On November 1, 2010, the Supreme Court granted certiorari in the case of Stanford v. Roche to review whether, under the Bayh-Dole Act, patent rights vest in the institution or the inventor when the invention was created using federal funds. The Court will review a recent decision of the U.S. Court of Appeals for the Federal Circuit seen by the Solicitor General and others as deviating from the fundamental framework that Congress established to translate government-funded research into commercial products.

The Bayh-Dole Act, enacted in 1980, created a system for assigning patent rights derived from government-funded research. It encouraged research institutions to readily commercialize such inventions and thus significantly increase the economic return on public research funds. Briefly, the Act allows universities, nonprofits, small businesses, and other recipients of federal research funds to elect ownership in any resulting inventions subject to certain rights reserved to the government. Where the institution elects not to retain ownership, the government may choose to receive title to the invention or transfer title to the individual inventor.

The Stanford case arises from a joint research program in which a Stanford researcher conducted HIV-related research at Cetus Corp. The researcher had agreed to assign any inventions to Stanford and later executed an assignment to Stanford for the specific patent. In the interim, however, the researcher signed a confidentiality agreement that provided he “will assign and do[es] hereby assign” to Cetus inventions arising out of the use of Cetus’s facilities.

Stanford sued Roche, the successor of Cetus, for patent infringement based on the inventions created during the researcher’s work at Cetus. Roche defended against the allegations by claiming that Roche had ownership rights in the patents at issue by way of the inventor’s assignment of rights to Cetus. The District Court in California rejected Roche’s claims.

On appeal, the Federal Circuit held that nothing in the Bayh-Dole Act altered the usual rule that patent rights initially vest in the inventor. Here, the inventor’s agreement with Stanford provided that he “agree[d] to assign” any inventions, which the court construed as a mere promise to assign. In contrast, the court held the language in the confidentiality agreement with Cetus effected an immediate transfer of equitable title that defeated Stanford’s claim to legal title via the subsequent assignment. Thus, despite Stanford’s proper ownership election under Bayh-Dole, the Federal Circuit held that Stanford lacked standing to assert the patents in litigation.

The Solicitor General and numerous colleges and universities supported Supreme Court review, arguing that the Federal Circuit’s decision threatens government efforts to promote innovation and capitalize on public research investments. The petitioners fear the decision would allow individual inventors to unilaterally circumvent Bayh-Dole’s statutory presumption of university ownership, thereby (1) imposing a hopeless burden on institutional recipients of research funds to police the affairs of research personnel, and (2) risking the commercial viability of federally funded research by clouding patent titles and irrevocably splintering ownership rights.

On Monday, the Supreme Court agreed to review the case and requested briefing on one issue:

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 Federal Circuit’s construction of agreements to assign and of assignments highlights the need for all clients to carefully review the language used in any agreements intended to affect ownership rights in subsequently created inventions. That is not likely to be affected by the Supreme Court’s review. Universities and research institutions receiving federal funds should take special care, however, in view of the uncertain state of the law. Many past agreements were drafted based on the assumption that Bayh-Dole automatically conferred to the institution the rights to inventions created with federal funds. These agreements should be reviewed and rights clearly assigned recognizing that whether the initial ownership resides with the inventor or the institution will be uncertain until the Supreme Court rules.

The appellate court decision is Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. (Fed. Cir. 2009). Review in the U.S. Supreme Court has been assigned case number 09-1159.