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In a 7-2 ruling, the U.S. Supreme Court held that the Bayh-Dole Act does not give federal contractors automatic ownership of inventions that spring from their federally funded research. The Court’s June 6 ruling held that Stanford University, a recipient of federal funds, did not have exclusive rights to an employee’s invention under the act when that employee had assigned his rights to another entity: “Nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions.” The case, Board of Trustees of the Leland Stanford Jr. University v. Roche Molecular Systems Inc., concerns a process invented by Stanford scientist Dr. Mark Holodniy that stemmed from federally financed HIV/AIDS research. The patents at issue use a polymerase chain reaction to measure the amount of HIV nucleic acids in the blood of HIV-infected people. Holodniy’s 1988 agreement with Stanford called for him to agree to assign his invention rights according to the terms set out in the university’s relevant federal contracts or grants. Holodniy also signed an agreement with Roche’s predecessor, Cetus Corp., which he visited to learn about polymerase chain reactions. The Cetus agreement required him to assign his “right, title, and interest in each of the ideas, inventions and improvements” that stemmed from his work at the company. Holodniy returned to Stanford after spending nine months at Cetus. He and other university employees then worked on the HIV measurement technique. Stanford obtained assignments of rights from all employees who worked on the technique, including Holodniy. Stanford subsequently received three patents related to the technique. In 1991, Roche acquired Cetus’ rights related to the measurement technique. Using those rights, it commercialized an HIV test kit. The Bayh-Dole Act, officially the University and Small Business Patent Procedures Act of 1980, was enacted to “promote the utilization of inventions arising from federally supported research.” It provides that federal contractors may “elect to retain title to any subject invention.” In 2005, Stanford sued Roche, alleging that Roche’s test kits infringed Stanford’s patents. Roche claimed that Holodniy’s assignment of rights to Cetus rendered Roche a co-owner of the technique, meaning that Stanford lacked standing to sue. In 2007, the district court found that Holodniy had effectively assigned his rights, but that “because of the operation of the Bayh-Dole Act, ‘Holodniy had no interest to assign.’ “ In 2009, the U.S. Court of Appeals for the Federal Circuit reversed, holding that the Bayh-Dole Act did not automatically strip an inventor’s rights in federally funded inventions, including the right to assign the invention. It found that Roche therefore “had an ownership interest in the patents-in-suit,” depriving Stanford of standing. The appeals court remanded the case to the district court, with instructions to dismiss Stanford’s infringement case. The Supreme Court, in an opinion delivered by Chief Justice John G. Roberts Jr., affirmed. Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas, Samuel Alito Jr., Sonia Sotomayor and Elena Kagan joined him. Sotomayor also filed a concurring opinion. “The question here is whether the…Bayh-Dole Act..displaces [the] norm [that rights in an invention belong to the inventor] and automatically vests title to federally funded inventions in federal contractors. We hold that it does not,” Robert wrote. Roberts found that the “isolated provisions of the Bayh-Dole Act dealing with inventors” rights in subject inventions are consistent with our construction of the Act.” He observed that the act allows federal agencies to grant inventors’ requests to retain rights if federal contractors do not elect to retain title. “If an employee inventor never had title to his invention because title vested in the contractor by operation of law–as Stanford submits–it would be odd to allow the Government to grant ‘requests for retention of rights by the inventor,’ ” Roberts wrote. “ By using the word ‘retention,’ the act assumes that the inventor had rights in the subject invention at some point, undermining the notion that the Act automatically vests title to federally funded inventions in federal contractors.” Justice Stephen Breyer wrote a dissent, which Justice Ruth Bader Ginsburg joined. That an individual inventor can lawfully assign an invention that springs from publicly funded research to a third party “is inconsistent with the Act’s basic purposes,” he wrote. “It allows individual inventors, for whose invention the public has paid, to avoid the Act’s corresponding restrictions and conditions. And it makes the commercialization and marketing of such an invention more difficult: A potential purchaser of rights from the contractor, say a university, will not know if the university itself possesses the patent right in question or whether, as here, the individual, inadvertently or deliberately, has previously assigned the title to a third party.” Breyer also faulted the Federal Circuit’s 1991 ruling in FilmTec Corp. v. Allied-Signal Inc., which the majority opinion relied on. FilmTec also involved a situation in which the inventor agreed to assign rights to an invention that resulted from research. According to FilmTec, “Once the invention is made and an application for patent is filed,…legal title to the rights accruing thereunder would be in the assignee (subject to the rights of a subsequent purchaser under [the patent law]), and the assignor-inventor would have nothing remaining to assign.” “The Federal Circuit’s FilmTec rule undercuts the objectives of the Bayh-Dole Act,” Breyer wrote. “While the cognoscenti may be able to meet the FilmTec rule in future contracts simply by copying the precise words blessed by the Federal Circuit, the rule nonetheless remains a technical drafting trap for the unwary.” Sotomayor wrote in her concurrence that she shares the dissent’s concerns about “the principles adopted by the Court of Appeals for the Federal Circuit in FilmTec and the application of those principles to agreements that implicate the Bayh-Dole Act….Because Stanford failed to challenge the decision below on these grounds, I agree that the appropriate disposition is to affirm,” she wrote. “Like the dissent, however, I understand the majority opinion to permit consideration of these arguments in a future case.” Mark Fleming, a Boston partner at Wilmer Cutler Pickering Hale and Dorr, who argued for Roche at the Supreme Court, said, “We’re certainly delighted with the court’s ruling and delighted that this case has finally been brought to a close.” Adrian Pruetz of the Pruetz Law Group in El Segundo, Calif., who also represented Roche, said the court has “confirmed what we on the Roche team believes was settled law. This is the interpretation we advanced, and we believe it’s the right interpretation of the Bayh-Dole Act.” Stanford’s counsel, Donald Ayer, a Washington partner at Jones Day, did not respond to requests for comment. In a statement, Stanford General Counsel Debra Zumwalt said the school is “disappointed with the ruling by the Supreme Court in this case, but will move forward to protect the interests of all parties in inventions created with federal funding, including the interests of the federal Government and companies that license technology from Stanford.” Dozens of university amici “had hoped that the court’s decision would bring clarity to this issue,” said their lawyer for the case, Doug Hallward-Driemeier. Hallward-Driemeier, a partner at Ropes & Gray who leads the firm’s appellate and Supreme Court practice, filed the brief for the Association of American Universities on behalf of about 80 schools. “I think there will remain a significant amount of lack of clarity,” said Hallward-Driemeier. “The court did not seem decided on the question of whether the Court of Appeals had been correct in how it construed the contract terms at issue here.” Sheri Qualters can be contacted at [email protected] .

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