A Four-Step Guide for Securing Patent Portfolios after Stanford v. Roche

On June 6, 2011, the U.S. Supreme Court issued its highly anticipated decision in the Stanford v. Roche case. The facts behind Roche are easily replicated on college and university campuses around the nation, forewarning institutions of the potentially problematic IP issues that lurk behind each of their patent and technology transfer agreements. Today, most major research universities boast of vast IP portfolios, including dozens of patents, which were invented by professors and the like during the course of their employment. Oftentimes, these patents allow universities to generate a critical revenue stream by licensing the patents through established licensing offices or policies. However, under Roche, the ownership of the patents may not be as clear as universities previously thought. Though a serious review of existing patent portfolios and potential modifications of boilerplate patent agreement language is likely necessary, first understanding the facts behind Roche will clarify why these steps are strongly advised for universities.

Research fellow, Dr. Holodniy, signed a Copyright and Patent Agreement with Stanford University agreeing to assign his “‘right, title and interest in’ inventions resulting from his employment at the University.” Stanford, like many institutions, received federal funding from the National Institutes of Health for the HIV measurement technique research that Dr. Holodniy participated in. Dr. Holodniy, in pursuit of developing an improved method for quantifying HIV levels in blood samples, later collaborated with Cetus, a California research company that worked with Stanford’s scientists. Equally wary of patent laws and eager to get the right to the findings, Cetus had Dr. Holodniy sign a Visitor’s Confidentiality Agreement stating he “‘will assign and do[es] hereby assign’ to Cetus his ‘right, title and interest in each of the ideas, inventions and improvements’ made ‘as a consequence of [his] access to Cetus.’”

Two research entities. Two patent right agreements. One patent. Who wins?

According to the majority opinion in Roche, authored by Chief Justice Roberts, Cetus prevailed. This opinion is by no means groundbreaking. Rather, the decision merely reinforces the historical rule that “rights in an invention belong to the inventor.” Any institution involved with research and potential IP issues traditionally has their employees sign copyright and patent agreements since an employer has no right to their employees’ inventions without an express grant. Barring such agreement, employee inventions “remain the property of him who conceived it.” Thus, Roche mirrors the general principle that inventors own their inventions by holding, “mere employment is [not] sufficient to vest title to an employee’s invention in the employer.”

Next, Roche is not fodder for major legislative change since it simply provides a straightforward reading of the Bayh-Dole Act. An undoubtedly landmark piece of legislation, Bayh-Dole recognized the need for the commercialization of inventions that federal money was heartily supporting. Bayh-Dole has promoted and facilitated federal collaboration with commercial and nonprofit organization research by specifying what rights each party has when federal funding is involved. The relevant part of the Act cited in Roche provides that federal contractors (which include individuals, small business firms or nonprofits that are a party to the funding agreement) may “elect to retain title to any subject invention.” “Subject invention” is then defined as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.” The Roche opinion begins to sound more like a grammar lesson than a ruling from the highest court as Roberts explains what the phrase “of the contractor” means. Just as it reads, an “invention of a contractor” would be an invention that a contractor owns. And for the contractor to own such invention in the university context, its employees who participated in the federally funded research would have had to sign an agreement transferring their ownership rights. Thus, the Act is simple: federal contractors can elect to retain title to any invention they own.

Thus, Roche does not change the fact that universities still need to obtain express agreement from employees in order to acquire the rights to any inventions of their employees. The case also does not change any of the traditional interpretations or precedents involving the Bayh-Dole Act. However, the case does clarify the technology transfer and related rights between universities with federally funded research and the private companies with which they collaborate. This clarification signals the need for a stricter approach that universities should take in terms of drafting and ensuring their rights under patent agreements. In light of Roche, an immediate four-step plan should be implemented by colleges and universities.

First, institutions must examine their existing patent portfolios. As the marketability of portfolios increases with the sheer volume of patents, many universities strive to possess a wealth of patented inventions. The value of portfolios thus is not generally linked to a single patent, but the number of patents that outside firms are willing to invest in or collaborate with. Universities therefore capitalize on their portfolios through technology transfers, facilitating the commercialization of research and incentivizing future research through income generation. Thus, examining existing portfolios requires universities to determine what patent rights they currently possess. For those universities that receive federal funding for research, verify whether such funding was acquired before or after the development of each patented invention. If the patent was developed under the funding, check to see whether the employee solely assigned their rights to the university and whether the university has elected to retain the rights to such patent. As Roche explicitly held, “the Bayh-Dole Act does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.”

Further, determine which patents were developed collaboratively with outside research firms and institutions. Because academia, private firms and the government are the holy trinity for innovation, universities must be clear on which of their patents were developed by their sole efforts. Creating a framework of mutual benefit that technology transfer ultimately desires requires an examination of the actual benefits universities have afforded themselves through their existing patents.

Second, institutions should closely scrutinize their previously signed employment agreements. Begin by checking whether employees even had rights to transfer in the first place. If the employee came from other institutions or private firms, are they now conducting research at their current university employer that was started elsewhere? Are current employees starting from scratch or building upon existing inventions developed through the funding, efforts and resources of outside entities with which the university has no connection? Finding these answers may require a look into the backgrounds of employees who joined the university as experienced researchers and professors, since they are likely to have signed prior patent agreements. Speak with employees who raise concern and inquire about any past employment agreements they signed. As part of inspecting existing patent agreements, determine the scope of the agreement- does it cover only the original invention or does it extend to any other inventions developed based off the underlying research? Answering these questions is vital in guaranteeing that a university actually retains rights to the patents marketed in their portfolios.

Third, develop a plan for amending existing agreements, or obtaining written intellectual property agreements if none exist. Start by finding out which employees have not signed patent and copyright agreements. Of those employees who have not signed, determine whether any have, or are in the process of, researching and developing inventions. Work with an attorney to develop specific agreements that will assign all existing rights to the university and will also transfer the employee’s rights to future inventions developed during their employment to the university. Any professor who knows that if they invent it, they own it, may be reluctant to hand over such rights. However, patent marketability and the benefit of commercialization of inventions that comes with university technology transfers should leverage some bargaining power over a hesitant employee. Alternatively, incentive provisions may be warranted in certain instances.

Further, refine or amend existing assignments that do not operate under the assumption that the university owns the patent rights. As part of this change, determine whether there are any employees who have transferred departments since the original patent or copyright agreement was signed. If a professor is currently in a research capacity but was not previously, determine whether that departmental change necessitates a revision of their previous agreement or the execution of a new one. Also research and ensure that employees have not assigned their rights to underlying inventions elsewhere or at any previous point during their current employment. Develop a plan for handling employees who are unwilling to sign modified agreements, as reluctance from some employees should be expected. Finally, care should be given in regard to the potential tax implications of amendments to existing agreements and additional incentives offered in connection with any transfer of existing rights in an invention.

Fourth, institutions should draft future employment agreements with more stringent language to prevent the type of patent right quandary exhibited in Roche. The problem in Roche could have been solved by conforming the tense of the verbs to the intention of the university- had Dr. Holodniy’s agreement with Stanford read that he “does” assign his rights, the ownership would have immediately transferred to Stanford. However, the language that Dr. Holodniy “agree[d] to assign” his rights was only a promise to do something in the future. That expectancy did not vest, however, because the Dr.’s subsequent agreement with Cetus included language immediately transferring ownership rights. The “will assign and do[es] hereby assign” phrase gave priority of ownership to Cetus, serving as partial justification for Stanford losing the suit. Thus, it is not an exaggeration to say that each agreement signed with professors and research fellows must be ironclad and reviewed to make certain the existing agreement accomplishes its intended purpose. This may require terminating the old form of agreement and replacing them with individualized agreements that definitively establish a status quo transfer of rights. The use of present tense verbs is imperative to ensure that rights actually are assigned, rather than just promising to be assigned subsequently.

In addition, incorporate provisions within the new agreements to handle situations where researchers work with other institutions in order to prevent an inadvertent transfer of rights. Employ language that specifically requires consent from the university before any employee signs over their rights to an outside institution. Also, include provisions requiring the disclosure of previously signed patent agreements at the outset of employment so that universities will be aware of potential litigation arising from contract and patent disputes.

With a large enough patent portfolio, the process of reviewing and updating patent agreements may appear daunting. However, based on the undisputable message of inventor rights in Roche, a serious assessment of existing agreements and the need for heightened specificity in the future is paramount. The decision in Roche encourages vigilance on the part of universities and requires steps to be taken to reduce liability to patent infringement and contract violation claims. The four above recommended steps above are not an exhaustive list of actions universities could take; instead, they provide a necessary starting point for universities in navigating patent portfolio review and reform.