Stanford University v. Roche Molecular Systems, Inc.

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.

Legislative History

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. Seeid.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.