In yet another decision by the U.S. Supreme Court to impact intellectual property rights, the Court now maintains a centuries-old law that the rights to an invention belong to the inventor. In a decision issued on June 6, 2011, in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., the Supreme Court held the rights to inventions supported by federally funded research are not vested with the institutional recipient of those federal funds.

In 1980, Congress enacted The Bayh-Dole Act to allocate the rights to federally funded inventions between the Federal Government and the recipient of the federal funds. In Stanford v. Roche, Stanford argues that one consequence of the Bayh-Dole Act is that institutional recipients of federal funds for research are automatically vested with the ownership rights to inventions made by their employees from those funds.

The issue in Standford v. Roche begins in 1988 with a research fellow at Stanford University, Dr. Holodniy, developing an assay for quantifying HIV levels in patients using PCR. Because he was unfamiliar with the technique, Holodniy went to the company that developed PCR, Cetus. Holodniy worked at Cetus developing the assay, and then returned to Stanford where he pursued the research further. Stanford eventually obtained the assignment rights for the invention from Holodniy and acquired three patents as a result. In 1991, Roche acquired Cetus, and Roche commercialized the assay developed by Holodniy while he was at Cetus.

Importantly, Holodniy signed an agreement upon joining Stanford that stated he “agree[d] to assign [his] right, title and interest in” inventions resulting from his employment to Stanford. However, in order to initially gain access to Cetus, Holodniy signed a confidentiality agreement that stated he “will assign and do[es] hereby assign [his] right, title and interest in each of the ideas, inventions and improvements [made] as a consequence of [his] access” to Cetus. Thus, it was at issue to whom Holodniy had actually assigned his rights.

In 2005, Stanford brought suit against Roche asserting that Roche’s commercial assay infringed on the patents held by Stanford. Roche argued that they were co-owners in the patents because Holodniy had assigned his rights to Cetus when he signed the confidentiality agreement. Thus, Stanford could not sue Roche for infringement of patents they co-owned. Stanford countered that they had already acquired Holodniy’s rights under the Bayh-Dole Act because the research was federally funded. Therefore, Holodniy had no rights to assign. The District Court agreed that Holodniy had assigned his rights to Roche. However, the court agreed with Stanford that Holodniy had no valid rights to assign because of the Bayh-Dole Act. On appeal, the U.S. Court of Appeals for the Federal Circuit concluded that Holodniy’s agreement with Stanford to “agree to assign” his rights was a promise to assign his rights at some point in the future. Whereas, in his agreement with Cetus to “hereby assign” his rights,he actively assigned them away right then and there. Furthermore, the Federal Circuit found Agree to Assign vs. Hereby Assign: I that under the Bayh-Dole Act, an inventor’s rights are not automatically relinquished to his employer when the invention is federally funded. Therefore, Roche was part owner of the patents in question, and Stanford lacked standing to file suit.

In a 7-2 decision, the Supreme Court agreed with the Federal Circuit that the Bayh-Dole Act did not supersede centuries of patent law and automatically assign an inventor’s ownership rights to his employer as a consequence of using federal funds. The Court found that the Bayh-Dole Act only confers to recipients of federal funding the right to retain that which they already have the rights to hold, and that the Act’s main purpose is to prevent a “Government-imposed impediment to retaining title” to federally funded inventions. Consequently, because Stanford never received Holodniy’s rights due to the wording of his employment agreement, they could not retain that which they never had the right to hold. Put another way, under Bayh-Dole, Stanford could not re-obtain that which Holodniy had already given away. The dissent stated that under the majority’s opinion, inventors working from federal funds could assign their rights to a third-party who never was a recipient of the federal money. Thus, circumventing the purpose of the Bayh-Dole Act. Furthermore, the dissent contended that since the parties had not fully argued the assignment question, the case should be remanded back to the Federal Circuit.

The decision in Stanford v. Roche will certainly have an impact in the area of technology transfer. Employers generally have policies to insure that the inventions of their employees will be assigned to the employer. However, if employers want to better protect themselves as eventual owners of the inventions of their employees, it will be necessary to draft better employment agreements that assign patent ownership rights in an active manner at the start of employment. The use of the phrase “agree to assign” will likely not protect an employer against an employee’s inadvertent assignment of their invention rights to another party.