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Supremes Rule Against Stanford

June 7, 2011

WASHINGTON -- It seems slightly odd to say that the U.S. Supreme Court sided with the little guy in a patent ruling Monday, given that the litigants in the fight over ownership of a technology that measures the concentration of HIV in blood plasma were a major drug company (backed by other biotechnology companies) and Stanford University (buttressed by many other research institutions and the federal government).

But the opinion issued by the court's seven-member majority in Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, Inc. hangs heavily on interpreting a key federal patent law in a way that elevates the rights of individual inventors over those of their employers -- the universities and companies with which the federal government contracts for research.

Stanford and other research universities had urged the Supreme Court to take just the opposite view of the University and Small Business Patent Procedures Act of 1980, the seven justices said in their ruling. "In their view, the Act moves inventors from the front of the line to the back by vesting title to federally funded inventions in the inventor’s employer -- the federal contractor," the ruling states.

But to do so, the majority argued, would have disregarded the central premise of more than 200 years of federal patent law, which is that "rights in an invention belong to an inventor."

The Bayh-Dole Act, named after its chief drafters, was designed 30 years ago to help speed the flow into the market place of inventions produced with federal research grants. It did that in part by letting federal contractors "elect to retain title" (deriving ownership rights from the government) in inventions that are "conceived or first actually reduced to practice" with federal grant funds; in exchange, universities and other grant recipients agree to fulfill numerous terms.

Typically, a university or other contractor drafts agreements under which its researchers "assign" the rights to a potential invention to the institution. Stanford got into trouble in the case that reached the Supreme Court, though, because its policy on who owns inventions required researchers, at some future date, to "agree to assign" ownership rights to the university; meanwhile, the comparable policy at Cetus, an outside company with which the Stanford researcher in question did outside work, said that an inventor "will assign and do[es] hereby assign" his or her rights.

So when Stanford sued Cetus (which had since been subsumed by Roche) in 2005 for patent infringement, after the two had failed to reach a deal on licensing the invention, that difference in the university's and the company's policies proved to be Stanford's undoing, leading the U.S. Court of Appeals for the Federal Circuit to side with Roche in 2009, saying that both parties owned the patent.

In appealing to the Supreme Court last year, Stanford argued that the Bayh-Dole Act essentially precluded an individual inventor from assigning rights to the invention to a third party, and that the appeals court's decision "radically upends" the law.

But it was Stanford, not the appeals panel, that sought to reinterpret Bayh-Dole, a majority of the Supreme Court justices essentially said Monday. Turning repeatedly to Webster's Third New International Dictionary, the court's opinion takes issue with the university's efforts to define (expansively) which inventions should be considered owned by the contractor (rather than by its employees), among other things.

Bayh-Dole gives Stanford and other contractors all the protections they need by giving them ownership in all inventions to which their employees have assigned them the rights. "[U]niversities typically enter into agreements with their employees requiring the assignment to the university of rights in inventions," the majority opinion states. "With an effective assignment, those inventions -- if federally funded -- become 'subject inventions' under the Act, and the statute as a practical matter works pretty much the way Stanford says it should. The only significant difference is that it does so without violence to the basic principle of patent law that inventors own their inventions."

Two justices, Stephen Breyer and Ruth Bader Ginsburg, issued a dissenting opinion in the case (see Page 21), in which they took issue with their colleagues' sweeping ruling and argued that the Federal Circuit appeals panel had left unresolved several questions that might have been better resolved by sending the case back to the lower court.

Roundup of Reactions

Stanford officials cited Breyer's dissent in an e-mailed news release about the decision, reiterating concerns it and other academic institutions had raised about the impact that the Federal Circuit ruling, if upheld, could have on universities, companies, and the federal government alike.

"For example, the federal government could lose its many rights in the inventions, could lose the assurance that the royalties that would have gone to the university are used to further scientific research and education, and could lose the requirement that exclusive licensees will manufacture any products substantially in the United States," the university said.

The Supreme Court's interpretation of Bayh-Dole hewed closely to arguments put forward in friend-of-the-court briefs both by biotechnology companies and by the American Association of University Professors, the latter in conjunction with two groups that seek to defend the patent rights of researchers. "This is absolutely the best possible result we could have asked for, in just the way we would have wanted it," said David P. Swenson, a lawyer in Minneapolis who represented the professors' and researchers' groups.

Swenson said that rather than representing a "sweeping change in the law," as Stanford and the federal government argued, the appeals court's decision (backed now by the Supreme Court's majority opinion) reinforces the longstanding notion that Bayh-Dole "controls the relationship between the government and contractors, not between contractors and inventors."

The dealings between institutional grant recipients and individual inventors are determined by university and corporate policies and by the contracts they draw up for their researchers to sign, Swenson said. "We looked at existing university policies, and a lot of universities already had policies that avoided the kind of language that Stanford got tripped up by. There are a number of universities like Stanford that unfortunately [had flawed] written policies or don't have policies at all. I think it scared the heck out of them to see Stanford get tripped up."

Bruce T. Wieder, a patent lawyer at Washington's Dow Lohnes firm, agreed with Swenson that "this whole case [emerged] because of how somebody at Stanford decided to draft their assignment provision," and that he hoped "that at this point, what everybody has done, is go change their [contracts with researchers] to say 'I hereby assign' instead of 'I hereby promise to assign.' "

"You gotta do the assignment right," he said. "If you screw that up, you can see what can happen."

 

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