Who Owns Federally Funded Research (Roche v Stanford HIV Viral Load Case)? The Supreme Court and the Bayh-Dole Act - Perspective
NEJM | August 31, 2011 | Topics: Health Law|
Aaron S. Kesselheim, M.D., J.D., M.P.H., and Rahul Rajkumar, M.D., J.D.
Collaboration between academic researchers and private companies has long been essential to medical innovation and development because it brings together parties with different expertise, data, or technologies. Such cooperative efforts usually begin with a contract that outlines the parties' expectations and ownership of any output. A recent Supreme Court decision shines a bright light on these contracts and addresses the question of whether the public has any formal interest in agreements made involving federally funded research.
The case related to a long-simmering dispute between Stanford University and Roche Molecular Systems regarding ownership of a widely used and profitable diagnostic assay for human immunodeficiency virus (HIV). The dispute dates back to 1988, when a scientist, Mark Holodniy, joined a Stanford University laboratory to measure the effectiveness of HIV treatment. His projects involved two federally funded grants. To aid his university work, in 1989 he visited Cetus, a small privately held biotechnology company that had pioneered polymerase-chain-reaction (PCR) techniques, to learn about using PCR in quantifying HIV levels. Nine months later, Holodniy returned to Stanford to develop the technique with university colleagues - work that led to three patents on processes for HIV measurement that they assigned to Stanford. Meanwhile, Roche Molecular Systems acquired Cetus's PCR-related assets and commercialized the diagnostic assay, which has become central to the care of patients with HIV.
Stanford approached Roche for a share of the proceeds from the assay, but talks broke down and Stanford initiated a patent-infringement lawsuit against Roche. In Holodniy's employment contract with Stanford, he "agree[d] to assign" to Stanford his "right, title and interest in" inventions. However, to gain access to Cetus, he also signed a confidentiality agreement in which he asserted that he "hereby do[es] assign" to Cetus his right to "ideas, inventions and improvements" made during his time there. The District Court found that Holodniy's contract with Cetus had superior rights over the Stanford contract. However, it also found that a federal law - the University and Small Business Patent Procedures (Bayh-Dole) Act of 1980 - superseded both contracts, vesting rights to federally funded work in the institution receiving the funds.
Before Bayh-Dole, the U.S. government was a default owner of intellectual property rights to inventions deriving from the research it funded. Congress passed Bayh-Dole to address the (probably exaggerated1) perception that the government often ended up with the rights to useful inventions that languished without ever being brought to market. The statute permitted universities, businesses, or nonprofit organizations that receive federal funds to retain the title to the inventions their employees developed while using those funds. The government, in turn, was given "march-in" rights to take over the intellectual property if the owner did not take reasonable steps to commercialize an invention or to use that invention to "alleviate health or safety needs."
Stanford argued that Bayh-Dole created a hierarchy of ownership rights that placed the organization receiving federal funds (in this case the university) at the top, followed by the government, and only then - if the organization and the government did not exercise their rights - the individual inventor. But in its June decision, the Supreme Court disagreed with this interpretation of Bayh-Dole, finding that it does not give universities primary claim to federally funded inventions patented by members of their faculties.2 Rather, writing for a seven-to-two majority, Chief Justice John Roberts noted that since the original Patent Act of 1790, the inventor has always held the primary position. Since Holodniy's contract with Cetus was found to have superior rights over his contract with Stanford, the university's lawsuit was blocked.
The Court's ruling highlights the importance of the intellectual-property-related language in agreements signed by academic scientists. Universities vary in their attention to the research contracts signed by their employees, and disputes over intellectual-property provisions in sponsored research contracts are common.3 If a university's rights to an invention or discovery are only as good as the assignments it has received from its employees, a government-grantee organization must be especially careful to ensure that it actually owns the title to an invention that it might want to license out. In the wake of the Court's ruling, at least one university, the Massachusetts Institute of Technology, has already taken preventive action by changing the wording of the Inventions and Proprietary Information Agreements it asks faculty members to sign.4Contractual wrangling is likely to increase, impeding collaboration between private companies and universities - an effect that would run directly counter to Bayh-Dole's intention.
The case also threatens to exacerbate some of the more troubling consequences of the original 1980 legislation. Bayh-Dole's supporters argue that it has led to a dramatic increase in patenting activity by federal grantees: universities were issued 264 patents in 1979 and 3278 patents 2005. However, this trend has also been criticized as a socially inefficient privatization of academic research.5 A more complex web of licensing agreements may threaten the open nature of academic inquiry.
Finally, the decision raises questions about how to ensure equitable returns on federal research funding. In the Stanford case, the development of the widely used HIV diagnostic test occurred primarily in the private sector, and the Supreme Court's decision may have been influenced by the tenuous relationship between the federal funding and the product at issue. In many other cases, though, important new drugs and medical technologies are developed in university or nonprofit settings supported by federal funding and are later commercialized with little return to these development sources. In such situations, there is a strong public-policy rationale for giving universities the first rights to the fruits of publicly funded research. This outcome now requires a legislative amendment to Bayh-Dole. To make such an amendment more politically palatable, universities should reexamine and perhaps revamp their licensing practices to ensure that they are indeed acting as stewards of the public good, rather than simply seeking to maximize their own licensing revenues. They can do this, in part, by including access provisions in their licensing agreements to ensure that the products of their research are available to the neediest patients (for example, those in low-income countries) and by ensuring that their research agenda prioritizes the public interest over potential profit.
Disclosure forms provided by the authors are available with the full text of this article at NEJM.org.
This article (10.1056/NEJMp1109168) was published on August 31, 2011, at NEJM.org.
From the Division of Pharmacoepidemiology and Pharmacoeconomics (A.S.K.) and the Department of Medicine (A.S.K., R.R.), Brigham and Women's Hospital; Harvard Medical School (A.S.K.); and McKinsey and Co. (R.R.) - all in Boston.
Supreme Court Affirms CAFC in Stanford v. Roche on Bayh-Dole
Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: June 6, 2011 @ 12:02 pm
This morning the United States Supreme Court issued its decision in Stanford v. Roche, a decision that has been much anticipated in the technology transfer world. Technology transfer is the front line for the interfacing of University research and private sector commercialization, so it is no great wonder that this case captured the attention of academia and the private sector alike. At issue in the case was whether the Bayh-Dole Act automatically vested ownership of patent rights in Universities when the underlying research was federally funded.
It is not at all an exaggeration to say that Bayh-Dole is one of the most successful pieces of domestic legislation ever enacted into law. The Bayh-Dole Act, which was enacted on December 12, 1980, was revolutionary in its outside-the-box thinking, creating an entirely new way to conceptualize the innovation to marketplace cycle. It has lead to the creation of 7,000 new businesses based on the research conducted at U.S. Universities. Prior to the enactment of Bayh-Dole there was virtually no federally funded University technology licensed to the private sector, no new businesses and virtually no revolutionary University innovations making it to the public. Bayh-Dole set out to remedy this situation, and as a direct result of the passage of Bayh-Dole countless technologies have been commercialized, including many life saving cures and treatments for a variety of diseases and afflictions. In fact, the Economist in 2002 called Bayh-Dole the most inspired and successful legislation over the previous half-century. Nevertheless, the question remained, at least until this morning, whether ownership of patent rights immediately vested in the University as the result of federal funding.
In a blow to the convention wisdom of Supreme Court patent-watchers, the Supreme Court affirmed the United States Court of Appeals for the Federal Circuit. This is unusual because the Federal Circuit is for all intents and purposes the only Federal Appellate Court to decide patent matters, so it is the normal course for the Supreme Court to take cases from the Federal Circuit to either alter the outcome or alter the methodology of the Federal Circuit that was employed to achieve the outcome. Unlike some recent decisions where the result of the Federal Circuit was affirmed, but with a wholly new test announced, the Supreme Court simply concluded: "The judgment of the Court of Appeals for the Federal Circuit is affirmed." Perhaps even more surprising, the Supreme Court seems to have objectively reached the correct conclusion.
Chief Justice John Roberts, writing for the majority, was joined by 6 others (Justices Scalia, Kennedy, Thomas, Alito, Sotomayor and Kagan). Roberts set the tone from the outset, immediately summarizing the case and the Court's holding in the opening paragraph of the decision, which read:
Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor. The question here is whether the University and Small Business Patent Procedures Act of 1980-commonly referred to as the Bayh-Dole Act-displaces that norm and automatically vests title to federally funded inventions in federal contractors. We hold that it does not.
The Supreme Court, in affirming the Federal Circuit, would later go on to say: "The Bayh-Dole Act's provision stating that contractors may "elect to retain title" confirms that the Act does not vest title."
The genesis of this dispute between Stanford and Roche can be traced all the way back to 1988, but to give complete context the story should really be told beginning a few years earlier - 1985. It was in 1985 that a small California research company called Cetus started developing methods to quantify blood-borne levels of the human immunodeficiency virus (HIV), which is the virus that causes AIDS. Polymerase chain reaction, or PCR, which was a Nobel Prize winning technique developed at Cetus, was an integral part of the efforts to quantify levels of HIV.
It was as a result of Cetus' early work that in 1988 they began to collaborate with scientists at Stanford University's Department of Infectious Diseases to test the efficacy of new AIDS drugs. Dr. Mark Holodniy joined Stanford as a research fellow in the department, and when he did he signed a Copyright and Patent Agreement (CPA) stating that he agreed to assign the right, title and interest to inventions resulting from his employment to Stanford University. This would ultimately lead to Stanford's belief that they were the owner of the patent rights in question, which they would ultimately sue Roche for infringing.
At Stanford Holodniy undertook to develop an improved method for quantifying HIV levels in patient blood samples, using PCR. Because Holodniy was largely unfamiliar with PCR, his supervisor arranged for him to conduct research at Cetus. As a condition of gaining access to Cetus, Holodniy signed a Visitor's Confidentiality Agreement (VCA). That agreement stated that Holodniy would assign and did presently assign to Cetus any right, title and interest in each of the ideas, inventions and improvements made as a consequence of his access to Cetus. Thus, Holodniy entered into two separate assignments, giving rights to both Stanford and Roche. It was this duality of assignment that directly lead to the dispute requiring resolution of this novel legal question, first by the Federal Circuit and then ultimately today by the Supreme Court.
Holodniy conducted research at Cetus and worked with Cetus employees, devising a PCR-based procedure for calculating the amount of HIV in a patient's blood. That technique allowed doctors to determine whether a patient was benefiting from HIV therapy. He then subsequently returned to Stanford where he and other University employees tested the HIV measurement technique. Ultimately, Stanford filed several patent applications related to the procedure. Stanford secured three patents to the HIV measurement process.
In 1991, Roche Molecular Systems, a company that specializes in diagnostic blood screening, acquired Cetus's PCR-related assets, including all rights Cetus had obtained through agreements like the VCA signed by Holodniy. After conducting clinical trials Roche commercialized the PCR procedure. Today, Roche's HIV test kits are used in hospitals and AIDS clinics worldwide.
Believing that they owned the patent rights to the Holodniy inventions, in 2005 the Board of Trustees of Stanford University filed suit against Roche Molecular Systems, Inc., Roche Diagnostics Corporation, and Roche Diagnostics Operations, Inc. (collectively Roche), contending that Roche's HIV test kits infringed Stanford's patents. Roche responded by asserting that it was a co-owner of the HIV quantification procedure, based on Holodniy's assignment of his rights in the Visitor's Confidentiality Agreement. As a result, Roche argued, Stanford lacked standing to sue it for patent infringement. Stanford claimed that Holodniy had no rights to assign because the University's HIV research was federally funded, giving the school superior rights in the invention under the Bayh-Dole Act.
The District Court held that Holodniy had no interest to assign and that the Bayh-Dole Act provides that the individual inventor may obtain title to a federally funded invention only after the government and the contracting party have declined to do so.
On appeal the Federal Circuit disagreed, concluding that Holodniy's initial agreement with Stanford in the Copyright and Patent Agreement constituted a mere promise to assign rights in the future, unlike Holodniy's agreement with Cetus in the Visitor's Confidentiality Agreement, which itself assigned Holodniy's rights in the invention to Cetus. As a result the Federal Circuit determined that Cetus obtained Holodniy's rights in the HIV quantification technique through the VCA, which were then passed on to Roche through the acquisition of the Cetus assets. further, the Federal Circuit ruled that the Bayh-Dole Act does not automatically void the inventors' rights in government-funded inventions and that the statutory scheme did not automatically void the patent rights that Cetus received from Holodniy. Thus, because Roche did have an ownership interest in the underlying invention they had an ownership interest in the patents acquired and could not be sued by Stanford for infringing a patent covering an invention for which they had lawfully obtained rights.
At the Supreme Court Stanford was joined by the United States as amicus curiae, which normally is extremely significant. In the vast majority of cases where the United States sides with a party at the Supreme Court that party prevails. That was not to happen on this occasion though.
Both Stanford and the U.S. argued that the Bayh-Dole Act reorders the normal priority of rights in an invention when the invention is conceived or first reduced to practice with the support of federal funds. 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. In analyzing the actual language of the Bayh-Dole Act, however, the Supreme Court noted:
Such language is notably absent from the Bayh-Dole Act. Nowhere in the Act is title expressly vested in contractors or anyone else; nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions. Instead, the Act provides that contractors may elect to retain title to any subject invention.
Essentially, the Supreme Court believed it to be implausible that Congress would "subtly set aside two centuries of patent law" in anything other than a clear and direct manner. On this point the Supreme Court explained:
It would be noteworthy enough for Congress to supplant one of the fundamental precepts of patent law and deprive inventors of rights in their own inventions. To do so under such unusual terms would be truly surprising. We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly-not obliquely through an ambiguous definition of "subject invention" and an idiosyncratic use of the word "retain."
In fact, taking the next step forward the Supreme Court explained that Stanford's proposed statutory construction would "permit title to an employee's inventions to vest in the University even if the invention was conceived before the inventor became an employee, so long as the invention's reduction to practice was supported by federal funding." This was a bridge too far, and rightly so.
Invention in the United States relates back to the date of conception, not to the date of reduction of practice or to the effort required to reduce an invention to practice. A reading of Bayh-Dole that would have allowed a University to take title whenever federal funds are used for any aspect of the invention would have been an extraordinary change to the patent laws with only the thinnest of rationals to support it.
At the end of the day the Supreme Court's decision in Stanford v. Roche will likely be an interesting decision without much, if any, lasting consequences. I was surprised that the Supreme Court even took this case quite frankly. There are no lasting lessons or holdings that will come from this case. The only lasting impact will be that now Universities need to be far more careful with respect to the agreements they have researchers sign and far more vigilant about the agreements those researchers sign when they collaborate with joint venture partners, whether the joint venture is a formal one or one that is decidedly more informal.
The Supreme Court has once and for all settled the rule that Bayh-Dole does not automatically vest title, which seems the appropriate decision. Moving forward agreements will change and this is likely the last most will ever hear of Bayh-Dole not automatically vesting ownership. Once issues of rights are settled like this they have a way of being traded among the parties, so what is necessary is a certain rule for everyone to comprehend. Mission accomplished on that level for the Supreme Court.
Of course, the decision certainly impacts Stanford, and will be a warning short across the bow of all those Universities engaging in technology transfer. Look at your agreements, verify what rights you have or will have through assignment, and if you are going to want to sue later make sure your researchers haven't given away rights to the underlying invention at some other time.
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