An Inventor’s Prior Assignment Trumps Bayh-Dole

“The judgment of the Court of Appeals for the Federal Circuit is affirmed”

This now-rare statement concludes Chief Justice Roberts opinion, in which six other Justices share, in their June 6, 2011 decision in The Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems. The decision the Supreme Court affirmed had held that, notwithstanding the provisions of the Bayh-Dole Act giving universities and some others rights retain ownership of inventions they made using federal funds, a prior assignment of rights in such an invention cut off any rights a university might have under the Act. Even though agreeing with the Federal Circuit’s decision based on the way the case had been pleaded, members of the Supreme Court questioned whether a 1991 decision of the Federal Circuit, which had held that documents of the type that had been signed by the inventor in this case should be treated as instant assignments of future inventions, had been correctly decided.

In 1988 Dr. Holodniy, an employee of the University, signed an agreement in which he “agreed to assign” inventions he made as a University employee to the University. (The first agreement.) At that time it was thought by many that this had the same effect as a purported assignment of yet-unmade inventions, namely that it simply gave equitable title in such inventions to the beneficiary. Subsequently when seeking training at Cetus, a biotech company, in a particular technique useful in his research at the University Dr. Holodniy signed an agreement that stating “I will assign and do hereby assign to Cetus my right, title and interest in each of my ideas, inventions and improvements” developed “as a consequence” of his access to training at Cetus. (The second agreement.)

In 1991, in Film-Tec Corp v. Allied Signal, Inc the Court of Appeals for the Federal Circuit held that a document specifically stating that future rights were being assigned by it had the effect of “not merely” creating an obligation to assign future rights “but expressly granted … rights to any future invention … [so that] no further act would be required once an invention came into being: the transfer of title would occur by operation of law”.

In the early 1990’s Dr. Holodniy jointly with other employees of the University made an invention and purported to assign his right in it to the University. (The third agreement.) A patent application was filed in May 1992 and a patent ultimately issued in the name of the University. The University sought to enforce the patent against Roche, the successor in title to Cetus. The Federal Circuit held that the first agreement with the University was ineffective to transfer title as being merely an agreement to assign rights in the future, but that the agreement with Cetus (the second agreement) had been effective to effect immediate transfer of title and the third agreement which purported to assign rights to the University was ineffective because the inventor had already assigned his rights away to Cetus in the second agreement. The consequence was that, Roche was successful with an affirmative defense that it had co-ownership of the patent with the University which meant that the University lacked standing to bring a suit against it for infringement of the patent. The Federal Circuit further held that notwithstanding the fact that the University received federal funding for the research in question, the Bayh-Dole Act which gives universities the right to retain ownership of certain inventions made with federal funding did not apply to give the University rights in this case.

The Supreme Court granted certiorari to review the question:

Whether a federal contractor university’s statutory rights under the Bayh-Dole Act 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.

Chief Justice Roberts noted that the Bayh-Dole Act creates a three tier system for ownership of “inventions conceived or first reduced to practice in the performance of work” carried out by nonprofit organizations, such as universities, and small businesses where the work is “funded in whole or in part by the Federal Government”. Under this scheme, the organization carrying out the research has the option (subject to certain government rights) to retain ownership of such inventions, if it does not exercise that option, the U.S. government has the right to take ownership and failing that the employee who made the invention has the right to ownership. Roberts CJ pointed out, however, that this scheme only applies once the organization carrying out the research has acquired title to the invention. In his view and that of the rest of the majority, nothing in the Bayh-Dole Act supplants the basic rule of U.S. patent law that in the absence of any assignment, ownership of an invention rests with the inventor. This being the case, if the University had never acquired rights in the invention in the present case it could not “retain” them. The Bayh-Dole Act. simply changed the prior law that had required assignment to the federal government of the results of federally funded research. It did not change the fundamental rule that inventions initially belong to the inventor and that change of ownership, absent some situations specifically provided for by statute, could only be effected by assignment.

Justices Breyer and Ginsburg dissented and would have held that the Federal Circuit’s view that there was a difference between the meaning of the first and second agreements signed by Dr Holodniy “made too much of too little” and that both should have been held to create merely an equitable right. If this were the case, the policy behind the Bayh-Dole Act of encouraging research by universities would have been fulfilled in that the University could have retained rights in the invention.

Justice Sotomyor expressed sympathy with Justice Breyer’s opinion but did not join him in dissent because Stanford had failed to argue that the Federal Circuit’s decision should have been overturned on that ground. She felt, however, that the majority decision left this issue open for further consideration on another occasion. A footnote in the majority opinion specifically states “Because the Federal Circuit’s interpretation of the relevant assignment agreements is not an issue on which we granted certiorari, we have no occasion to pass on the validity of the lower court’s construction of those agreements”.

The majority’s view on the meaning of the Bayh-Dole Act is not surprising, although it has been criticized in the press. The more interesting question is that which the Court declined to answer. To what extent is it possible to effect a transfer of legal title rather than an equitable obligation in an invention that has not yet been made. Questions of transfer of title to future interests are commonly considered by trusts and estates lawyers, it now seems that they will have to be considered by patent lawyers as well. In the mean time, it seems that the old stand-by language of “do hereby assign and agree to assign” should be used to try to cover all eventualities.