Stanford v. Roche – When is an assignment not an assignment?


06.12.11 Posted in Supreme Court Opinions by

This case was a dispute over conflicting assignments by an inventor to Stanford and a private lab where he did supporting work. When infringement litigation erupted between the parties, the defendant asserted it was a co-owner so the plaintiff had no standing to sue. The underlying research was federally funded, and Stanford asserted that the Bayh-Dole Act gave it superior rights.  This contention was rejected by the Supreme Court, but the decision did not squarely address the contract law issue of which assignment had priority.  Stanford Univ. v. Roche Molecular Systems, Inc. , No. 09-1159 (S.Ct. June 6, 2011) (563 U.S. __ (2011)).

Mark Holodniy was hired by Stanford University in 1988 to work on HIV research supported by federal funds.  Dr. Holodniy signed an agreement when hired to assign his “entire right, title, and interest” in inventions resulting from his employment to the university. Holodniy then collaborated with Cetus, a private firm (whose successor in interest is Roche) and worked at a Cetus facility learning “PCR,” a special technology for the research.  As a condition of working with Cetus, Holodniy signed an agreement (referred to as the “VCA” in the opinion) stating that he “will assign and hereby does assign (to Cetus) his right title and interest in each of the ideas, inventions and improvements made as a consequence of his access to Cetus.” (slip op. at 2, internal quotes and punctuation omitted).  Holodniy returned to Stanford and continued his research, which eventually resulted in valuable patents.

Stanford sued Roche in 2005 alleging that HIV test kits marketed by Roche infringed its patents.  Roche’s defense was that it was a co-owner of the technology, and that Stanford therefore lacked standing to sue Roche for patent infringement.  Stanford countered that Holodniy had no rights to assign because Holodniy’s research was federally funded.  Stanford claimed superior rights because of the Bayh-Dole Act and because of the assignment to Stanford.

The district court sided with Stanford, holding that Bayh-Dole Act conveys title in an invention to the inventor only after the government and contracting party (in this case, Stanford) have declined title (which, of course, was not the case here). Thus, the court held that Holodniy had no rights to convey to Cetus.

The Federal Circuit reversed, holding that the Stanford assignment was a “mere promise” to assign, but the Roche VCA assignment was a present assignment, based in the Federal Circuit’s rule in FilmTec Corp. v. Allied-Signal, Inc., 939 F. 2d 1568, 1572 (Fed. Cir. 1991).  (Breyer’s dissent, slip op. at 6–7). The Federal Circuit concluded that the Cetus assignment trumped the Stanford assignment.  Additionally, the court held that the Bayh-Dole Act “does not automatically void ab initio the inventors rights in government-funded inventions.” Majority op. at 5. The Supreme Court majority (opinion by Roberts) upheld the Federal Circuit.

The majority asserts that Stanford argues that the Bayh-Dole Act “reorders” the normal assignment process of conveying inventors rights to employers by contract, by vesting title to inventions in the federal contractor, rather than the employee-inventor.  Majority op. at 8. The court rejects this argument. There is a lengthy discussion of the Bayh-Dole Act in the context of the assumption by the majority that the Cetus assignment had priority over the Stanford assignment.  The majority opinion does not fully address the contract law issue of why the Cetus assignment trumps the Stanford assignment.  Rather, the majority appears to address a Stanford argument that even if Cetus had a superior assignment, the Bayh-Dole Act gives Stanford full rights the invention.  The court is probably correct that Stanford loses on that argument, but the failure to fully analyze why Stanford’s assignment failed is disappointing.

Sotomayer, in a concurrence with the majority, suggests that Stanford’s appeal to the Supreme Court did not challenge the Federal Circuit’s Filmtec rule, which explains the majority holding.

Breyer wrote a substantial dissent. He would have sent the case back to the Federal Circuit for further argument on whether an assignment can be “terminated unilaterally … through a separate agreement purporting to assign the inventor’s rights to a third party.” Breyer dissent at 1, quoting the question presented. Breyer questions the Federal Circuit conclusion that the Cetus agreement words “do hereby assign” trumped the Stanford agreement words “agree to assign,” because the Cetus words “operated on the invention automatically,” while the Stanford words did not. Id. at 6.  Breyer calls this “slight linguistic differences” that “makes too much of too little.”  Id. at 7. Breyer concludes the language is functionally equivalent, and that both agreements give rise only to equitable interests, and that Stanford should probably take priority because Stanford came first in time and obtained a postinvention assignment from Holodniy.   Id.

Breyer asserts that the Filmtec rule changed many years of precedent, but without explanation.  Breyer further states that Filmtec undercuts the objectives of the Bayh-Dole Act.  Id. at 8. Breyer also states that the Federal Circuit reasoning (in this case) brings about an interpretation contrary to the Stanford agreement, running “counter to the drafters’ reasonable expectations” of how the contract would be interpreted.  Still further, the Bayh-Dole Act and Executive Order 10096 are controlling rules for federally funded research, that in effect require assignments of federally funded research to the federal contractor. Id. at 8–9.

However, the issue of whether the Filmtec rule is appropriate where the Bayh-Dole Act is applicable was apparently not fully addressed by either the Federal Circuit or in the Supreme Court briefs.  Breyer therefore dissented and would have remanded the matter for further arguments in the Federal Circuit on this issue.

Comment: I agree with Breyer that the two agreements convey essentially identical rights by a plain reading.  Splitting hairs over contract language as was done in this case does not seem appropriate.  In my view, the Cetus language “hereby does assign,” which the Filmtec rule gives so much weight to, is actually meaningless, because no invention had yet been made at the time of the Cetus agreement.  I have not read the Filmtec decision, but the real issue is which of the two seemingly conflicting purported assignments should control, and that issue was not squarely addressed in this decision.

 



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