Stanford University v. Roche Molecular Systems, Inc. (09-1159)
Oral argument: Feb. 28, 2011
Appealed from: United States Court of Appeals for the Federal Circuit (Sept. 30, 2009)
BAYH-DOLE ACT, PATENT, PCR, POLYMERASE CHAIN REACTION, ROCHE, STANFORD UNIVERSITY, CETUS
In the late 1980s, Dr. Mark Holodniy, a Stanford University researcher, conducted part of his research at a private biotechnology company. The result of his work, which was partially funded by the government, was an improved method for testing the effectiveness of HIV treatments. Over the next few years, Roche Molecular Systems, the owner of the biotechnology company at which Dr. Holodniy conducted his research, incorporated his invention into its publicly sold HIV-testing kits. At roughly the same time, Stanford, Dr. Holodniy’s employer, began the process of patenting the invention under the University and Small Business Patent Procedure Act, commonly known as the Bayh-Dole Act. In 2005, Stanford sued Roche for patent infringement, arguing among other things that the Bayh-Dole Act gave Stanford the exclusive first right to acquire ownership of Holodniy’s invention. The district court ruled for Stanford, but the Federal Circuit reversed, holding that an assignment of ownership rights in an earlier confidentiality agreement between Holodniy and the biotechnology company trumped Stanford’s ownership rights. Now, the Supreme Court must decide whether the Bayh-Dole Act prevents individual inventors from assigning to third parties their ownership rights in federally funded inventions.
Whether a federal contractor university’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 a separate agreement purporting to assign the inventor’s rights to a third party.
May an employee of a university receiving government funding assign the rights in an invention to a third party without the university’s consent, or does the university retain the rights to the invention under the Bayh-Dole Act?
In the late 1980s and early 1990s, a team of scientists working at Stanford University and Cetus Corporation laboratories developed a method to discern the efficacy of HIV drug treatments. See Stanford Univ. v. Roche Molecular Sys., 583 F.3d 832, 837 (Fed. Cir. 2009). In 1992, Stanford filed three patents related to this method and named Mark Holodniy, Thomas Merigan, David Katzenstein, and Michael Kozal as the inventors. See id. at 837–38. The National Institute of Health (NIH) funded Stanford’s HIV research, so in 1995 Stanford duly notified the government that it had elected to retain title in the inventions per the University and Small Business Patent Procedure Act of 1980, better known as the Bayh-Dole Act (“the Act”). See id. at 838; 35 U.S.C. §§ 200 et seq.
A critical component of the team’s method is a technique called polymerase chain reaction (PCR), which was developed by Cetus. See Stanford, 583 F.3d at 837. Recognizing the potential of PCR in HIV research, it was arranged for Holodniy to collaborate with Cetus scientists. See id. Holodniy signed a Copyright and Patent Agreement (CPA) which committed him to assign any future inventions to Stanford. See id. at 838. However, prior to beginning at Cetus, Holodniy signed a Visitor’s Confidentiality Agreement (VCA). See id. at 837. In signing the VCA, Holodniy immediately assigned to Cetus any invention he created as a result of his work at Cetus. See id. Eventually, Holodniy’s work at both Cetus and Stanford contributed to the discovery of a method to quantify HIV RNA, which would ultimately lead to the patents in question in this case. See id.
In December 1991, Roche Molecular Systems (“Roche”) bought Cetus’s PCR business through an Asset Purchase Agreement. See Stanford, 583 F.3d at 837–38. Soon after, Roche began producing commercial HIV kits using the method that Holodniy’s work helped develop. See id. In 2000, a Senior Licensing Associate at Stanford approached Roche to assert Stanford’s ownership over the patents in question, and to offer Roche an exclusive license. See id. at 838. These negotiations with Roche ultimately proved fruitless. See id.
In 2005, Stanford filed suit against Roche in the Northern District of California claiming patent infringement. See Stanford, 583 F.3d at 838. Roche counterclaimed, stating that its purchase of Cetus’s PCR assets secured it ownership and license rights over the patents. See id. Roche’s counterclaim also asserted that Stanford’s patent claims were invalid. See id. The District Court found that California’s statute of limitation, laches, and the Bayh-Dole Act prevented Roche from claiming ownership. See id. Also, because Stanford did not consent to the transfer of Cetus’s patent licenses to Roche, Roche did not have a license to the patented methods. See id. However, the District Court invalidated the patent claims for obviousness because of earlier reports published in the Journal of Infectious Diseases. See id. at 839.
Upon appeal, the Federal Circuit Court of Appeals held that nothing at the time Holodniy signed the VCA prevented him from assigning his rights to discoveries he made using PCR. See Stanford, 583 F.3d at 844. The Federal Court of Appeals ruled against Stanford and its interpretation of the Bayh-Doyle Act. See id. Stanford now appeals that decision to the Supreme Court.
The controversy in this case concerns The University and Small Business Patent Procedures Act of 1980, better known as the Bayh-Dole Act (“the Act”). See 35 U.S.C. §§ 200-212. The Supreme Court’s decision here could have serious implications on the future of government-funded research.
The petitioner, Stanford University, accepted federal money to conduct research. See Brief for Petitioner, Board of Trustees of the Leland Stanford Junior University at 32–33. In doing so, Stanford argues that the Act established Stanford’s superior ownership rights over inventors to inventions created with that funding. See id. Stanford explains that the Act’s purpose is to promote the commercialization of government-funded inventions. See id. at 45. Stanford argues that its reading of the Act provides the certainty necessary to comport with this purpose. See id. In reply, Roche Molecular Systems (“Roche”) contends that the Act does not preemptively defeat inventors’ rights, but requires contractors to secure inventors’ assignments. See Brief for Respondent, Roche Molecular Systems, Inc. at 48. Moreover, Roche argues that such assignments provide adequate certainty for continued commercialization of government-funded inventions. See id.
The United States echoes Stanford’s concerns that the commercialization of government-funded projects may be jeopardized if rights to these project could be lost to an inventor’s prior or inadvertent assignment. See Brief for Amicus Curiae the United States in Support of Petitioner at 30. The United States fears the substantial increase in due diligence costs that will result under Roche’s reading of the Act. See id. Intel Corporation and other leading companies (collectively “Intel”) add that under Stanford’s reading, universities could predatorily inject small amounts of government funding into any project and then legally own all rights to any invention produced. See Brief of Amici Curiae Intel Corporation, et al. in Support of Respondents at 18–19. Intel suggests that this would not protect collaboration with private industry, but would rather create a disincentive to do so. See id.
The American Intellectual Property Law Association (AIPLA) argues that the United States’ fears are unwarranted. See Brief of Amicus Curiae American Intellectual Property Law Association in Support of Neither Party at 28–29. AIPLA concedes that while due diligence is costly, universities are able to protect non-federally funded research. See id. at 28. It repeats Roche’s contention that universities can secure assignments contractually. See id. at 30. However, the Association of American Universities (AAU) counters that AIPLA’s and Roche’s contractual solutions amount to legal opportunism. See Brief of Amici Curiae Association of American Universities, et al. in Support of Petitioner at 35. The AAU contends that Roche’s argument that universities should improve their standard contracts to avoid this legal predicament ignores the principle of the Act. See id. Further, the AAU warns that Roche’s reading not only seriously increases due diligence costs that burden public fiscal resources, but that the security of past and pending patents are still potentially at risk. See id. at 36.
Senator Birch Bayh worries that the public will ultimately be the ones who suffer when their tax dollars no longer return the social and economic dividends that the Act was meant to protect. See Brief of Amicus Curiae of Birch Bayh in Support of Petitioner at 12, 19. Roche questions this fear, pointing out that Stanford filed its patent applications in 1992, but made no attempts to commercialize the invention for eight years. See Brief for Respondent at 52. In the meantime, Roche obtained approval from the Food and Drug Administration and commercialized the invention, helping millions of HIV sufferers. See id.
The nonprofit Bayhdole25 suggests that a proper reading of the Act should not allow government rights to federally-funded inventions to be defeated by the whims of individual, for-hire inventors. See Brief of Amicus Curiae Bayhdole25, Inc. in Support of Petitioner at 9, 12. However, the American Association of University Professors counters that professors are not for-hire inventors and that if the Act made the process of assignment unnecessary, universities would not have been conducting the process for the past thirty years. See Brief of Amici Curiae American Association of University Professors, et al. in Support of Affirmance at 11, 19.
Moreover, Roche points out that the government is not without remedy. See Brief for Respondent at 54. Under Roche’s reading, Stanford’s policy arguments completely ignore the fact that Stanford was required to secure proper assignment of the inventions, and in failing to do so the government may sue for breach of contract to reclaim the funding amount. See id.
The University and Small Business Patent Procedure Act of 1980, more commonly known as the Bayh-Dole Act (“the Act”), addresses the ownership of patents resulting from government-funded research. See 35 U.S.C. §§ 200 et seq. After originally pursuing an action for patent infringement, the Board of Trustees of Stanford University claims that the Act prevented its employee, Dr. Mark Holodniy, from assigning away ownership rights to a federally funded invention he developed with Cetus Corporation. See Brief for Petitioner, Board of Trustees of the Leland Stanford Junior University at 25–26. Roche Molecular Systems, which subsequently purchased Cetus, contends that Holodniy validly transferred his ownership rights to Cetus. See Brief for Respondent Roche Molecular Systems, Inc. at 15. Roche asserts that the Act does not affect inventors’ ability to independently assign their ownership rights to third parties. See id.
Textual and Structural Arguments
Stanford argues that a plain reading of the Act confirms that it gives federal contractors, such as universities, the first right to inventions created by their employees. See Brief for Petitioner at 32. According to Stanford, since an institution can only create an invention through the actions of its employees, the Act’s reference to “subject inventions” encompasses all inventions made by a contractor’s employees with the aid of federal funding. See 35 U.S.C. §§ 202(a), 203(a), 204; Brief for Petitioner at 32–33. Furthermore, Stanford contends that other provisions of the Act clarify that federally funded inventions do not automatically belong to the government. See 35 U.S.C. §§ 202(a); Brief for Petitioner at 35–36. Based on the principle of expressio unius est exclusio alterius—the mention of one thing excludes all others—Stanford argues that the Act requires contractors to meet a detailed set of conditions before securing title to applicable inventions. See Brief for Petitioner at 34. The omission of other conditions from the Act, Stanford argues, gives rise to a “strong inference” that no other conditions exist. See id. Thus, Stanford concludes that once an institution has complied with all of the requirements, as Stanford has, it successfully obtains title to federally funded inventions. See id.
Roche argues that Stanford both misstates the range of federally funded inventions covered by the Act and violates the interpretive principle that all words in a statute be given full effect. See Brief for Respondent at 19. In Roche’s view, the Bayh-Dole Act does not supplant the longstanding patent law principle that inventors presumptively own their inventions, even when the inventions are made in the course of employment. See id. at 19–20. Further, Roche specifically disagrees with Stanford’s interpretation of the word “retain” as used in the Act. See id. at 22–23. Roche argues that the word should be understood according to its common definition, “to keep hold or possession of.” See id. According to Roche, this understanding of “retain” reveals that the Act protects only those contractors who already own federally funded inventions. See id. Finally, Roche points out that the Act contains neither explicit “vesting” language nor procedural protections for third parties. See id. at 23, 29–30. Roche asserts that the absence of such language indicates that the Act did not automatically vest ownership rights in federal contractors and did not affect the ability of inventors to assign their rights to third parties. See id.
Stanford and Roche both agree that the purpose of the Bayh-Dole Act was to encourage cooperation between the public and private sectors, to move inventions off government shelves, and to stimulate the commercialization of inventions that could benefit the public. See Brief for Petitioner at 39; Brief for Respondent at 40. However, the parties disagree as to how the Act allocated ownership rights in federally funded inventions between contractors, inventors, and third parties. See Brief for Petitioner at 25–29; Brief for Respondent at 15–18.
Stanford observes that when the Senate considered drafts of the Act, no pro-Act Senator challenged the idea that contractors would automatically gain title to federally funded inventions. See Brief for Petitioner at 39. Stanford notes that the main objection to the Act was that the Act gave contractors too many rights. See id. at 40–41. Second, Stanford argues that federal regulations—issued shortly after the Act—contradict Roche’s argument that by cooperating with Holodniy on a federally funded invention, Cetus became entitled to rights in the invention. See id. at 44. Finally, Stanford argues that the Congress that passed the Act in 1980 recognized the importance of giving contractors clear title to federally funded inventions created by their employees. See id. at 45. If contractors were not sure of their ownership rights over their employees’ creations, Stanford contends, the contractors would hesitate to take the expensive and time-consuming steps necessary to commercialize inventions. See id. at 46–47.
Roche argues in response that, by passing the Bayh-Dole Act, Congress intended to solve patent disputes that arose strictly between the government and federal contractors, not disputes that involve third parties or inventor assignments. See Brief for Respondent at 43. Roche concedes that no Senator in 1980 suggested that contractors needed title assignments from inventors in order to claim ownership of federally funded inventions. See id. However, Roche interprets this silence as Congress’s reluctance to upset a settled rule, namely, that inventors presumptively own their inventions and can transfer ownership rights to third parties. See id. at 40–41. Roche contends the Act merely limits the circumstances in which the government could claim rights in inventions that appeared to belong to the contractor. See id. at 40. Roche points out that no legislator from the enactment period suggested that the Act would displace established laws of ownership and assignment. See id.
Federal Interests and Public Policy
Stanford contends that all patent disputes involving the Bayh-Dole Act implicate two important federal interests—the determination of rights under federal contracts and patent law. See Brief for Petitioner at 55. With respect to the first interest, the balance of rights under federal contracts, Stanford argues that the Bayh-Dole Act itself represents a decision on the part of Congress to shift ownership rights in federally funded inventions toward contractors and away from the government. See id. at 57. According to Stanford, giving contractors clear and complete ownership to federally funded inventions increases the likelihood that the inventions will be commercialized and put to positive public use. See id. If, on the other hand, the ownership of federally funded inventions could be undermined by inventor and third-party assignments, Stanford contends that contractors such as research institutions would hesitate to engage in productive research and commercialization. See id. Second, with respect to patent law, Stanford notes that patent disputes are often resolved using principles of equity or fairness. See id. at 58. Stanford argues that the equities lie in its favor—while Roche and Cetus “slept on their rights” of ownership for over fifteen years, Stanford expended time, money and effort in licensing and commercializing its patents to Holodniy’s invention. See id.
Roche, on the other hand, argues that Stanford is remiss for ignoring the principle of constitutional avoidance. See Brief for Respondent at 43. The principle, Roche explains, encourages courts to interpret statutes in a way that avoids constitutional problems. See id. Roche contends that Stanford’s interpretation of the Act is problematic because it perpetrates a Fifth Amendment taking, depriving Roche of rightful property without compensation. See id. at 43–46. Additionally, Roche rejects Stanford’s argument that, in order for inventions to reach the public through commercialization, contractors must enjoy complete ownership over federally funded inventions. See id. at 47. Roche points out that innovation remains high in private investment, where the risk of ownership disputes is always present. See id. at 47. Finally, Roche challenges Stanford’s assertion that the equities in this case lie in Stanford’s favor. See id. at 56–57. Far from “sleeping on its rights,” Roche notes it incorporated Holodniy’s invention into its HIV-testing kits, which were then offered on the market for over fifteen years. See id. at 57.
In this case, the Supreme Court will decide whether the Bayh-Dole Act precludes an inventor working on a federally funded project from assigning his ownership rights in the invention to a third party. Stanford argues that both the Act and public policy considerations require that research institutions get an exclusive opportunity to patent their employees’ creations. Stanford contends that, if research institutions did not receive this privilege, they would hesitate to pursue costly and time-consuming research projects. Roche, on the other hand, argues that the Bayh-Dole Act did not affect the longstanding rule allowing inventors to assign their ownership rights to third parties. Constitutional and equitable considerations, Roche asserts, caution against Stanford’s interpretation of the Act. The outcome of this case will likely affect the future of government-funded research.
Edited by: Kate Hajjar
· Bloomberg.com: Stanford-Roche Patent Fight Draws U.S. Supreme Court Review (Nov. 1, 2010)
· Economist: Innovation’s Golden Goose (Dec. 12, 2002)