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.

Why do Chinese academics file so many patents?

A few weeks ago this Kat published her first report from the Global Forum on Intellectual Property. This report included a summary of Professor Williamson's (University of Oxford) presentation which showed a variety of pie charts, one of which that indicated that as much as 23% of patents applied for were from academic institutions in China, compared with only 7% in the US. This Kat, now fervently watching the academic patent debate with the Stanford v Roche patent battle now before the Supreme Court (reports here and here), asked whether readers could explain why there was such a higher per cent of academics filing patents in China. The IPKat called and her lovely readers answered in the form of Michael Lin of Marks & Clerk (Hong Kong). Writing from his personal opinion and not in his professional capacity, Michael says this:

"The reasons why you are seeing such a large increase in Chinese Patents filed by Academics is that for them 1) it's free and 2) they get academic credit for it. Filing patents is encouraged by the Chinese Government and Academia. The Chinese Government has given Universities (as well as local companies) funds for filing patents in order to spur innovation - one measure of which is the number of patents filed by China, as a country. Also, the Chinese Universities are ranked against each other according to how many patents they've filed. As a result, Chinese Universities have adjusted their tenure requirements and expectations such that professors who want to advance are virtually required to file patents as well as to publish papers. In one specific University I know of, filing a patent is "worth" 3 published papers. This practice has been around for at least 2.5 years. Thus you are seeing (proportionally) a very large number of Chinese Academics filing patent applications in China.

Notice all of this relates to filing patent applications - there is no discussion above about actually getting them granted, or any other such matters.

This is also a major factor as to why there is such an amazing increase in Chinese Patent filings (in the Chinese Patent Office) in 2008-10, while filings everywhere else in the world were dropping."

The reason for these incentives could be tri-fold. Economically the programs of incentives are part of China's 50-year technology plan which is confirmed by the National Patent Development Strategy released a few weeks ago (click here to see the English translation). Politically, being able to show an increasing number of patent filings to the rest of the world can be seen to legitimize China's dedication to IP and IP protection - an area which they are oft-criticized. The third reason is that socially, the Chinese Government realizes that it is essential to shift from a manufacturing economy to a research & development economy, which may help pacify rising dissent in the countryside. By increasing, or at least showing, an increasing level of innovation this may also instil in the Chinese public a sense of pride and nationalism (see, the Beijing Olympics).


What is missing from the data, and as the IPKat identified during Professor Williamson's speech is how many of these filings result in grants? Further, how many of those grants enter countries via the Patent Cooperation Treaty (PCT)? Do such numbers exist?

And what do UK and US academics think about a system where their academic standing can be judged by how many patents one files?

The IPKat would like to thank Michael for his e-mails and invaluable insight into an area that many of us on this side of the world seldom have an opportunity to explore.