Bd. of Tr. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.: Supreme Court Holds Bayh-Dole Act Does Not Independently Vest Ownership to Federally Funded Contractors

Bd. of Tr. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 563 U.S. ____ (June 6, 2011)

Slip Opinion (via supremecourt.gov)

The Supreme Court affirmed the Federal Circuit, which had held that the Bayh-Dole Act did not void an inventor's assignment of intellectual property rights to a company.

The Court held in a 7-2 decision that Stanford University had no standing to sue Roche Molecular Systems for infringing an HIV testing procedure patent because the company was a co-owner of the patent. In so holding, the Court stated that the Bayh-Dole Act, which permits federally funded contractors to retain patents to their inventions in certain situations, does not independently divest a contractor's employee and vest title in the contractor.

SCOTUSBlog provides an overview of the case. The New York Times criticizes the decision, saying it undermines the purpose of the Bayh-Dole Act. IPWatchdog features a thorough analysis of the decision.

The inventor in this case had developed a new method of HIV quantification while working at both Stanford University, using federal funding, and at Cetus, a private company. He had signed agreements with both Stanford and Cetus to assign each company the rights to the procedures that he had developed, but the Federal Circuit concluded that as a matter of contract law, the assignment to Cetus took precedence, and the Supreme Court did not grant certiorari on that question. Stanford patented the invention and, in accordance with the Bayh-Dole Act, notified the National Institutes of Health, which had helped fund the research, and gave the government a license to use the procedure.

In holding as it did, the Court reasoned that although the Bayh-Dole Act allowed a federally funded contractor to "retain" rights to its own inventions that otherwise may have gone to the government, the Act did not independently vest the contractor with rights to its employees' inventions. To do so, the Court argued, would not only go against the ordinary meaning of the word "retain" but would permit contractors to acquire title to their employees' independent inventions, which would undermine the fundamental precept of patent law that rights in an invention belong to the inventor. Therefore, in this case, the inventor's rights were not automatically assigned to Stanford and were instead assigned to Cetus, pursuant to the contract.

Justice Breyer, joined by Justice Ginsburg, dissented, criticizing the rule from FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1572 (Fed. Cir. 1991), on which the lower court relied, as overly technical. The rule allows an employee's explicit agreement to assign the rights to future inventions to take precedence over an agreement under which an employee merely agrees to assign those rights. The dissent also construes the Bayh-Dole Act as assuming an assignment of patent rights by employees to federally funded employers. However, since those issues were not briefed, the dissent suggested vacating and remanding the case to allow the parties to argue those issues more fully in the Federal Circuit.

Because Stanford could have avoided this issue by rephrasing its contract, the immediate impact of the case, as IPWatchDog argues, may be to encourage patent lawyers to draft assignment agreements more carefully. However, the dissent, as well as the concurrence by Justice Sotomayor, raises serious doubts about the validity of the FilmTec rule, arguing that it privileges formalism over traditional equitable factors. In light of the Solicitor-General's opposition to the case's outcome and the majority's silence with respect to the rule, commentators like PatentlyO have implied that it may be ripe for review in the near future.