Much ado about the wrong questionOn June 6, 2011, the Supreme Court issued a closely-watched decision in Stanford v. Roche Molecular Systems, Inc.1 (“Stanford”) regarding a university faculty member’s competing assignments of intellectual property. There was anticipation that the university system, and those companies in collaborative research agreements with universities, could be thrown into a panic. Six months on, the tone of the commentary on the decision is equivalent to the old Alka-Seltzer®commercials: plop, plop, fizz, fizz.2

The issue in Stanford was whether the Bayh-Dole Act (the “Act”) worked to immediately vest an inventor’s interest in an invention at least partially funded by the government. The Court, in upholding the “basic idea that inventors have the right to patent their inventions,” found that the Act did nothing of the sort. “[U]nless there is an agreement to the contrary, an employer does not have rights in an invention ‘which is the original conception of the employee alone.’”3 The Act has no language explicitly vesting title of an invention in the federal contractor (e.g., Stanford) unlike statutes dealing with other federal agencies (i.e., Atomic Energy Commission, National Aeronautics and Space Administration and the Department of Energy). Therefore, the Court concluded that the Act does not vest title in the federal contractor. However, the Court did make clear that the Act expects federal grant-making organizations require grantees take title to inventions.

However, the facts in Stanford lead to a different set of questions and concerns which were raised in the dissent and shared in the concurrence.4 The underlying decisions in Stanford were, at their core, a disagreement over two intellectual patent agreements. The first agreement, between the inventor and Stanford, stated that the inventor “agree[d] to assign” his “right, title and interest in” any inventions to Stanford. Additionally, the agreement included the promise that the inventor would “not enter into any agreement creating copyright or patent

By Clara Cottrell

obligations in conflict with this agreement.” The second agreement, between the inventor and what is now Roche, which was which was executed by the inventor after he signed the Stanford agreement, stated that the inventor would “assign and do[es] hereby assign” to the company his “right, title and interest in each of the ideas, inventions and improvements” made “as a consequence of [his] access” to the company where he was conducting research for

Stanford. The Court of Appeals for the Federal Circuit found that the first agreement was “a mere promise to assign” as opposed to the second agreement, which was, in itself, an assignment of rights. The Federal Circuit held that as a matter of contract law the company had superior rights. Justice Breyer raised questions in the dissent regarding the Federal Circuit’s rationale in this holding and in the earlier decision in FilmTec Corporation v. Allied-Signal, Inc. 5

In the dissent, Justice Breyer discussed that up until the holding in FilmTec in 1991, the “assignment of future inventions (as in both the contracts here) conveyed equitable, but not legal, title.” FilmTec changed that rule, stating instead that “’[o]nce the invention is made and [the] application for [a] patent is filed, … legal title to the rights accruing thereunder would be in the assignee [i.e., the company] …, and the assignor-inventor would have nothing remaining to assign.”6 Justice Breyer has noted that this rule creates a “technical drafting trap for the unwary.” In this particular case, the rule operated to allow the later Roche agreement to

trump the earlier Stanford agreement and remove the invention from the jurisdictionof the Act.

The question is how this rule will affect university assignment agreements going forward. The simple answer is that every agreement will include language copied from the Federal Circuit to ensure that they are obtaining a present grant of a future right. However, what if there was a prior assignment to a third party? What if a promising young man or woman assigns his or her future inventions to an investment firm in consideration for a grant to go to college?7 Using the Federal Circuit’s rule, once the invention is made and the application filed, the legal title to the inventor’s rights would transfer to the earlier party leaving nothing remaining to assign to the later party. Any other parties, such as companies conducting collaborative research with the university or purchasing intellectual property from the university, would similarly be cut out of the picture. The resulting litigation would devolve into a “He promised me – But he promised me first” screaming match. As painful as that sounds, universities should be hoping for such a situation to arise soon, allowing the Federal Circuit to correct, or at least clarify, the FilmTec and Stanford rulings.

1. Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., U.S., No. 09-1159 (June 6, 2011). 2. For the jingle, see http://www.youtube.com/watch?v=bxjb2UJZ-5I. 3. Quoting United States v. Dubilier Condenser Corp., 289 U.S. 178, 189 (1933).4. For those keeping count, that would be three votes (Sotomayor, Breyer and Ginsburg). 5. FilmTec Corporation v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991).6. Quoting the Federal Circuit opinion, 583 F.3d 832, 842 (2009), citing FilmTec Corp, 939 F.2d at 1572 (emphasis added).7. David Bornstein, Instead of Student Loans, Investing in Futures, N.Y. Times, Opinion May, 20, 2011.

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December 2011 Smith Moore Leatherwood LLP | Attorneys at Law

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