Even Under Bayh-Dole, Employee Inventor Has First Dibs

The Supreme Court of the United States recently delivered a blow to the university technology transfer world by holding 7-2 that federal contractors do not have an automatic right to claim title to inventions.  Because all ownership rights stem initially from the inventor, even in the case of federally funded research, the inventor’s ownership rights trump the Bayh-Dole vesting provision.

In its second affirmance of a U.S. Court of Appeals for the Federal Circuit decision in the span of two weeks, the Supreme Court of the United States, in a blow to the university technology transfer world, held (7-2) that federal contractors do not have an automatic right to claim title to inventions.  The statutory rights of the inventor, even in the case of federally funded research, trump the Bayh-Dole vesting provision.  Stanford Junior University v. Roche Molecular Systems, Case No. 09-1159, 563 U.S. ____ (June 6, 2011) (Roberts, Chief Justice) (Sotomayor, Justice, concurring) (Breyer, Justice, dissenting).

The Bayh-Dole Act dates back to 1980 and is largely responsible for the vast increase in university licensing of the fruits of federally funded research.  In the present case, the issue is raised as to whether the patent rights ownership provision of Bayh-Dole immediately vests ownership in a federally funded invention in the contractor, in this case Stanford University (See Cert Alert; IP Update, Vol. 13, No. 11).  On June 6, the Supreme Court answered it does not.  While Bayh-Dole clarifies the priority of allocation of rights as between the government and the contractor—all ownership rights stem initially from the inventor.


Stanford sued Roche for infringement of three patents that claim methods for using the polymerase chain reaction (PCR) to measure the amount of HIV in blood samples and using those measurements to infer the effectiveness of antiretroviral drugs.

The standing question arose because Mark Holodniy, one of the named inventors of the patents, “signed multiple contracts defining his obligations to assign his invention rights.”   First, upon joining Stanford, Holodniy signed a Copyright and Patent Agreement (CPA) in which he agreed “to assign or confirm in writing to Stanford and/or Sponsors that right, title and interest in” any inventions he conceived of or first reduced to practice.  At the behest of Stanford, however, Holodniy also visited Cetus Corp., a company collaborating with Stanford, to acquire background knowledge about PCR technology.  In doing so, Holodniy signed a Visitor’s Confidentiality Agreement (VCA) with Cetus, which stated: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements” (emphasis added).

In 1991 Roche purchased Cetus’s PCR business, including its agreements with Stanford and its researchers, and began making HIV detection kits.  In 1992 Stanford filed the patent application to which the three patents-in-suit claim priority.  After extensive negotiations between the two entities, Stanford filed suit against Roche in 2005.  In its defense, Roche alleged, inter alia, that it possessed ownership rights in the patents-at-issue and, as a result, Stanford lacked standing.  In response, Stanford argued that it was a bona fide purchaser and that the Bayh-Dole Act superseded any transfer of rights from Holodniy to Cetus.

The Federal Circuit Decision

The Federal Circuit found that Stanford did not possess standing to sue for infringement of the patents-in-suit because the CPA between Stanford and Holodniy was merely a promise to assign, while the VCA was a present transfer of Holodniy’s future inventions to Cetus.  (IP Update, Vol. 12, No. 10).  Thus, according to the Federal Circuit, “Cetus immediately gained equitable title to Holodniy’s inventions” and any subsequent assignment to Stanford was negated.  The Federal Circuit also dismissed Stanford’s claim that it was a bona fide purchaser.  Because “[a]n organization can be charged with notice of its employees’ assignments” the court found that “Stanford had at least constructive or inquiry notice of the VCA.”  Therefore, Stanford did not qualify as a bona fide purchaser.  Finally, the Federal Circuit rejected Stanford’s argument that “the Bayh-Dole Act negated Holodniy’s assignment to Cetus because it empowered Stanford to take complete title to the inventions.”  Rather, the Federal Circuit concluded that while Bayh-Dole empowers the government to take title to certain inventions under specified circumstances, it neither “automatically void[s] ab initio the inventors’ rights in government-funded inventions” nor “voids prior contractual transfers of rights.”  Similarly, “claiming title under Bayh-Dole does not override prior assignments.”

The Supreme Court

In affirming the Federal Circuit, Chief Justice Robert, writing for the majority, explained that since its genesis, U.S. patent laws have “operated on the premise that rights in an invention belong to the inventor” and that Bayh-Dole does not “displace” that norm and “automatically” vest title to federally funded inventions in federal contractors.

Specifically, the Supreme Court rebuffed the argument posed by Stanford (and supported by the United States as amicus curiae) that Bayh-Dole reorders the normal priority of rights in an invention conceived or first reduced to practice in the course of federally funded research by vesting title in such inventions to the federal contractor, i.e., the inventor’s employer.  As concluded by the Supreme Court, “nowhere in the Act are inventors deprived of their interest in federally funded inventions.  Instead the Act only provides that contractors may elect to retain title to any subjection invention” (emphasis added).

According to the provision of Bayh-Dole, granting a right to “elect” confirms that the act does not vest title.  Rather, as explained by Chief Justice Roberts, at the time of conception, rights to an invention lie with the inventor.

Although much in intellectual property law has changed in the 220 years since the first Patent Act, the basic idea that inventors have the right to patent their inventions has not.  Our precedents confirm the general rule that rights in an invention belong to the inventor.  It is equally well established that an inventor can assign his rights in an invention to a third party.  Thus, although others may acquire an interest in an invention, any such interest – as a general rule – must trace back to the inventor.

In accordance with these principles, we have recognized that unless 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.’  Such an invention ‘remains the property of him who conceived it.’  In most circumstances, an inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights.

Dissent and Concurrence

Justice Breyer, joined by Justice Ginsburg, dissented.  Quoting the order granting cert, Justice Breyer noted “the question presented is whether rights in inventions arising from federally funded research can be terminated unilaterally by an individual inventor through a separate agreement purporting to assign the inventor’s rights to a third party.”

In the view of the dissent, “the answer to this question is likely no.  But because that answer turns on matters that have not been fully briefed (and are not resolved by the opinion of the Court) [Justice Breyer] would return this case to the Federal Circuit for further argument.”

The dissent explained that Congress enacted Bayh-Dole “against a background norm that often, but not always, denies individual inventors patent rights growing out of research for which the public has already paid.  This legal norm reflects the fact that patents themselves have both benefits and costs.”  Citing back to the letters of founding fathers Jefferson and Madison to the effect that patent monopoly was a “compensation” for the “community benefit” that a patent bestowed, Justice Breyer explained “the importance of assuring this community ‘benefit’ is reflected in legal rules that may deny or limit the award of patent rights where the public has already paid to produce an invention, lest the public bear the potential costs of patent protection where there is no offsetting need for such protection to elicit that invention.  Why should the public have to pay twice for the same invention?”

Justice Sotomayor agreed with the majority because Stanford didn’t raise the issues raised in the dissent, but noted her understanding that “the majority opinion [would] permit consideration of these arguments in a future case.”

Reexamination Practice: One Size Does Not Fit All

Recently, there was a reexamination roundtable at the Patent Office last week where ideas for reexamination reform were proposed.  The Patent Office listened and took notes.  Relatively, it was a very productive meeting overall.  As the various speakers presented their comments to the questions posed by the Office, it was a clear reminder how everyone views reexamination differently:

  • Patent Owners who are trying to enforce their patents want a fair system that will not amount to a tool of delay and thin or meritless attacks on their patents;
  • Businesses and in-house counsel need a predictable system that can be used to challenge inferior patents and nuisance assertions;
  • Judges need to know that if a case is stayed pending reexamination, there will be a reasonably expedient final decision that can be used for the litigation;
  • Examiners need time and tools to help process unusually large and complicated reexaminations; and
  • The Patent Office needs clear rules that are fair to both sides, and can reach finality of a reexamination with special dispatch.

But right now we don’t have adequate metrics to know the situation, much less to measure progress.  What exactly does that mean?

Variation in Size and Complexity

For example, perhaps we should be tracking reexamination progress based on complexity:

  • Some reexaminations involve 5 claims.  Some involve 50 claims.  There is no reason why a 50 claim reexamination should take the same amount of time and resources as a 5 claim reexamination.
  • One reexamination may involve 4 grounds of rejection and another may involve 8.
  • One reexam request is 50 pages.  One is 2000 pages.
  • One reexamination involves several petitions.  Another involves no petitions.
  • One reexamination involves substantial claim amendments (including, adding new claims).  Another involves cancellation of claims.  Yet another has no amendments.

We could be counting claim volume as a metric, as opposed to just disposition of matters without regard to claim volume.  We could be tracking the disposition of petitions, pages of reexamination request, volume of SNQs, or any number of other metrics indicative of the size or complexity of a matter.

Variation in Timing – Especially due to Procedural Variations

Perhaps we should be tracking more information about pendency and measurement of time.  We should get more visibility into the timing of reexaminations at various stages.  Our current understanding of PTO statistics on reexaminations is that they often cite the time to NIRC.  That does not seem fair to the CRU, because the statistics do not seem to separate the amount of time in the CRU from the amount of time at the BPAI or the Federal Circuit.  That means that the pendency of reexaminations will scale with the numbers of appeals filed.  Perhaps the number in appeals is statistically strong or weak enough that this metric is a reliable indicator of pendency, but I do not see enough information to discern that.  And as the volume of cases increases, any change in appeal volume would change the statistical significance of past numbers.  Anyone with better insight and information is encouraged to send that to me and it will be posted if appropriate.

A Little More Data Would Go a Long Way

One size does not fit all when it comes to reexamination.  Of course, you cannot measure everything, but you also cannot manage what you do not measure.  A bit more detail in the figures would go a long way to measuring progress in the future.

Workplace Fatalities and OSHA Investigations – Questions & Concerns

In business, it is probably one of the worst calls you can receive:

“John, this is Mark, the manager of the Westside plant. We’ve had an accident on site. An employee fell from the plant roof and it doesn’t look good. 911 has been called and they are on their way. What should we do?”

What should we do, indeed? Hopefully, you will never get one of these calls.

In 2009, the last year for which statistics are available, there were 4,340 workplace fatalities in the United States.

Construction was the segment of the economy with the single largest number of fatalities, accounting for almost 20 percent of the total. Overall fatalities were down 17 percent from the previous year, and much of this decrease can be credited to economic factors as total work hours also fell by six percent. Even with the declines, there were still approximately 4,000 people who received that call. What did they do? What should they have done?

After ensuring that medical and emergency response personnel have been called and are on site to treat the employee and secure the site from any further accidents, the employer’s thoughts have to turn to what will happen next. There will be a police investigation. Most likely there will be an investigation by the Occupational Safety and Health Administration (OSHA). All of the interested insurance companies will want to conduct their own investigations. It has been this author’s experience that most workplace fatalities are followed with as many as three different lawsuits:

  1. the workman’s compensation suit related to death benefits;
  2. the OSHA suit related to the citation for failing to follow OSHA requirements; and
  3. a wrongful death lawsuit.

Rarely is any event in business followed with such a high probability, almost a certainty, of litigation. If you know you are going to be involved in litigation, the best thing you can do to prepare is have a lawyer arrive on site as soon as possible after the accident and guide you through the process.

In these cases, there are myriad issues to be considered and countless decisions to be made. Any one of them could be critical to one, or all three, of the suits coming down the road. One major issue is access to the site. Who must you let on site? Of course, the emergency response and the police must be provided immediate and unfettered access.

Access by OSHA may present slightly different considerations. The employer of the affected employee has to call OSHA within eight hours of learning of a fatality or accident in which three or more employees were hospitalized.But when to call them, and how to provide access to the site and to employees once they arrive, are decisions that can only be made after considering the specific facts of the case. Witness interviews present a number of issues. OSHA has a statutory right to privately interview employees. An insured generally has an obligation to assist its insurer in completing its investigation of the event of loss. In and around these two precepts, many questions swirl, such as:

  • Does an employee have a right to refuse to be interviewed?
  • Can an employee ask for someone else to be present during the interview?
  • If it is a union project, can the employee demand that a shop steward be present?
  • Can the shop steward demand to be present even if the employee doesn’t ask to be accompanied?
  • Does OSHA have a right to interview management employees without an attorney present?
  • Does a company have an obligation to assist the insurers of its subcontractors in their investigations?
  • Should employees and management sign statements?
  • Does OSHA, or others, have the right to record statements and meetings during the investigation?
  • When does a company want to take its own statements, and who should take them?

Another major issue is preservation of evidence or its opposite, spoliation of evidence. There is often tension between the obligation to preserve the evidence and the desire to clean up the worksite and continue on with work, or in the case of a plant accident, resume what may be critical production. This raises key issues related to resuming the work. After the police release the site back to the controlling employer, what is OSHA’s ability to keep the site shut down and prevent additional work? In the case of rental equipment, there can be a pull between the rental company, who, pursuant to the rental agreement, may have the right to immediately retake possession, and the renter, who may want to ensure that key features, and possible shortcomings, of the piece of equipment are documented before it leaves the site, and that after it leaves the site its condition is preserved.

The lawyer must evaluate the value to future litigation of gathering all possible physical evidence, including possibly taking a piece of expensive equipment out of production and storing it until the statute of limitations expires, versus the costs associated with doing so. Maybe the key evidence is a section of handrail that appears to have failed and it can be easily cut out and put in storage for two years. Maybe the key evidence is a piece of equipment and the specific conditions of the area in question can be photo-documented and measured and the equipment put back in service. Maybe not.

There are many other issues that must be considered and many real-time decisions to be made. Given the likelihood of litigation, most of these decision are best considered through the eyes of a litigation attorney who can help the client strike a balance between its interests in cooperating in the investigation and its interests in protecting itself in the multiple lawsuits that are most likely coming down the road.

Perils of Reissue – Recapture Doctrine Has Teeth!

Patent owners beware! Over the past year, the Federal Circuit has issued two major rulings1 which stand as a warning to patent owners that when requesting reissue of an arguably defective patent, if you attempt to broaden aspects of the claims relating to subject matter surrendered during prosecution of the defective patent,2 courts (and now likely the U.S. Patent Office as well) will extensively examine the “entire” prosecution history of the defective patent and its family to determine if you are attempting to recapture the surrendered subject matter.3 This means that the review will not only include the prosecution history of the “defective” patent undergoing reissue, but also the prosecution history of any and all “ancestor patent applications.”4 The warning is out. Improper recapture of surrendered subject matter will not be tolerated.

The unfortunate result of the Federal Circuit’s zealous desire to prevent improper recapture, however, is that: pursuit of claims of a broader or mixed scope through the reissue process can be tantamount to walking through a mine field that grows with the number of patent applications added to the patent’s family. If patent owners and portfolio managers desire to enlarge the scope of the claims of an issued patent,5 the reissue application must be applied for within two years from the grant date of the issued patent. Due to these broaden reissue difficulties, it may be prudent to make a determination of whether broader claims are desired much earlier in an application process and prior to patent grant/issuance to avoid the broaden reissue route.

One of the better available routes or strategies, for example, appears to be to pursue such broadened or mixed-scope claims through use of one or more continuation or divisional applications at some point prior to issuance/grant of the patent, e.g., after issuance of a notice of allowance. This continuation or divisional strategy can help patent owners avoid the reissue process, which under certain circumstances, arguably now seems to be best reserved for neutral or narrowing claim amendments6 such as: to account for newly discovered prior art, changes in the legal landscape7 or other impetus which may cause there to be a question as to the validity of the patented claims, to correct an error in the patent disclosure,8 to correct a foreign or domestic priority claim, or to add an additional non-surrendered species, thereby leaving broaden reissue reserved only as a procedure of last resort.

Rule Against Recapture

Section 251 of Title 35 of the U.S. Code allows patent owners to “enlarge the scope of the claims of the original patent” if “through error without any deceptive intention…the patentee claim[ed]…less than he had a right to claim in the [original] patent.” Deliberate withdrawal or amendment of claims or specific arguments limiting the scope of terms used in a claim to obtain a patent, however, are not considered to involve the type of “error” contemplated by Section 251.9 As such, in accordance with the statute, the patentee may not utilize the reissue process to broaden the claims of a patent to recapture subject matter surrendered10 through deliberate amendments or through specific arguments made during prosecution to overcome prior art.

Two recent court rulings out of the Federal Circuit, In re Mostafazadeh11 and MBO Laboratories Inc.12 further highlight and explain this requirement.

In re Mostafazadeh (“Mostafazadeh”)

In April 1998, inventors Mostafazadeh and Smith filed a patent application directed to semiconductor packaging, which issued as a patent in March 2000. During prosecution, the inventors amended the independent claims to add a claim element describing a “circular attachment pad” and argued that “circular” attachment pads were novel—no assertions were made that non-circular attachment pads were novel.13 The application was allowed as a result of the amendment and the patent issued as U.S. Patent No. 6,034,423 (“the ‘423 patent”). The inventors did not file a continuation application in order to pursue claims of a broader or different scope prior to the patent issuing.

In December 2001, the inventors filed a reissue application, deleting the “circular” shape requirement and declaring that the original claims of the ‘423 patent were partially inoperative because the “circular” shape feature of the attachment pad limitation was unduly limiting. The examiner rejected the reissue claims as violating the recapture doctrine, noting that the circular attachment pad limitation was argued during prosecution of the ‘423 patent “to be both critical to the invention and distinguishing over the prior art.” The inventors appealed to the Board of Patent Appeals and Interferences (“Board”), which affirmed the examiner’s rejection. Having been rebuffed by the Board, the inventors appealed to the Federal Circuit, asserting, in essence, that the reissue claims were materially narrower than the pre-amended version of the patent claims because they retained the “attachment pad” limitation.14

The Federal Circuit, however, disagreed, finding that the inventors failed to demonstrate material narrowing because use of a non-circular attachment pad was “well known in the prior art.”15 The court also found that additional narrowing features unrelated to the surrendered subject matter were insufficient to avoid recapture.16 In other words, to avoid the effects of the recapture doctrine, the reissue claims must retain at least material portions of the surrendered subject matter, and the remaining portions must serve the purpose of the addition of the original surrendered subject matter – i.e., to differentiate the reissue claims from the prior art. Even substantial material narrowing to other elements of the reissue claims will not allow patent owners to avoid this requirement.

MBO Laboratories Inc. (“MBO”)

Beginning in November 1990, MBO’s inventors submitted a series of patent applications covering a hypodermic safety syringe designed to minimize needle-stick injuries through the use of a needle positioned within a guard sleeve. These patent applications included a continuation-in-part application (“the ‘013 application”) which issued as U.S. Patent No. 5,395,347 (“the ‘347 patent”), and a continuation application (“the ‘772 application”) claiming priority to the ‘013 application filed one day prior to issuance of the ‘347 patent. After receiving a notice of allowance for the ‘772 application, MBO subsequently abandoned it and filed a new continuation application (“the ‘803 application”) with additional claims, which issued as U.S. Patent No. 5,755,699 (“the ‘699 patent”) without objection. MBO did not file a continuation application in order to pursue claims of a broader or different scope prior to the patent issuing, and no other applications in the application chain or family were pending.17

Slightly more than one year after issuance of the ‘699 patent, MBO requested a broadening reissue of the ‘699 patent, apparently fearing that the claims could be interpreted to cover only a retractable needle that retracts into a fixed guard, and not the arguably equivalent feature of a fixed needle and slidable guard. Surprisingly, in spite of the fact that during prosecution of the ‘772 application, MBO distinguished its invention from cited prior art, in essence, by arguing that MBO’s invention included the retractable needle limitation, the USPTO allowed the reissue without objection, which resulted in U.S. Patent No. RE 36,885 (“the RE ‘885 patent”).18

In 2003, MBO filed suit against Becton, Dickinson & Co. (“Becton”) asserting infringement of various claims of the RE ‘885 patent, which included three original claims copied without amendment from the ‘699 patent and four claims added during the reissue process. During the course of the litigation, Becton challenged the four reissue claims as being invalid under the recapture rule—arguing that the reissue claims recaptured subject matter surrendered during patent prosecution. The District Court agreed, holding that the four added claims were invalid. The District Court, however, also held that all claims including the original claims were invalid.19  MBO in an appeal to the Federal Circuit requested clarification.20

In discussing whether the patentee surrendered any subject matter, which necessarily requires a review of prosecution history, the Federal Circuit clarified that the determination of the existence of surrender of a claim’s scope, includes surrendered subject matter made not only while prosecuting the original application directly resulting in the original patent (i.e., the ‘699 patent), but also subject matter surrendered in any precedent divisional, continuation, or continuation-in-part application (here both the ‘722 and ‘013 applications).21 The original claims, however, remain unaffected by the recapture rule.22

Moral of This Story

As shown by these recent Federal Circuit cases, violation of the recapture rule results in invalidity of the offending reissue claims, but does not result in invalidity of claims that are not subject to the rule (i.e., original and non-violating amended claims). Depending upon the outcome of a review of the file history of the patent application that would result in the original patent (if still pending), any pending child, ancestor, or sister applications, and issued patents, as well as a determination of whether or not either of the pending ancestor or sister patent applications have a written description that would adequately support claims having the desired scope,23 there often is a likelihood that a broaden reissue would not provide the ability to achieve the same claim scope as could be achieved through the filing of one or more continuation or divisional applications or by amending the claims of the respective pending application. As such, one can surmise that had there been a child, ancestor, or sister patent application pending at the time the respective patent owners in these cases determined that their respective issued patents had insufficient claim scope, the claims of any such pending patent application could have been amended; or additional claims could have been added, or an additional continuation or divisional application claiming priority to the respective patent application strategically could have been filed, to provide broader scope of coverage. Accordingly, these recent Federal Circuit cases highlight the perils of the reissue process, show that the Recapture Doctrine still has teeth, emphasize the importance and benefits of strategic use of continuation or divisional applications and other actions by applicants prior to patent grant/issuance, and of course, warn of the potential hazards lurking in patent prosecution file histories.