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After Stanford v. Roche: Bayh-Dole Still Stands


Written by Joseph Allen
Allen & Associates
Posted: Jun 13, 2011 @ 1:37 pm

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Now that the dust is settling down after the Supreme Court’s recent ruling on the much debated Stanford v. Roche case, we need to take stock of its pragmatic impact. We are happy to report that Bayh-Dole remains unscathed.

After all was said and done, the underlying case was a standard debate over ownership of a valuable invention between two parties who had been working together.

In a nutshell, Dr. Mark Holodniy joined Stanford to work on AIDS research. As part of his employment he signed Stanford’s standard agreement under which he agreed to assign to Stanford his “right, title and interest in” any inventions resulting from his employment there.

Holodniy’s supervisor at Stanford had been working with Cetus. He asked Holodniy to conduct work at Cetus to learn more about their Nobel Prize winning technique known as PCR to enhance the ability to detect AIDS. The supervisor made arrangements with Cetus to accept Holodniy, which they did while requiring him to sign their agreement that visiting scientists assign to the company any “right, title and interest in… the ideas, inventions, and improvements” made “as a consequence of (his) access” to Cetus.



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Here’s where things went from there as summarized by the Supreme Court:

Working with Cetus employees, Holodniy devised a PCR-based procedure for measuring the amount of HIV in a patient’s blood. Upon returning to Stanford, he and other Stanford employees tested the procedure. Stanford secured three patents to the measurement process.

Interestingly, Cetus never applied for a patent on that procedure, and it was subsequently published.

Cetus was later acquired by Roche, which sold their HIV test kits around the world. Stanford approached Roche asking it to take a license to the Stanford patents in which Holodniy was a named inventor, alleging that the Roche product infringed the Stanford patents.

Roche refused saying that because of the agreement Holodniy signed with them Roche was a joint owner of the patents, and free to practice the inventions of them. Stanford disagreed countering that the inventions were made under federally sponsored research that Holodniy had assigned to Stanford, which under the auspices of the Bayh-Dole Act, Stanford owned.

Thus, the battle was joined.

Stanford won in the district court, but the ruling also held its patents invalid. The Court of Appeals for the Federal Circuit (CAFC) vacated the invalidity ruling, but found that Dr. Holodniy “developed the inventions ‘as a consequence of his access to Cetus.’ ” The CAFC also held that the Cetus agreement took precedence over the Stanford agreement as the assignment to Cetus was immediate when the invention was made, while the Stanford language required a subsequent assignment after the invention had been reported.

This point created much of the subsequent confusion with the case. What the CAFC appeared to be saying was that Dr. Holodniy’s agreement with Cetus allowed the company to try and establish that the invention was derived from Holodniy’s work in their privately funded research facility. As this point was not well explained, some took the ruling in favor of the Cetus agreement to mean that the company was being allowed to claim ownership of Holodniy’s inventions– even if they were conceived and reduced to practice at Stanford without Cetus support.

As the case worked its way through the courts, Stanford and Roche began casting what on its surface appeared to be a typical patent ownership dispute in more universal terms. Stanford warned that Roche was trying to undermine the Bayh-Dole Act by having university inventors determine who owned federally funded inventions that should rightly belong to the university. Roche argued that rights to privately funded research were being endangered if universities “sprinkled federal funding around them.”

Unfortunately, another even more contentious issue was introduced when the Solicitor General asked the Supreme Court to take the case. The Solicitor General put forth a new theory on how Bayh-Dole was supposed to work. While it had been always been standard practice for universities to have their inventors sign patent assignment agreements (as Stanford did in this case), the Solicitor General said these were unnecessary as Bayh-Dole automatically “vested” patent ownership in the universities whether their inventors signed an agreement or not.
Following the Solicitor General’s lead, Stanford made the vesting argument a focus of its Supreme Court brief. That turned out to be a colossal mistake.

When the vesting argument first raised its head, we warned that the theory was not supported by the Bayh-Dole Act, or its legislative history, which we were directly engaged in creating. It will never be known what might have happened if the vesting argument had not been put forth. It is not unreasonable to speculate that the Court may well have heeded the advice of Justices Breyer and Ginsburg that the CAFC decision be vacated, and the case remanded since its underlying facts appeared so tangled.

Instead the case was accepted. The parties framed their arguments emphasizing the contending viewpoints of the underlying public policy issues. The question Stanford hoped to argue was:

Whether a federal contractor university’s statutory right under the Bayh-Dole Act… in inventions arising from federally funded research can be terminated unilaterally by an inventor through a separate agreement purporting to assign the inventor’s rights to a third party.

Roche countered that the pending question was:

Whether the Bayh-Dole Act’s provision allowing a federal contractor to “elect to retain title” to an “invention of the contractor” allows the contractor retroactively to take intellectual property rights that have been validly assigned to a third party that neither accepted nor benefitted from federal funds.

However, in its ruling the Supreme Court defined the central question before it quite differently:

Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor. The question here is whether the University and Small Business Patent Procedures Act of 1980—commonly referred to as the Bayh-Dole Act—displaces that norm and automatically vests title to federally funded inventions in federal contractors. We hold that it does not.

Thus, the Court‘s ruling made short shrift of the vesting argument, and upheld the Court of Appeals ruling.

So what does the ruling mean beyond its impact on the two immediate parties?

  • Universities and others covered by the Bayh-Dole Act need to have invention assignment agreements in place with their researchers. Nothing new there. These agreements should immediately convey ownership, not do so in the future.
  • There is also a need to make sure that faculty understands the implications of agreements they sign promising rights to intellectual property to outside entities. Their university employers need to know when these exist.
  • If inventions are made with contributions by the private sector, these rights must be acknowledged even if there is federal funding involved covered by the Bayh-Dole Act. Nothing new here either.

That’s pretty much it.

Finally, we believe that in the interest of fairness a word about the person who has his name attached to this case – Dr. Mark Holodniy—is required. Rather than being a rogue inventor, or a naïve academic wandering around signing invention rights away, another portrait emerges from this case. Dr. Holodniy did exactly what he was asked to do by his employer through instructions from his superior. He dutifully signed an agreement giving Stanford rights to his inventions, and agreed to go to Cetus as he was requested to do. At Cetus he complied with their policies.

It is prevailing standard policy in industry, academia and the federal government to have visiting scientists sign patent assignment agreements in exchange for including them on research teams. Even though this may present a logistics problem in terms of monitoring contractual obligations, it’s hard to imagine why any research organization putting their employees in another’s labs wouldn’t be aware of the possible conflicts which could arise, the potential consequences, and manage arrangements accordingly.

In this case, the breakdown in the system should go up the chain of command, not down to the “foot soldier.” All in all, Dr. Holodniy acquitted himself honorably.

So Bayh-Dole stands, based on its traditional premise that agreements are in place with researchers assigning intellectual property rights to their universities for inventions made in whole or in part with federal money.

It is as viable a piece of legislation today as it has been for the past 30 years, bringing myriad benefits to the public. It’s now time to get back to work promoting industry/university research partnerships.

The very future of the US economy may well be at stake.


About the Author

Joe Allen is a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications. Joe served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. Joe has served as the Executive Director of Intellectual Property Owners, Inc., a trade association representing major R&D companies, he was involved in the creation of the Court of Appeals for the Federal Circuit, and he also served at the U.S. Department of Commerce as the Director of the Office of Technology Commercialization. From 1992 until 2004, Allen was with the National Technology Transfer Center (NTTC), becoming President in 1997. Clients included NASA, the Department of Defense, EPA, the Department of Veterans Affairs, and the Department of Commerce. Between 2004 until 2007, Allen was the Vice President and General Manager of the West Virginia High Technology Consortium Foundation. In 2008, Joe founded Allen & Associates to continue to facilitate public/private partnerships between universities, federal laboratories and industry.

7 comments
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  1. I’ll note that requiring employment agreements with a present-assignment is a non-starter for many universities. It is part of the “perks” for faculty (and tenured researchers) that their inventions are their own. IP Policies usually only require assignment of inventions AFTER some form of equity review to determine whether a certain invention was conceived of or reduced to practice as the result of federal funds.

    This leaves many universities victims of their own perks.

  2. @Mike, you are mistaken, there is no “equity review”.

    1) Some universities have an established royalty policy. It is often a clause in the IP agreement itself. Faculty consider the royalty clause to be a God-given entitlement.

    2) Some universities’ IP agreements/policies involve some sort of committee which decides which inventions to patent (some), which to place in the public domain (almost never), and which to let rot (nearly all).

    Don’t confuse these two.

    There is no incompatibility between a royalty clause (1) and present-assignment wording.

  3. “Dr. Holodniy did exactly what he was asked to do by his employer through instructions from his superior”

    Um, no. He signed two contracts that were in direct conflict with each other.

    He assigned (to Cetus) a patent which he had already “agreed to assign” to Stanford. Even though Cetus gets the patent, that doesn’t change the fact that Holodny is in breach of a contract he signed. Worse, he created an anticipatory breach the moment he signed the Cetus contract.

    I suppose the only reason Stanford isn’t collecting damages from Holodny himeslf is that he’d simply declare bankruptcy.

    Perhaps the bigger question is this: SCOTUS has decreed that the only mechanism by which corporations can obtain [new] patents, which are often worth millions of dollars, is via a contract with an individual person who does not have collateral even remotely close to 1% of the value of one of these “blockbuster” patents.

    Talk about “counterparty risk” — this makes credit default swaps look safe!

  4. UCB-

    Perhaps you need to re-read the Supreme Court decision in Stanford v. Roche. Holodniy’s work with Cetus was indeed known and encouraged by Stanford. Vilifying Holodniy for Stanford being greedy and not appropriately entering into a joint venture and recognizing the legitimate rights of a critical contributor is myopic and revisionist.

    -Gene

  5. Before people rush to tighten the noose around their faculty inventors’ necks, I hope we all realize the importance of the Court’s resounding opinion, “Inventors own their work.” Transferring title of that work must come from an express and explicit contract. It is doubtful that any University IP policy in place currently satisfies that criteria, nor should it. Contracts of adhesion can and should be challenged. The best strategy is to create contracts that are consensual, cooperative, made with informed consent, without duress of threat of expulsion or termination, with due process, and satisfactory consideration. Such a voluntary contract will not only stand up in court, it is much less likely to arrive there.
    -Renee

  6. Well said Renee. Like you I too hope the consequence of this decision isn’t that Universities seek ever more draconian agreements. That would be truly unfortunate, and I think a misunderstanding of the lesson of the case.

  7. “There is also a need to make sure that faculty understands the implications of agreements they sign promising rights to intellectual property to outside entities. Their university employers need to know when these exist.”

    I guess Messrs. Allen and Bremer figure that greater understanding of IP rights won’t, in turn, lead faculty and student inventors to question their own need to assign to the university or other contractor?

    Given the importance of having assignments — and their own admission (now) that neither Bayh-Dole nor the Supreme Court made any change to the law in that regard — one has to wonder why efforts at helping faculty “understand the implications of agreements they sign promising rights to intellectual property” wasn’t higher on the agenda before now.

    Could it be because that might be more expensive?