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American Intellectual Property Law Association

Biotechnology Committee


Biotechnology in the Courts Subcommittee

Report



Summaries of Recent Decisions of Interest to the Biotechnology Community



Prepared for the AIPLA Biotechnology Committee

February 15,

2011





Edited By:


Melanie Szweras

Subcommittee Chair

Bereskin & Parr LLP

E
-
mail: mszweras@bereskinparr.com




C O N T R I B U T O R S

Nicholas J. Landau


The AIPLA Biotechnology in the Courts Subcommittee Report is a forum for members of the
subcommitt
ee to present summaries and commentary on recent judicial decisions of interest to
the biotechnology community. Any view of a contributor expressed in a summary should be
understood to reflect only the present consideration and views of the contributor, a
nd should not
be attributed to the AIPLA or any of its committees, the contributor’s firm, employer, or past or
present clients, to other contributors, or to the editor. To request an electronic copy of the
Report, or if you are interested in summarizing
a case for a future edition, please contact Melanie
Szweras at mszweras@bereskinparr.com.


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CONTRIBUTORS:


Nicholas Landau

is an associate in the Intellectual Property group of Bradley Arant Boult
Cummings LLP. He is experienced in the procurement, protect
ion, and litigation of patents,
trademarks, and other forms of intellectual property. Dr. Landau has worked with patents in a
broad array of technological disciplines including biotechnology, pharmaceuticals,
nutraceuticals, and environmental technology.


Prior to
joining

Bradley Arant, he was Associate
Counsel at the Headquarters of the U.S. Army Corps of Engineers in Washington, DC, and
worked as an associate at a major regional law firm in South Florida.


Prior to studying law at the
University of Virgin
ia, Dr. Landau studied environmental microbiology, earning a Masters
degree from the University of Maryland and a doctorate from Rutgers Un
i
versity.

H
e may be
contacted at

nlandau@babc.com.



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TABLE OF CONTENTS



I.

Board of Trustees of the Leland Stanford
Junior University v. Roche Molecular
Systems
,
Inc.

583 F.3d 832 (Fed. Cir., 2009),
cert. granted
(amicus briefs recently
filed)
……
…4







4

Case Summaries


I.

Board of Trustees of the Leland Stanford Junior University v. Roche Molecular
Systems
,
Inc.

583 F.3
d 832 (Fed. Cir., 2009),
cert. granted,
(amicus briefs
recently filed)

Reported by: Nicholas Landau

Summary


The U.S. Supreme Court has granted certiorari for a case in which the U.S. Court
of Appeals for the Federal Circuit interpreted the ownership sche
me of the Bayh
-
Dole
Act (35 U.S.C. §

200
-
212). The Bayh
-
Dole Act (“the Act”) establishes a system of
ownership of patent rights for inventions developed with federal funding. The Federal
Circuit issued a decision on September 30, 2009 regarding the owner
ship of a patent for
an invention developed using federal funding, in which conflicting assignment
agreements had been executed by one of the inventors. The
Board of Trustees of the
Leland Stanford Junior University

(“Stanford”) filed a complaint in the U
.S. District
Court for the Northern District of California against
Roche Molecular Systems, Inc.

and
other Roche subsidiaries (“Roche”) alleging infringement of three patents directed to
Stanford’s polymerase chain reaction (PCR) based HIV assay. The dist
rict court found
that Roche’s claim to ownership of the patents failed because the inventor who executed
the assignment to Roche was not permitted to do so under the Bayh
-
Dole Act; the district
court also found the asserted claims invalid under 35 U.S.C. §

103. Both parties filed
cross
-
appeals. On appeal, the U.S. Court of Appeals for the Federal Circuit held that
Stanford lacked standing and vacated the finding of obviousness. The Federal Circuit
found that Stanford’s employment agreement with the invent
or failed to effectively
transfer ownership of the inventor’s intellectual property at the time of execution, and
therefore Stanford had no ownership rights in the patent. The Federal Circuit held that
the Bayh
-
Dole Act would only allow Stanford to “retai
n” any patent rights in this
situation, and the Act only controls the ownership of whatever rights a federal contractor
or grantee would otherwise have in a federally funded invention, pursuant to the usual
need to obtain title from the original inventors.

Stanford petitioned for a writ of
certiorari, which has been granted. Both parties have submitted their briefs, and
numerous interested parties have submitted briefs as
amici
.

Invention


The invention at issue was a method of using PCR to measure HIV co
ncentration
in blood plasma. Since the invention was conceived in the late 1980s and early 1990s,
assays based on PCR have become widely accepted as a rapid, accurate, and sensitive
means to detect nucleic acids that are indicative of pathogenic organisms.

Background and
Procedure


The Bayh
-
Dole Act was enacted in 1980 to encourage the development of
federally
-
funded technology. Prior to 1980, the various departments of the U.S.
government employed a heterogeneous group of policies regarding intellectual p
roperty
developed at the expense of the United States. To address the problem, the Act creates a

5

scheme that applies to all small businesses and non
-
profit organizations (hereinafter,
“contractors”) that receive federal grants and federal contracts. The
Act gives the
contractor the option to “retain title” in an invention if the contractor meets certain
requirements. 35 U.S.C. §

202. The requirements include the timely reporting of the
invention by the contractor to the United States (35 U.S.C. §

202(c)
(1)), the grant to the
United States of a perpetual non
-
exclusive license to use the invention (35 U.S.C.
§

202(c)(4)), and the timely filing of a patent application by the contractor (35 U.S.C.
§

202(c)(3)). If the contractor fails to meet one of the req
uirements or does not opt to
retain title, the United States may grant title to the inventor(s). 35 U.S.C. §

202(d).
Otherwise, the United States keeps title. Under some conditions the United States may
compel the contractor to grant a license to a thir
d party or parties. 35 U.S.C. §

203. A
non
-
profit contractor is prohibited from assigning its rights without the consent of the
United States. 35 U.S.C. §

202(c)(7).


The Act “take[s] precedence over any other Act
which would require a disposition of ri
ghts in subject inventions of small business firms
or nonprofit organizations contractors in a manner that is inconsistent with” the
disposition of rights in the Act. 35 U.S.C. §

210(a).


Dr. Mark Holodniy was a post
-
doctoral researcher at Stanford working

on a
federally
-
funded project to address the HIV epidemic during the late 1980s, in
collaboration with researchers at Cetus, Inc., a company with particular expertise with the
polymerase chain reaction (PCR). When Dr. Holodniy began his employment with
S
tanford, he signed an employment agreement that obligated him to assign any future
inventions that emerged from his employment to Stanford. During the project, Dr.
Holodniy visited Cetus’s facilities and executed a confidentiality agreement that assigned
to Cetus all of Dr. Holodniy’s inventions conceived “as a consequence of” his work at
Cetus. Shortly thereafter, the PCR operations of Cetus were purchased by Roche.
Following the visits to Cetus, Dr. Holodniy and others at Stanford conceived and reduced

to practice the assays that were the subject of the asserted claims, and Stanford applied
for patents. Dr. Holodniy executed an assignment of rights of the asserted patents to
Stanford, and Stanford duly recorded the assignment with the U.S. Patent and T
rademark
Office.


Stanford fulfilled all requirements of the Bayh
-
Dole Act and opted to retain title
to the invention.

Roche subsequently sold an HIV detection kit that infringed claims of the asserted
patents. Licensing negotiations between Stanford and
Roche did not result in an
agreement, and Stanford sued for infringement in 2005. Roche counterclaimed,
asserting

in relevant part

that Stanford lacked standing to
enforce the patents;

that Roche possesse
d

ownership, license, and/or shop rights to the pat
ents through Roche's ac
quisition of
Cetus’s PCR assets;

and that the asser
ted patent claims were invalid.

The parties filed cross
-
motions for summary judgment regarding ownership of the
patents, each party alleging that its agreement with Dr. Holodniy effe
ctively conferred
title in the patents, exclusive of the other’s. Stanford additionally argued that, under the
Bayh
-
Dole Act, it was entitled to retain ownership of the invention despite actions taken
by Holodniy. The district court held that Holodniy’s
assignment to Roche was invalid
under the Bayh
-
Dole Act.


6

After a Markman hearing, Roche again moved for summary judgment on the
issue of claim invalidity under 35 U.S.C. §

103. The district court granted Roche’s
motion, finding all asserted claims obvious
. Roche and Stanford then filed cross
-
appeals
on the issues of ownership and validity.

Federal Circuit
Decision


A three judge panel of the U.S. Court of Appeals for the Federal Circuit reversed
in part and vacated in part the decision of the district cou
rt, and remanded the decision for
further proceedings. The only issue explicitly addressed was the ownership of the patents
(although the district court’s invalidity determination was also vacated for reasons not
explained).


The Federal Circuit held that
, absent an effective transfer of ownership from
Holodniy to Stanford, Stanford had no rights to “retain” under the Bayh
-
Dole Act. The
court analyzed the employment agreement between Holodniy and Stanford, and
concluded that it was not an effective assign
ment of Holodniy’s rights. The court
concluded that Holodniy did effectively convey his rights to Cetus. As a result, when Dr.
Holodniy later executed an assignment to Stanford of the patent application, he no longer
held those rights.


The appellate cou
rt also opined that the rights of the United States under the
Bayh
-
Dole Act did not affect the ownership of either Stanford or Roche. Because a
contractor is allowed to “retain” it’s right under the Act, the court held that the contractor
must secure such

rights initially; otherwise, there is nothing to retain.


In conclusion, the appellate court held that Stanford lacked standing to bring the
suit, as Stanford had no interest in any of the asserted patents. However, the appellate
court agreed with the dis
trict court that Roche’s ownership counterclaim is barred by the
statute of limitations. The appellate court remanded the case to the district court with
instructions to dismiss Stanford’s claim for lack of standing.


The case is currently on cert to the
U.S. Supreme Court and has been fully
briefed.

Supreme Court Briefs

The petitioner, Stanford, argues in its brief that the Bayh
-
Dole Act gives title to
contractors, and is not affected by assignments made by individual inventors. Stanford
points out that
the Act covers inventions “conceived or first actually reduced to practice
in the performance of work under a funding agreement” (Brief for Petitioners, p. 32);
because federal funding agreements exist between the government and a company or
institution, a
nd because such entities can only “conceive” of inventions through their
employees and agents, Stanford argues that the Act must be read to control the ownership
of inventions conceived by employees and agents, regardless of whether they have
assigned thei
r rights to the contractor. Stanford cites the legislative history of the Act in
support of its interpretation, which describes ownership by the contractor as “automatic”
and “presumptive” (
Id.
, p. 40); Stanford quotes President Carter as stating that
con
tractors “obtain” title in inventions by virtue of the Act (
Id.
, p. 41). Stanford also
argues that the Federal Circuit’s construction of the Act defeats the purpose of the Act to
give contractors a right of first refusal to invention rights, potentially r
endering the

7

national interests of the United States vulnerable to “the vagaries of contract law” (
Id.
, p.
55).

The respondent, Roche, presents two main arguments: that the PCR test for HIV
was not developed with federal funding, and that the Bayh
-
Dole Act

does not vest title in
a federally funded invention in the contractor. Roche contends that conception occurred
at Cetus by Holodniy jointly with Cetus employees, and without the use of Stanford’s
federal funding (Brief for Respondent, pp. 5
-
8). Roche fu
rther argues that the Bayh
-
Dole
Act nowhere purports to divest the rights of third parties that neither accept nor benefit
from federal funding (
Id.
, p. 15). Roche states that the Act only mentions the rights as
between the United States and the contracto
r, and makes no mention whatsoever of third
parties (
Id.
, p. 16). The Act thus only controls rights in an invention that a contractor
would otherwise have, subject to the inventors’ lawful interests and contracts. Roche
bases its arguments mainly on the
language of the statute; it argues that “inventions of the
contractor” should be read to mean “inventions owned by the contractor” as opposed to
“inventions created by the contractor;” and that “retain” should be read to mean “keep
hold or possession of” s
omething already owned (
Id.
, pp. 21
-
22). Roche also argues that,
under Stanford’s construction, the Act would result in a taking of Roche’s intellectual
property rights without compensation, and so would be unconstitutional.

Amici submitting briefs notabl
y include the American Intellectual Property Law
Association (AIPLA), the United States, and former Senator Birch Bayh (co
-
sponsor and
co
-
author of the Bayh
-
Dole Act).

The AIPLA amicus brief, while on behalf of neither party, partially supports the
argumen
ts of Roche. AIPLA contends that the Act does not contradict 35 U.S.C. §

101
that patents are obtained by inventors; and that the Act cannot be interpreted to
automatically transfer title of an invention from the inventor to the contractor (Brief of
Amicu
s Curiae, p.3). AIPLA argues that the plain language of the Act only allows the
contractor to
retain

those rights it would otherwise have (
Id.
). To interpret the Act
otherwise would disrupt the centuries
-
old understanding that, in the United States,
inve
ntors own their inventions. AIPLA argues that universities are not prejudiced by
such an interpretation, as most universities obtain blanket assignments from faculty of all
inventions developed pursuant to their employment (
Id.
, pp. 28
-
32). AIPLA further

argues that Stanford’s interpretation of the Bayh
-
Dole Act would be an impermissible
taking under Amendment V of the Bill of Rights (
Id.
, pp. 24
-
28).

The United States submitted an amicus brief in favor of Stanford. The U.S.
frames the question on certio
rari as “[w]hether an inventor who is employed by a
contractor that elects to retain rights in an invention may defeat the contractor’s right to
retain title under the Bayh
-
Dole Act by contractually assigning his putative rights in the
invention to a third

party” (Brief for the United States as Amicus Curiae, p. (I)). The
U.S. takes the position that the Act supersedes other statutes in granting rights to a
contractor who opts to retain them, and to the United States when the contractor does not
opt to ret
ain them, regardless of the activities of an inventor (
Id.
, pp 15
-
17). In support of
this interpretation the United States cites the legislative history of Act, which includes
statements of concern that the rights of the United States could be jeopardized

by
contractors who fail to effectively obtain title from inventors. (
Id.
, pp.4
-
5 and pp. 25
-
28).
The United States urges an interpretation whereby an assignment of rights by an inventor

8

in a federally
-
funded invention would be effective to convey the inv
entor’s
contingent

rights which may manifest if the contractor either fails to opt to retain title or loses titled
due to non
-
compliance with the Act (
Id.

p. 18
-
19). Regarding the language in 35 U.S.C.
§

202(a) that a contract opts to “retain” title, the
United States points out that in 35 U.S.C.
§

203(a), the Act states that the contractor is considered to have “
acquired title under this
chapter
,” indicating Congressional intent to transmit title to contractors even if the
contractor did not previously ac
quire title by means other than the Act (
Id.

pp.20
-
21).
The United States points out that the interpretation of the Federal Circuit puts the
government’s interest in research it funds at the mercy of potentially sloppy contractors
or inventors who may car
elessly fail to secure an assignment from an inventor (
Id.

pp.30
-
32).

Former Senator Birch Bayh submitted an amicus brief in favor of Stanford. The
Bayh brief focuses on Congress’s intentions in enacting the Bayh
-
Dole Act, and on the
beneficial effects th
e Act has on the public interests of the United States. Bayh states that
the Act was intended to create a “hierarchy” of ownership, in which ownership originates
in the contractor, can be taken by the United States, and may then be granted to the
inventor

at the discretion of the United States (Brief Amicus Curiae of Birch Bayh in
Support of Petitioner, pp. 14
-
15). Bayh then states this precise balance of rights is
responsible for the Act’s success in encouraging the development of inventions funded by
fe
deral contracts and grants (
Id.
pp.17
-
22).

The Outlook

Regardless of which position the Supreme Court takes, there will be major
repercussions for the fate of inventions developed with federal funds. If Stanford’s
interpretation is adopted, then parties t
o private contracts for the ownership of patentable
inventions must be diligent in determining whether any aspect of the invention was
researched with federal funds, possibly reducing or eliminating rights the inventor would
otherwise have, and possibly cr
eating public “march
-
in rights” unless the requirements of
the Bayh
-
Dole Act are met. If Roche’s interpretation is adopted, then the public could
lose its rights in publically funded research due to lax contractors or scheming inventors;
furthermore, erro
rs in identifying inventors of subject inventions could cause loss of
public rights.