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Stanford v. Roche Questions Bayh-Dole Legislation

This article has been updated to correct comments attributed to Justice Ginsburg.

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – The Supreme Court of the United States heard oral arguments this week in a case involving PCR patents between Stanford University and Roche Molecular Systems that could have implications for federally funded research institutions and businesses nationwide.

The decision in the Stanford University v. Roche Molecular Systems case may hinge on a potential hole in the University and Small Business Patent Procedures Act — also known as the Bayh-Dole Act — and could lead universities, institutes, and small businesses to adjust their contracts procedures in order to protect intellectual property that was developed using federal funding.

The act was designed to enable universities and small businesses use of IP discovered using federal funds to enhance innovation and commerce, but this case may call into question whether or not Bayh-Dole provides as much protection as has been assumed for thirty years.

As GenomeWeb Daily News reported recently, Stanford claimed in the 2005 lawsuit that Roche has been infringing on three PCR-based test kit patents (US Patent Nos. 5,968,730; 6,503,705; and 7,129,041), for years without a license agreement.

Stanford claims that one of its researchers, Mark Holodniy, developed the patented process with federal funding, and that while collaborating with a company called Cetus, which was developing PCR technology and later sold those assets to Roche, he gave away the rights to the patents the collaboration spawned.

Stanford has maintained that because Holodniy was working under funding from the National Institutes of Health it owns the contested IP, which is used for measuring HIV viral load, under the Bayh-Dole Act. In traditional US patent law, an inventor owns the IP he or she develops, but Bayh-Dole creates a hierarchy of ownership that gives the patents to the entity that received the federal funding.

The case has centered on the wording of two agreements Holodniy signed — one with Stanford in which he agreed that he "will assign" future IP to the University, and one with Cetus in which he agreed that "I do hereby assign" IP from the research to the company.

In 2008, the US District Court for the Northern District of California ruled that the patents were invalid, but did not agree that Roche owned them, either. The following year the US Court of Appeals for the Federal Circuit agreed with Roche that it owned the rights to all the patents because Holodniy had an uncertain, future-looking agreement with Stanford, which gave the precedent to his agreement with Cetus.

"The federal circuit found that the previously signed agreement with Stanford was just a promise to sign one of these assignments in the future," Steve Chang, an attorney with the IP firm Banner and Witcoff, told GWDN yesterday.

In oral arguments before the Supreme Court Monday, Stanford attorney Donald Ayer argued that Bayh-Dole was intended to confer ownership of patents to the entity receiving the funding, and therefore its agreement with Holodniy superseded the one he signed with Cetus.

"Bayh-Dole certainly had the intent of having the government and the contractor have certain rights to the inventions that would be ahead of the inventors' rights, but the language of the act did not expressly say that patent rights would automatically vest with either the contractor or the government," said Chang.

"If you're living in a world where there is no such vesting, then an assignment is needed to transfer ownership of inventions. An assignment such as, 'I hereby sell to you these rights'," Chang said.

Chang pointed out that Roche has argued that the agreement Holodniy signed with Cetus "was the first agreement when he said that he 'hereby transfers these rights.'"

The agreement with Stanford didn't actually say Holodniy was transferring anything, Chang noted. "All it said was 'I promise to do so in the future.'"

Ayer told the court that the only important thing in the case is that Bayh-Dole said that "when the United States invests money in research, it wants certain things to happen that are very carefully set out" in the law.

"In this case, Roche's sole claim rests on an assignment from an inventor who was ... a Stanford employee who was working on a project under a federal funding agreement," Ayer told the court.

Roche has disputed the extent to which Holodniy was actually working under NIH funding at the time he signed the Cetus agreement, but did not make that point the centerpiece of its arguments.

Ayer said the question about such claims is very clearly dealt with under the law. Because Holodniy was working for Stanford he was covered under Bayh-Dole, and that coverage means "that he lacks the power to transfer title to his future invention to someone else," he argued.

But Roche attorney Mark Fleming told the court that although Bayh-Dole was intended to take inventions "off of government shelves" and "put them on the market," it did not change the "long-standing rule ... that title to an invention vests in the inventor."

A Hole in the Law?

In the questioning that followed, the justices considered that there may be an unintended flaw in the law that could require government-funded entities to take some corrective measures.

"Is there a reason that the federal government can't just say, 'From now on we're not going to give any money to Stanford or anybody else until they have an agreement making clear that the inventor is going to ensure that title rests with the university, which then triggers the Bayh-Dole Act?,'" asked Chief Justice John Roberts.

"The reason [this line of questions] is relevant," Justice Stephen Breyer proposed, is that if Bayh-Dole "could be so easily subverted ... [then] there might be a large class of cases where neither the university nor the government would actually get much of a benefit from research that the taxpayer funded."

And Justice Sonia Sotomayor asked, "Is there any conceivable reason that, under the Bayh-Dole Act ... Congress would have ever wanted the university and the inventor to be able to circumvent the act by failing to secure an assignment?"

Justice Ruth Bader Ginsberg said that the whole problem is that Stanford should have used the words 'I hereby do assign' instead of 'I will assign.' Had they done the former, she asserted, "then there would be no case."

Chang would not speculate on whether this case would necessarily expose a hole in Bayh-Dole, but he pointed out, "We've got two parties at the Supreme Court debating whether this act really did change the mechanics through which ownership has to be changed. If the act really was intended to set up this hierarchy for ownership, then why didn't they include some language in there about automatic vesting?" he asked.

Chang noted that some of those who submitted amicus briefs on Stanford's behalf, including the Solicitor General's office and the Association of American Universities, are concerned that a ruling against the school could create uncertainty in the patent system.

"The concern is that university researchers might visit a company and sign a visitor agreement without noticing that it has an assignment agreement buried in it," he said. Universities and the Obama Administration are concerned about the possibility that "a hidden agreement might surface at any time," he said, and that "every single funding contract that's out there might involve a researcher who went off and may have inadvertently signed an agreement like this.

"A lot of the folks in the research community would like to see Stanford prevail so that there would be this certainty that [you would know] the ownership of rights as long as it was under the government contract," said Chang.

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