Board of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc. 563 F. Supp. 2d 1016 (N.D. Cal. 2008) 

The United States Supreme Court has granted a petition for a writ of certiorari in a case with the potential to have a significant impact on the commercialization of technology where government funding has been provided in its development.  The Supreme Court has agreed to hear docket number 09-1159, Board of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.  The question presented in the case is:  “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.”

The Bayh-Dole Act was passed and signed into law in 1980.  The Act states:

It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from federally supported research or development; to encourage maximum participation of small business firms in federally supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise without unduly encumbering future research and discovery; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions; and to minimize the costs of administering policies in this area. 35 U.S.C. § 200.

The Act, among other things, requires the disclosure of inventions made subsequent to the use of federal funding at nonprofit organizations and small businesses.  35 U.S.C § 202.  Nonprofit organizations, as defined by the Act, include universities and other institutions of higher learning.  35 U.S.C. § 201.  The Act further provides for a process of election of rights by inventors, small businesses, nonprofit organizations, and the federal government.  35 U.S.C. §§ 202-20.  The election of these rights and the role of the Bayh-Dole Act in joint University-private business technology development relationships is at issue in this case.

The background of the case is helpful to understand the question presented to the Supreme Court.  The case is, at its essence, a patent infringement suit.  The subject matter of the patents of the underlying suit includes methods of measuring Human Immunodeficiency Virus (“HIV”) in blood samples and correlating the measurements to the effectiveness of antiretroviral drugs.  The technology of the patents was developed between Stanford University and Cetus, a company involved in the development of biochemical measurement techniques.  Roche Diagnostics Operations, Inc. (“Roche”) purchased part of Cetus’s business in 1992, including its agreements with Stanford and the related researchers.  One researcher instrumental in the development of the patented invention is Mark Holodniy. 

Holodniy joined Stanford’s research laboratory as a Research Fellow in the Department of Infectious Disease in 1988.  When joining the lab, Holodniy signed a copyright and patent agreement that obligated Holodniy to assign his inventions to the University.  Upon beginning to work on the development of the technology of the patents, Holodniy interacted with and visited Cetus’s researchers and laboratories to learn biochemical measurement techniques.  Before beginning that interaction, however, Holodniy signed a visitor’s confidentiality agreement with Cetus.  The agreement stated that Holodniy will “assign and does hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions, and improvements” that Holodniy may devise as a consequence of the relationship.  See Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 837 (Fed. Cir. 2009).

Holodniy went on to develop the technology that resulted in four patents relating to HIV detection kits and their use.  Roche, after its purchase of Cetus’s interest in HIV detection, began manufacturing kits using the technology of the patents.  Stanford, after applying for the patents at issue, elected under the Bayh-Dole Act to retain title to the inventions and granted the federal government a license to the technology.  The election and grant of a license was required of Stanford because of the provisions under the Bayh-Dole Act for technology development that is completed, as was the case here, with the help of federal funding.

Stanford then approached Roche and asserted its ownership of the inventions and offered Roche an exclusive license.  But, after four years of negotiating, talks broke down and Stanford filed suit in the Northern District of California alleging infringement of its patents.  Roche counterclaimed and asserted defenses against the suit.

The District Court granted Roche’s motion that the asserted claims were invalid for obviousness.  Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 563 F. Supp. 2d 1016 (N.D. Cal. 2008).  Stanford appealed the ruling, and Roche cross-appealed as to the parties’ respective rights in the patents.  The Federal Circuit then vacated the District Court’s ruling of invalidity but, to Stanford’s dismay, ordered the suit dismissed for Stanford’s lack of standing, due to Roche’s ownership interest in the asserted patents.  Stanford, 583 F.3d at 849.  The Federal Circuit held that the visitors confidentiality agreement between Holodniy and Cetus was an immediate grant of equitable title to Cetus of Holodniy’s interest in his inventions which Roche subsequently purchased.  Id. at 842.  The Court further decided that the copyright and patent agreement between Stanford and Holodniy, in contrast, was only a “promise to assign rights in the future, not an immediate transfer of expectant interests.”  Id. at 841.  With this contract language interpretation, the Court found that Roche had an ownership interest in the asserted patents, and this resulted in Stanford’s lacking standing for the underlying suit.  Dismissal was therefor ordered.  Id. at 848.  The Court considered the impact of the Bayh-Dole Act on the ownership interests of the parties, and it ultimately decided that the statutory scheme of the Act did not void the assignment of Holodniy’s rights in the invention to Cetus and the subsequent purchase by Roche.  Id. at 844-45.

The Supreme Court has agreed to hear the case regarding the question concerning the Bayh-Dole Act.  Where the traditional law topics of contracts and property would normally guide the decision in a case like this, the Bayh-Dole Act has injected some uncertainty and disagreement.  On one side is a party such as Roche, who argues that the Bayh-Dole Act was intended to foster technology development relationships that use federal funds.  This would include private organizations such as Roche.  Roche argues that, if the government or the nonprofit organization such as Stanford can trump an assignment made by an inventor to that private organization, then private organizations will be reluctant to cooperate with universities, and the development of technology will suffer.  See Appellee, Roche, Reply Brief to Fed. Cir. 23-24.

On the other side are parties such as Stanford who argue that the cost of the federal funds is a restricted right to the inventions produced by the individual inventors.  The argument further states that the nonprofit organization may elect to retain rights and the individual inventor may retain rights but only subject to the provisions and outlined process of the Act.  See Appellant, Stanford, Br.-Markman to Fed. Cir. 50-53.  Stanford argues that individual inventors who participate in federally funded projects covered by the Bayh-Dole Act have limited rights in their inventions, and thus, when Holodniy assigned his interest, he assigned only this limited interest, which was subject to Stanford’s election to retain ownership.  Id.

While the Supreme Court will take on this issue of statutory interpretation, the real problem between the litigants arose because of unclear agreements between the parties involved in the original technology development.  The Supreme Court, however, will likely act cautiously because of the influence of a decision regarding the Bayh-Dole Act on technology development relationships in the future.  While sophisticated organizations will learn how to deal with the legal environment after a decision is reached in this case, existing and future technology agreements and assignments may need revision or rethinking.

Practice Tip:

Always clearly define and clearly state the legal rights of all parties involved in a technology development agreement.  Further, whether you are involved in development projects involving federal funding or not, a review of technology agreements is likely a prudent course of action.