Roche Molecular Systems acquired Cetus’s PCR-related assets and commercialized HIV-detection kits which incorporated the HIV quantification procedure developed by Dr. Holodniy while at Cetus. These HIV-detection kits are now used in hospitals worldwide.
In 2005, Stanford filed suit against Roche claiming that Roche’s HIV-detection kits infringed on Stanford’s patents. Roche responded that it was a co-owner of the HIV quantification procedure, based on Holodniy’s assignment of his rights to Cetus under the Visitor Confidentiality Agreement. Thus, Cetus argued that Stanford lacked standing to sue for patent infringement. Some of Stanford’s HIV research was funded by the NIH, subjecting the inventions to the Bayh-Dole Act.
The Bayh-Dole Act, allows federally funded contractors to elect to retain title to any “subject invention.” The Act defines “subject invention” as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.” “Contractor” is defined as any person, small business firm or nonprofit organization that is party to a funding agreement. To retain title in an invention, the contractor must:
• Disclose each subject invention to the applicable federal agency;
• Elect to retain title within 2 years of disclosure; and
• File patent application.
A federal agency that provided the funding gets a non-exclusive, non-transferable, irrevocable license to practice the subject invention.
Stanford argued that under the Act, a federal contractor automatically has rights in an employee’s invention without the requirement of a formal assignment from the inventor to the contractor. Based on this premise, Stanford argued that its rights to Holodniy’s research were superior to Cetus under the Bayh-Dole Act because Holodniy had no rights to assign.
The District Court sided with Stanford, holding that the Bayh-Dole Act conveys title in an invention to the inventor only after the government and contracting party have declined title. Thus, the court held that Holodniy had no rights to convey to Cetus. However, the Court of Appeals for the Federal Circuit reversed the District Court’s decision stating that the Bayh-Dole Act does not automatically vest title in an invention to a federal contractor. The Court of Appeals stated that Holidniy’s initial agreement with Stanford was a mere promise to assign rights in the future but Holidniy’s agreement with Cetus itself assigned his rights in the inventions to Cetus.
The U.S. Supreme Court agreed with the Court of Appeals and held that the Bayh-Dole Act does not automatically vest title to federally funded inventions in federal contractors or authorize contractors to unilaterally take title to such inventions. The court cited other federal contracts where this is not the case and title does automatically vest with the government, such as the Atomic Energy Commission and NASA. These contracts use language which expressly vests title in the U.S.
The language in the Bayh-Dole Act, i.e. “contractor may elect to retain title to any subject invention,” is missing automatic vesting of rights in subject inventions to the contractor. The Court stated that retain means to hold in possession – not to acquire or receive - and a person cannot retain something he does not have.
The court looked at the meaning of “subject invention,” which is an invention of the contractor conceived or first reduced to practice in performance of work under a funding agreement. Stanford’s interpretation meant all inventions made by a contractor’s employees with the aid of federal funding made the phrase “of contractor” superfluous.
The court went on to state that patent law rejects the idea that mere employment is sufficient to vest title to an employee’s invention in the employer. The inventor must expressly assign or grant those rights to his employer. So, inventions “of contractor” or inventions “owned by contractor” does not automatically include inventions by a contractor’s employees.
The court further stated that its construction of the Act was reflected in common practice among parties operating under the Act. The Supreme Court quotes the NIH Policies, Procedures and Forms, which provides guidance to contractors and states that contractors should “have in place employee agreements requiring an inventor to ‘assign’ or give ownership of an invention to the organization upon the acceptance of Federal funds.”
In the final paragraph of the opinion, the Supreme Court stated that “universities typically enter into agreements with their employees requiring the assignment to the university of rights in inventions. 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.”
As a result of Stanford v. Roche, universities receiving federal funding and government contractors cannot rely on the Bayh-Dole Act to independently transfer title to inventions from the inventor to the contractor, without an effective, present assignment of such inventions. Government contractors must take steps to secure present ownership of inventions from their employees.
Stanford v. Roche highlights the litigious consequences and subtle nuances in the drafting of intellectual property assignment provisions, not just for universities, but also for corporations. An employer, whether or not a federal contractor, should require both an agreement to assign and a present assignment of all inventions created by an employee as a result of the employee’s employment. •
Jocelyn Fina is an Associate in the IP Group of Womble Carlyle’s Research Triangle Park office.
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