Federal funding, typically in the form of research grants, is often used to support university research. The Bayh-Dole Act also allows universities to retain title to invention rights in such research (referred to as “subject inventions”). See 35 U.S.C. § 202(c)(2). What the Federal Circuit has struggled with recently is what does “retain title” mean under Bayh-Dole, and especially where does the title to the “subject invention” initially reside. The case of Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. suggests the Federal Circuit “still doesn’t get it” on how title to “subject inventions” works under Bayh-Dole.
In Stanford University, the key facts relating to the Bayh-Dole issue are as follows. The patented technology involved methods for quantifying the Human Immunodeficiency Virus (“HIV”) by using polymerase chain reaction (“PCR”) to measure ribonucleic acid (“RNA”) from HIV in the blood plasma of infected humans who are taking drugs such as zidovudine (AZT), which is hereafter referred to as the “HIV RNA assay invention.” One of the inventors listed on the patents for this HIV RNA assay invention was Mark Holodniy. The HIV RNA assay invention was developed in the late 1980s and early 1990s by researchers at Stanford and Cetus, a company having significant expertise in PCR techniques. In 1988, Holodniy joined Merigan’s laboratory at Stanford as a Research Fellow in the Department of Infectious Disease, and signed a “Copyright and Patent Agreement” (“CPA”) that obligated Holodniy to assign his inventions to Stanford.
Holodniy had no prior experience with PCR techniques. In February 1989, Holodniy began regular visits to Cetus over several months to learn PCR and to develop a PCR-based assay for HIV. Holodniy signed a “Visitor’s Confidentiality Agreement” (“VCA”) with Cetus. The VCA stated that Holodniy “will assign and do[es] 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” his work at Cetus.
In December 1991, Roche Medical Systems (Roche) purchased Cetus’ “PCR business,” including Cetus’ agreements with Stanford and its researchers, through an “Asset Purchase Agreement.” After this purchase, Roche began manufacturing HIV detection kits employing RNA assays. In May 1992, Stanford filed the patent application for the HIV RNA assay invention which resulted in the patents on which Holodniy was listed as an inventor.
Stanford also received government funding for its HIV research through the National Institutes of Health (“NIH”). On June 24, 1992, Stanford filed an invention disclosure for the HIV RNA assay with the NIH. On April 6, 1995, Stanford formally notified the Government that it elected to retain title under the Bayh-Dole Act to the HIV RNA assay invention described in the invention disclosure. All the patents listing Holodniy as an inventor for the HIV RNA assay invention also contained the following notation: “This invention was made with Government support under contracts AI27762- 04 and AI27766-07 awarded by the National Institutes of Health. The Government has certain rights in this invention.”
On April 6, 2000, a Senior Licensing Associate (Luis Mejia) at Stanford offered a slide presentation at Roche that asserted Stanford’s ownership of the HIV RNA assay invention and offered Roche an exclusive license to all patents descending from the May 1992 application. After licensing negotiations between Stanford and Roche broke down, Stanford sued Roche for patent infringement in October 14, 2005 in the Northern District of California. In response, Roche alleged in its answer that Stanford lacked standing to sue for patent infringement because Roche either: (1) owned, was licensed under, and/or had shop rights in these patents through Roche’s acquisition of Cetus’ PCR assets (the “ownership claim”); or (2) Stanford’s title to these patents was defective (the “defective title defense”). The Northern District of California ruled against Roche on the “ownership claim,” as well as the “defective title defense,” as being barred by the California statute of limitations, laches, and the Bayh-Dole Act.
Judge Linn, writing for the Federal Circuit panel, ruled that Roche’s “ownership claim” was barred by the statute of limitations, but not Roche’s “defective title defense.” Judge Linn’s opinion also ruled that Holodniy’s signing of Stanford’s CPA reflected “merely a promise to assign rights in the future, not an immediate transfer of expectant interests.” By contrast, Holodniy signing of Cetus’ VCA “effected a present assignment of Holodniy’s future inventions to Cetus” and thus Cetus “immediately gained equitable title to Holodniy’s inventions.” As a result, Judge Linn’s opinion held that “the chain of title to Holodniy’s rights leads to Roche, leaving Stanford with defective title to the rights of all the inventors.” Accordingly, Stanford had no standing to bring the patent infringement action.
Stanford’s argument that this “defective chain of title” was overcome by the “bona fide purchaser” provision under 35 U.S.C. § 261 failed to convince Judge Linn. But then Stanford argued, what about the impact of Bayh-Dole on Holodniy’s assignment under Cetus’ VCA? Judge Linn’s opinion ruled that Bayh-Dole “did not automatically void Holodniy’s assignment to Cetus, and provided the Government with, at most, a discretionary option to his rights,” citing the Federal Circuit’s 2007 decision in Central Admixture Pharmacy Services, Inc. v. Advanced Cardiac Solutions, P.C.that when the provisions of the Bayh-Dole act are violated, title is not “void” but instead “voidable” at the election of the appropriate federal agency. In response to Stanford’s argument that Holodniy’s rights were “contingent” upon his CPA obligations to assign them to Stanford, and that Stanford’s election of title in 1995 gave it all patent rights, Judge Linn’s opinion stated that “[w]e are unconvinced of Stanford’s interpretation of the Bayh-Dole Act in this case.”
Instead, Judge Linn’s opinion referred to the 2007 decision of University of Pittsburgh v. Townsendfrom the Eastern District of Tennessee where the University of Pittsburgh sought patent rights from the inventor, Townsend, who maintained simultaneous ties with a private company (CTI). After inventing a medical scanner, Townsend assigned his rights exclusively to CTI, after which the University of Pittsburgh formally elected to retain title under the Bayh-Dole. The University of Pittsburgh argued that this election voided Townsend’s earlier assignment, citing the Northern District of California’s opinion in Stanford University. The Eastern District of Tennessee rejected this argument, noting that “the University [of Pittsburgh]’s ostensible exercise of its right to title . . . occurred after Dr. Townsend’s assignment to CTI.” Judge Linn’s opinion then held that this outcome in Townsend“is consistent with our understanding that claiming title under Bayh-Dole does not override prior assignments.
With all due respect to Judge Linn, his ruling in Stanford Universityregarding the impact of Bayh-Dole on Holodniy’s assignment under Cetus’ VCA is problematical in several respects. First, this ruling misinterprets how title to “subject inventions” works under Bayh-Dole, and especially where title to the “subject invention” initially resides. Under Bayh-Dole, title to the “subject inventions” (i.e., those resulting from federally sponsored research which Stanford University appears to involve) initially resides with the organization (e.g., Stanford) which carries out the sponsored research. It’s only when the organization elects not to retain title that such title may then pass to the U.S., and only if the appropriate federal agency specifically requests that title pass to it. As the Federal Circuit correctly held in Central Admixture, title is potentially “voidable,” not void, if the organization doesn’t choose to retain title, and the appropriate federal agency also fails to request title back.
Second, this ruling in Stanford University is inconsistent with 35 USC § 202(d). 35 USC § 202(d) says that if the university elects not to retain title, the university may request that the appropriate federal agency allow the inventor to retain rights in the “subject invention.” If 35 USC § 202(d) is to make sense, initial title to the “subject invention” must reside with the university under Bayh-Dole.
Third, this ruling in Stanford University appears to frustrate what is intended by 35 USC § 202(c)(7). 35 USC §202(c)(7) expressly prohibits a nonprofit organization, like Stanford, from assigning rights in federally sponsored research to third parties (like Cetus or Roche) without approval of the respective federal agency. That a university researcher (like Holodniy) can so easily defeat the prohibition of 35 USC § 202(c)(7) by signing a VCA that incidentally assign rights to “subject inventions” to third parties seems bizarre.
Fourth, this ruling in Stanford University cannot be so easily reconciled with the holding in Central Admixture. In essence, this ruling in Stanford University allows a “third party” (e.g., Roche) to challenge and “void” title to a “subject invention.” That is exactly what the Federal Circuit said in Central Admixture cannot be done. Instead, as was held Central Admixture, only the appropriate federal agency may “void” such title in appropriate circumstances under Bayh-Dole. (In footnote 1, while expressing “no opinion,” Judge Linn does appear to suggest that Bayh-Dole might allow Stanford to recover these rights if the Holodniy’s execution of the Cetus VCA violated Bayh-Dole, so this may not be the end of the story.)
Fifth, Judge Linn’s opinion views Stanford’s argument based on Bayh-Dole as requiring the “voiding” of the VCA assignment by Holodniy of the “subject invention” to Cetus. While Stanford could have phrased its Bayh-Dole argument more artfully in this regard, “voiding” of Holodniy’s assignment to Cetus under the VCA is not what is required by Bayh-Dole. Instead, Holodniy had no title to assign because, by operation of Bayh-Dole, title to the “subject invention” started and remained with Stanford. In fact, Judge Linn’s reliance upon the Townsend case is misplaced because the Eastern District of Tennessee in Townsend also got the issue of “where the title resides” wrong (i.e., in electing to retain title, the University of Pittsburgh was not “exercising its right to title” because it already had titleby operation of Bayh-Dole).
Admittedly, Stanford might have avoided this result by phrasing the assignment in its Holodniy CPA as a “present transfer of,” not a “promise to,” assign rights in future inventions to Stanford. But allowing such subtle phrasing in an assignment to determine whether or not a university retains title to “subject inventions” from federally-sponsored research, as Judge Linn’s opinion in Stanford Universitydoes, appears to frustrate how title to “subject inventions” was intended to work under Bayh-Dole, and especially who has title to those “subject inventions” in the first place. And universities are certain to “howl” about the potential implications of the Stanford University case on their respective sponsored research programs.
*© 2009 Eric W. Guttag.