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Legal Update

US Supreme Court Rules on Proper Interpretation of the Bayh-Dole Act

7 June 2011
Mayer Brown Legal Update

In a decision that could affect the numerous recipients of federal funding for research, the Supreme Court addressed the proper interpretation of the Bayh-Dole Act, 35 U.S.C. §§ 200 et seq., which allocates rights in inventions developed with federal funds. The Act allows recipients of federal research funding to retain title to inventions developed with that funding, provided certain conditions are met. The question presented in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. was whether the Bayh-Dole Act automatically vested the recipient of federal funding with the rights to an invention developed by one of its employees using that funding. In a 7-2 decision today, the Court held that the Act does not automatically vest title to such inventions with the recipient of federal funding and that title instead remains with the original inventor.

The case stemmed from a dispute between Stanford University and Roche Molecular Systems over the patent for an HIV testing kit. The technology behind the kit was developed by a team including Dr. Holodniy, a Stanford researcher. As part of his research, Dr. Holodniy visited Cetus to learn about a technique Cetus developed known as “PCR.” PCR became an integral part of the HIV testing kit Dr. Holodniy developed.  As a condition of his visit, Dr. Holodniy assigned to Cetus his rights to any inventions developed from knowledge he gained at Cetus. Cetus subsequently sold those rights to Roche. After Stanford secured three patents relating to the HIV testing kit, Stanford sued Roche for violation of the patents. Roche argued that, as a result of Dr. Holodniy’s assignment, it had a right to develop and market the HIV testing kits. 

Chief Justice Roberts, writing for the majority, rejected Stanford’s argument that the Bayh-Dole Act trumped Dr. Holodniy’s assignment of rights to Cetus. The Court focused on the statute’s use of the word “retain,” see 35 U.S.C. § 202(a) (providing that a contractor may “elect to retain title” to an invention), and found such usage incompatible with an implicit vesting of rights. The Court noted that the statutory text also referred to an “invention of the contractor,” see id. (emphasis added), a qualifier which would be surplussage in the presence of an automatic vesting of title. Rejecting Stanford’s arguments, the Court held that the Bayh-Dole Act assumed (as is the common practice) that the federal funding recipient would include in its employment contracts an assignment of rights in inventions to the employer. But, where such an assignment is lacking, long-established background principles of patent law require that the patent rights revert to the individual inventor. Although Stanford had attempted to include such an assignment in its employment contract with Dr. Holodniy, the Federal Circuit previously held that this assignment was ineffective.

In dissent, Justice Breyer, joined by Justice Ginsberg, argued that the Court should have remanded the case to the Federal Circuit for additional development. Justice Breyer outlined two arguments which he felt warranted further briefing in the lower court, before the Supreme Court should pass on the case. First, Justice Breyer strongly criticized the Federal Circuit’s rule which invalidated Stanford’s attempted assignment agreement with Dr. Holodniy. Second, Justice Breyer argued that equitable principles and the goals of the Bayh-Dole Act required a rule that Dr. Holodniy was legally obligated to assign to Stanford his rights in the invention, independent of other agreements with third parties.

Justice Sotomayor wrote a separate concurring opinion, noting her agreement with Justice Breyer’s criticism of the Federal Circuit’s invalidation of Stanford’s assignment agreement. However, she wrote that, because the issue had not been appealed by Stanford, she joined the majority’s affirmance of the Federal Circuit’s decision.

Learn more about our Intellectual Property and Supreme Court & Appellate practices.

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