Letter from AmeriKat II: US Supreme Court ruling in Stanford v Roche

The Majority Opinion

Justice Roberts (picture, below left), giving the majority opinion of the Court stated, after the usual round of dicta about the Progress Clause and unnecessary factual references to the first US Patent (not No.1. as they were not numbered back then), that:

"Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not. Under the law in its current form, "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefor."

Like with the UK, the general rule is that the rights in an invention belong to the inventor (Gayler v Wilder (1851));Solomons v US (1890)). An inventor can assign his rights in an invention to a third party (US v Dubilier Condenser Corp (1933)). Unless there is an agreement to the contrary, an employer does not have rights in an invention "which is the original conception of the employee alone" (Dubilier Condenser Corp at 189).

Stanford and the US Government (an obvious amicus curaie in the case given their interest in not this but thousands if not millions other federally funded inventions), argued that the Bayh-Dole Act reorders that normal priority of rights in an invention when it is conceived or practiced as a result of federal funds. The Act essentially moves the inventor from the front of the line (not que, thank you) to the back with the inventor's employee or federal contractor obtaining title. However, the Court argued that where this "re-ordering" does occur in statute it is unambiguously clear that it does. For example, in the instances of nuclear materiel and atomic energy patents, USC 42 section 2182 states that title in such inventions "shall be vested in, and be the property of, the [Atomic Energy] Commission."

Such clear statutory language, the Court held, was "notably' absent" from the Bayh-Dole Act. The Act does not state that title in an invention is expressly vested in contractors or anyone else or that inventors are deprived of their priority interest in federally funded inventions (picture, below right - the building that stands for all things federal). All that the Act does is provide that contractors may "elect to retain title to any subject invention". A "subject invention" means "any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement." Stanford argued that the phrase "invention of the contractor" means "all inventions made by the contractor's employees with the aid of federal funding." The Court disagreed and said the definition is not so broad as to include all inventions "made by" the contractor, but all inventions "owned by the contractor". Stanford's reading, although plausible because it is often the case that whatever an employee produces in the course of his employment belongs to his employer, is not the case in patent law. The Court had repeatedly rejected the idea that mere employment is sufficient to vest title to an employee's invention to the employer. Against this over 200-year background the definition has to be read of meaning "inventions owned by the contractor" not merely "made by the contractor" or its employees.

But what does this "elect to retain title" provision mean then? One cannot elect to retain something that they do not already have, surely? Well, first you have to have it, says the Supreme Court (and Stanford didn't under the agreement). The Court held that the provision "elect to retain title" does not mean that the contractor owns or that the Act confers ownership in the invention to the contractor - all it does is assure that contractors keep title to whatever it is they already have. If they do not have it, by way of an assignment - then they do not get to retain it.

So far, not good for Stanford. However, the US Government had one more argument to swing at the Supreme Court. The Act states that it

"take[s] precedence over any other Act which would require a disposition of rights in subject intentions . . . that is inconsistent with the [Act]."

The United States argued that this provision operates to displace the basic principle that an inventor owns the rights to his invention. However, the Court held that the Act only applies to "subject inventions" as "inventions of the contractor" not an inventor's antecedent title to his invention. It is only when an invention belongs to the contractor does the Act come into operation. Nice try, in other words.

Some arguments relating to the procedural operation of the Act were also considered by the Court, but again bruskly dismissed as doing nothing but supporting the Court's view against Stanford. The Court concluded stating that although it was unnecessary for the Court to state it was nevertheless worth noting that its construction of the Act reflects the common practice among the parties who operate under the Act:

"Contractors generally institute polices to obtain assignments from their employees. Agencies that grant funds to federal contractors typically expect those contractors to obtain assignments. So it is with NIH, the agency that granted the federal funds at issue in this case. In guidance documents made available toe contractors, NIH has made clear that "[b]y law, an inventor has initial ownership of an invention" and that contractors should therefore "have in place employee agreements requiring an inventor to 'assign' or give ownership of an invention to the organization upon acceptance of Federal funds."

Stanford's employment contract with Holodniy did not do that - it was only a mere promise to assign, unlike Cetus's agreement which was an actual assignment. Had Stanford's contract been an effective assignment, those inventions, if federally funded would have become "subject inventions" and the Act would have worked the way in which Stanford was arguing it should. The Act would have done so

"without violence to the basic principle of patent law that inventors won their inventions"

The Dissent

Although the Court's decision may seem like a no-brainer, it did leave at least 2.5 Justices a bit uneasy (Justice Breyer (picture, below left), joined by Justice Ginsburg, and a little bit of "dissent" from Justice Sotomayor in respect of the FilmTec point). Justice Breyer argued that the majority's decision could not be easily reconciled with the objective of the Act and that there were questions to be raised with the Court of Appeals interpretation of the Stanford and Roche contracts.

First, Justice Breyer argued that the three-tier system in the Act sets out that the ownership in an invention would first vest in the contractor, then the US Government, and then the employee. The Act does this not because it blindly takes the inventor's rights and grants them to the Government, but rather it assumes that the federal funds' recipient, such as a university, will and should possess those rights for public policy reasons. This mechanism seeks to encourage those institutions to commercialize inventions for public benefit which was the basis of the legislation in the first place. It was because of this that the dissenting Justices stated that they could not easily accept the majority's conclusion that an individual inventor can lawfully assign an invention produced by public federal funds to a third party. This result would be at odds with Act's intention.

Second, Justice Breyer argued that to come to a more consistent opinion with the statute's objectives the Supreme Court could set aside the federal Circuit's interpretation fo the licensing agreements and its related licensing doctrine. That doctrine governs the interpretation of agreements made before an invention is conceived. The Federal Circuit held that "hereby assign" means that when an invention comes into existence the clause automatically operates to assign that invention to Cetus, whereas "agree to assign" did not. At the time of Holodniy's agreement with Stanford, patent law appeared to have specified that a present assignment of future inventions vested equitable, but not legal title to the assignee. As such, Cetus's agreement would have also only given rise to an assignment of equitable interests. In 1991, the Federal Circuit in FilmTec adopted a new rule that

"[o]nce the invention is made and [the] application for [a] patent is filed. . . .legal title to the rights accruing thereunder would be in the assignee . . , and the assignor-inventor would have nothing remaining to assign."

Under the Federal Circuit's interpretation, it is Cetus would win but without any explanation by the Federal Circuit for what seems to a significant change to the law on assignments to future inventions, especially where they implicate the Bayh-Dole Act. However, because Stanford did not challenge the decision on these grounds, the Justices' hands were tied, at least until a future case is before them.

The Lesson

IP lawyers and judges could say this until they are blue in the face, but it is true: Draft your patent assignment agreements with care! Further caution should also be taken in the wake of the Court's warning about their interest to review the words "blessed by the Federal Circuit" in FilmTec. Let the drafting challenge begin!

Letter from AmeriKat I: US Supreme Court ruling in Stanford v Roche

The rain has come to London. Rumor has it that while the AmeriKat was at INTA in May the sun was shining down on the now rain-saturated streets. Now, with her paw pads slipping on her wood floor and her whiskers dripping over her bowl of milk she finds those rumors hard to believe. However, the rain's refreshing qualities are meant to rejuvenate the old and bring in the new - which may go some way of explaining the recent appearance of at least two newly designed IP chambers' websites, as well as the AmeriKat's desire to purchase a brand new clutch in the summer sales. But prior to the tides of torrential rains gracing London's streets, the US Supreme Court issued a flurry of IP decisions - including last week's i4i case (see AmeriKat report here). Now, in an unique moment of silence, of which it is sure to be interrupted, the AmeriKat has set out the tail of the Stanford v Roche patent assignment case, which was decided by the US Supreme Court on 6 June 2011.

Background

A year before the AmeriKat formally became a kitten, in 1985 Cetus, a small California research company, began to develop methods for quantifying bloodborne levels of the human immunodeficiency virus (HIV), the precursur to AIDS. The technique developed at Cetus called polymerase chain reaction (PCR) was a key part to this method of quantification. Cetus then began collaborating with Stanford University's Department of Infectious Diseases to test the the new AIDS drugs and with this collaboration came Dr. Mark Holodniy. Dr. Holodniy joined Stanford as a research fellow where he worked to develop an improved method for quantifying HIV levels in blood samples using PCR. Under his employment with Stanford, Holodiny signed a Copyright and Patent Agreement which stated that he "agree[d] to assign" to Stanford his "right, title and interest in" inventions resulting from his employment there.

Holodniy was unfamiliar with PCR and so it was arranged that he would conduct his research at Cetus. As a precondition for gaining access to Cetus, Holodniy signed a Visitor's Confidentiality Agreement (VCA) which stated that Holodniy "will assign and do[es] hereby assign" to Cetus his "right, title and interest in each of the ideas, inventions and improvements" made "as a consequence of [his] access". And so, with the VCA signed Holodniy conducted his research at Cetus where he devised a PCR-based procedure for calculating the amount of HIV in a patient's blood allowing doctors to determine whether a patient was benefiting from HIV therapy. Along with colleagues at Stanford, Holodniy tested the technique and over the next few years Stanford obtained written assignments of rights from Holodniy's colleagues involved int he refinement of the technique. With these written assignments in their pocket, Stanford (picture, above right) filed several patent applications related to the procedure and secured three patents.

In 1991, Roche Molecular Systems acquired Cetus's PCR-related assets including the rights Cetus had obtained through agreements such as the VCA signed by Holodniy. Roche commercialized the procedure developed by Holodniy after they conducted clinical trials. Today, Roche's HIV tests "kits are used in hospitals and AIDS clinics worldwide." The Board of Trustees of Stanford University brought a lawsuit against Roche claiming that these HIV tests kits infringed Stanford's Patents. Roche argued that Holodniy's agreement with Cetus gave it co-ownership of the technique and therefore Stanford lacked standing to bring the suit. Stanford argued that Holodniy had no rights to assign to Cetus in the first place because Stanford had superior rights under the Bayh-Dole Act. The Federal Court agreed with Stanford, but the Court of Appeals for the Federal Circuit (where all patent cases from the federal circuit appeal to), held that Holodniy's agreement with Stanford was only a "mere promise to assign rights in the future" and it was his agreement with Cetus that actually assigned his rights. The CAFC also held that the Bayh-Dole Act did not automatically void an inventor's rights in federally funded inventions. Which brings us on to....

The Bayh-Dole Act

In 1980 the US Congress passed the Bayh-Dole Act with the object that it would

"promote the utilization of inventions arising from federally supported research...promote collaboration between commercial concerns and nonprofit organizations...[and] ensure that the Government obtains sufficient rights in federally supported inventions"

To meet this objective, the Act allocates rights in federally funded inventions between the Federal Government and federal contractors, including a non-profit institutions such as a university. Under section 202(a) of the Act, contractors may elect to retain title to the invention as long as they fulfil a number of obligations imposed by the Act, such as disclosing the invention to the Federal agency and filing for a patent application prior to any statutory bar date (Section 202(c)(1)-(3)). If a contractor fails to comply with any one of the obligations, the Federal Government may receive title to the patent. Even without actual ownership in an invention, the Federal Government agency that allocated the federal funds receives a non-exclusive, irrevocable, paid-up license to practice the invention and the ability to grant a licence to a third party under certain circumstances where the contractor fails to take "steps to achieve practical application" of the invention.

All of this matters because some of Stanford's research related to the HIV measurement techniques were funded by the National institute of Health (NIH) and thus the invention at issue is subject to the Bayh-Dole Act. Under the Act, Stanford argues that irrespective of the status of the assignment agreements with Holodniy the Act operates to enable the Government to become a non-exclusive licensee of the patented procedure with Stanford retaining title to the invention. Such operation, would therefore trump a later assignment between the inventor and a third-party, like Roche.

The Question

Does the Bayh-Dole Act displace the norm that the rights in an invention first belong to the inventor and, instead, automatically vest title to federally funded inventions in federal contractors?

The Supreme Court's Answer

No - 7 to 2 with Justice Breyer and Justice Ginsburg dissenting.

For discussion on the Court's opinion click here for Part II.

Cross faces at Crosstown as composers get their copyrights back

Here's a tricky case.  A couple of songwriters assign their copyrights to a company that is obliged to exploit those copyrights commercially.  The deal contains a clause that enables the songwriters to get their copyright back if the company is in material breach of its obligations.  The company then assigns the copyrights to another company, following which the songwriters want their copyright back. Do they get it? Yes, according to Crosstown Music Company v Rive Droite Music Ltd and others [2009] EWHC 600 (Ch), a decision of Mr Justice Mann (Chancery Division, England and Wales) on Wednesday,

Crosstown took an assignment of 119 copyrights owned by Rive Droite. Some of those copyrights related to songs written by Taylor and Barry, who assigned the copyright in their compositions to Rive Droite so that the latter could exploit the copyright and pay them royalties under an agreement which provided (in clause 18(a)) that, if Rive Droite were to be in material breach of its terms and failed to take all reasonable action to remedy that breach within 45 (in Taylor's case) or 60 (in Barry's case) days of written notification of a 'cure notice', the assigned copyright would revert to the writers.

Taylor and Barry later considered that a reversion-triggering breach had occurred, with the consequence they again owned the copyright in their various compositions. In April 2007 they served cure notices on Rive Droite, giving notice to Crosstown, relying on various alleged breaches -- including failure to cough up all the royalties on Cher's song Believe -- and asserting that they now owned thir copyrights again. Faced with those notices, Crosstown sued Rive Droite for specific performance of the sale agreement. Taylor and Barry counterclaimed for copyright infringement. The action involves determining (among other things) (i) whether the copyrights re-vested in Taylor and Barry; (ii) whether clause 18(a) bound the claimant as assignee of the copyrights and (iii) whether Taylor and Barry had lost any right to reversion of the copyrights through waiver, acquiescence or estoppel.

The main question before Mann J in these proceedings whether Taylor and Barry were correct in saying that there had been breach of clause 18(a). On a close analysis of the facts, he concluded that clause 18 provided for an automatic revesting of the copyrights, the cure notices were unassailable and that, therefore Crosstown's attack on their validity must fail. The judge discussed one legal issue of substantial interest: did clause 18 take effect differently in respect of different national copyrights? On that matter he had this to say:

"89.... I refuse to allow Crosstown to contend that the effect of clause 18 might be different in relation to different national copyrights. Although it might not be strictly relevant, I would add that this conclusion produces a much more satisfactory (if not conveniens) litigation picture, because if the position were otherwise the point might have to be determined in as many jurisdictions as there are copyrights in this case. I have not totted up the number of jurisdictions involved, but I think there are at least half a dozen if not twice that. That prospect is unsatisfactory. In the present case it is not appropriate to inflict that on the Writers. I reach the conclusion that I do without having to consider the strength of the submission that it would be wrong to assume that foreign copyright law is the same as English law. That submission would only become relevant if there were an issue as to different jurisdictions, and I have held that there is no such issue in this case because of the manner in which the case has proceeded hitherto. I also do not have to consider the extent to which foreign copyright issues can be litigated in this country (see, for example, Lucasfilms Inv v Ainsworth [noted here by the IPKat]), because again that only arises where there is a properly formulated issue as to the point, which again in this case there is not".

The IPKat wonders how many businesses taking assignments of copyright take the trouble to root around for clauses that may have the effect of undermining their commercial expectations, or whether they are merely happy to rely on warranties that their title will be secure.  Merpel moans, I still don't get it: if Crosstown has taken an assignment of the copyright from Rive Droite, surely Rive Droite doesn't have any copyright title to the works that can revert to the songwriters? Or have I missed something?

Thorn waxes lyrical and solders on ...

The IPKat hadn't forgotten the patent decision last week of the Court of Appeal (England and Wales) in Thorn Security Ltd v Siemens Schweiz AG [2008] EWCA Civ 1161 but there have been so many exciting distractions that he just hadn't got around to posting anything about it yet. In this case the Court, consisting of Lord Justice Mummery, Lady Justice Arden and Mr Justice Lewison, found themselves going back to basics, construing the meaning of the fundamental word "assignment" which appears in the apparently innocuous context of the Patents Act 1977 section 33(3) -- which deals with the relative entitlements of parties whose entitlement to a patent may or may not have been registered. Curiously enough this dispute almost slipped past the IPKat first time around (you can see his comment here).

Right: Siemens, in happier times before being licked by Thorn

In short, Thorn was appealing against the decision of Mr Justice Mann that its product infringed Siemens' patent and that Siemens was entitled to recover damages in respect of a period of infringement that actually pre-dated its registration as proprietor of the patent. Siemens become the owner of the patent by universal succession under Swiss law, following a series of mergers among Swiss companies. Siemens' patent was for a protective covering for printed circuit boards and method for their manufacture. The protective coating consisted of a plastic film to which wax was added. The wax was said to facilitate through-plating and soldering operations through the protective coating. The film was fused on to the printed circuit board by the action of heat.

Thorn's allegedly infringing product was a printed circuit board coated with a coating which contained wax installed in a smoke alarm. At trial Mann J held, as a matter of construction, that "facilitating" meant that there had to be practical benefits in making something easier in a way that could be appreciated by a practical user, and that the film had to be fused on to the circuit board by the action of heat alone. On that basis, he held, Thorn's product did indeed infringe. He then added that the mergers leading to Siemens' ownership of the patent did not involve any "assignment" within the Patents Act 1977 section 33(3) which had to be registered before a claim for damages (now, post-IP Enforcement Directive, costs and expenses: see link to earlier IPKat post for explanation) could be made under section 68 of the same Act.

Siemens argued that the judge was wrong in construing its patent as meaning that the notion of "facilitating" carried with it any element of practical benefit or that the practical benefits had to be capable of appreciation by a practical user, and that he also erred in holding that the fusion of the coating to the board had to be by heat alone. Thorn appealed against the finding of infringement, submitting that Mann J's findings were not supported by the evidence, and also and also maintaining that should have given a more purposive interpretation to the word "assignment" in section 33(3), so as to cover the mergers of the sort that had occurred here.

The Court of Appeal allowed the appeal. In its view

* The claim that the wax facilitated through-plating and soldering operations through the protective coating operated as a performance requirement of the claim. Mann J was right that "facilitating" required practical benefits and that, so far as the question of infringement was concerned, Siemens was entitled to rely on any means by which the wax in Thorn's product made through-plating and soldering through the coating easier in a practical sense.

* The specification stated that, in a "final process step" the coating was fused to the board by further heating. Accordingly it was not until that step, which consisted only of further heating, that the coating was fused to the board. Having regard to the way in which the process was described in the specification, the skilled reader would conclude that the fusion took place by the action of heat alone. Thus Mann J was right on that point too.

* The judge's findings that the nature of the waxed product (i) reduced the risk of charring, (ii) gave rise to a noticeable difference if a low temperature soldering iron were used and (iii) created a more easily-removable coating were not supported by the evidence.

* Mann J should not have inferred that Thorn's waxed coating would probably move aside more readily with less heat being applied. There were two characteristics of a coating with wax that pointed in opposite directions: (i) lower viscosity and (ii) increased wetting ability. The overall effect these competing factors had upon the coating was a question for direct expert evidence and was not a matter upon which an inference could safely be drawn. Nor should Mann J have found that Thorn's product was fused on to the printed circuit board by the action of heat. On the evidence, the adhesion of Thorn's product was produced by pressure. Accordingly, since Thorn's coating did not facilitate through-plating and soldering and was not fused by heat, its product did not infringe Siemens' patent.

* Finally, Mann J erred in holding that an "assignment" within section 33(3) had to be an express consensual bilateral document. Section 33(3) was wide enough to include an assignment by operation of law of the kind involved in universal succession following a merger.

The IPKat notes with awe that the Court of Appeal went all the way back to 1970, to the Report of the Committee to Examine the Patent System and Patent Law (1970 Cmnd 4407, the Bank Report) -- which led to the 1977 Act -- when deciding what was the mischief at which section 68 was directed. That report indicated that section 33(3) should be purposively construed. The moral of this story is, never throw away your old law reform reports: you never know when they might come in handy. The Report stated (with the IPKat's emphasis):

"The Patents Act should provide that where there has been a change of ownership of a patent, or where an exclusive licence has been granted on a patent, no damages for infringement should be recoverable by the new owner or the exclusive licensee in respect of infringing acts committed during the period in which the change of ownership or grant of exclusive licence was not registered, unless registration was effected within six months of the change of ownership or grant of exclusive licence.…".

Speaking for the entire court, Mummery LJ added:

"This recommendation applies to any acquisition of ownership, and is not limited to particular kinds of change of ownership".

Merpel's not happy about this highly principled and function-oriented approach. This is all very well, but it's not what the Patents Act says -- and who wants to rely on Banks at a time like this! I vote we seek leave to take this one to the House of Lords.

Famous Thorn here -- and here