Does Your Employment Contract Actually Vest Ownership of Your Employee’s Patent Rights in Your Company?

Types : Alerts

In a year when the U.S. Supreme Court has decided several intellectual property-related matters, on June 6, 2011 the Court ruled in the case of the Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc.  While the issue in the Stanford case primarily involved the ownership of the patent rights to inventions arising out of federally-funded research at the University, the decision, written by Chief Justice John G. Roberts, sends a message to employers who want to secure the company’s rights to their employee’s inventions.

The case involved tests developed by Dr. Mark Holodniy, which were used to determine whether a patient was benefiting from HIV therapy.  The research was federally-funded under the Bayh-Dole Act, enacted in December 1980 to standardize the interactions between the government and its contracting research providers, more specifically to provide that government contractors may “elect to retain title to any subject invention.”  As a result, in the 80s, when Holodniy joined Stanford as a research fellow, he signed a standard Copyright and Patent Agreement (CPA), wherein he “agreed to assign” his “right, title and interest in” inventions created as a result of his employment at the University.  Stanford had previously established a collaborative research arrangement with a research company, Cetus, to develop methods for quantifying blood-borne levels of HIV.  Accordingly, the University arranged for the inventor to conduct research at Cetus.  However, in order to gain access into Cetus, Holodniy was required to sign a “Visitor’s Confidentiality Agreement” (“VCA”) with the company, stating that he “will assign and do[es] hereby assign” to Cetus his right, title and interest in the inventions made as a consequence of his access.  This led to a chain of events resulting in the Stanford lawsuit.

While working at Cetus (with Cetus employees), Holodniy developed a new technique for calculating the amount of HIV in a patient’s blood.  He then returned to Stanford, bringing his new technique with him, and with other university employees, tested the procedure.  Stanford obtained three patents based on the procedure.

Meanwhile, however, Roche Molecular Systems acquired Cetus, including those rights obtained through VCAs, such as the one signed by Holodniy.  Soon after the acquisition, Roche began marketing test kits based upon the Holodniy process, which is currently used in HIV test kits worldwide.  As a result, in 2005, the Board of Trustees of Stanford University sued Roche, alleging that the HIV kits infringed their three patents.  Roche’s defense was that the inventor had, in fact, assigned his rights to his inventions to Cetus, which assignments were part of the Roche acquisition.  Consequently, it was therefore Roche’s position that Roche was a co-owner of the invention by assignment, and that Stanford lacked standing to sue.

As a result, the district court was asked to determine whether the inventor retained rights in his invention until he actively assigned them to Cetus; or if those rights automatically transferred to his University employer because the research was conducted under the Bayh-Dole Act.  Ultimately, the court’s decision comported with 200 years of patent law, which held that the rights to an invention initially vest in its inventor, unless there is an agreement to the contrary, regardless of the statutory provisions of the Bayh-Dole Act over federally-funded inventions.  Subsequently, the U.S. Court of Appeals for the Federal Circuit held that neither Holodniy’s agreement that he would assign, nor his duty to assign his rights to Stanford, prevented him from actually assigning his rights to Cetus.  Based on the language of his agreement with Stanford, Holodniy had only agreed that he “intended to assign” all right, title and interest in and to inventions to Stanford. By comparison, based on the language in his contract with Cetus, his assignment to Cetus was “active.”  That agreement stated that the inventor actually “will and do[es] assign” all such rights to the company.  The position of the Federal Circuit was upheld by the U.S. Supreme Court, despite Stanford’s Bayh-Dole arguments, and Roche was permitted to continue to market their kits.

While much of the high court’s discussion addresses the application of the Bayh-Dole Act to federally funded inventions, the opinion itself found that the decision turned on the wording of the assignment language, i.e., an inventor’s intent to assign, as compared with an active assignment that “does assign” the rights.  Although technically the Court was silent on the issue of assignments of rights in non-federally-funded research, this decision should be a warning to all employers – not just those involving federally funded research – that ownership of inventions turns on carefully worded assignment language in their employment agreements with their employees.  The Court emphasized the well-settled precedent that rights in an invention belong to the inventor, although they can certainly sign away those rights to inventions by contract.  However, what the high Court has reaffirmed is that unless there is a written agreement that actively transfers the rights from the inventor to the employer, an employer does not automatically or by obligation acquire the rights to the inventions of its employee, regardless of the Bayh-Dole or other statutory obligations, or contractual language that merely states the inventor’s “intent to assign.”  Had the language in Stanford’s employment contract with Holodniy stated that he actively “hereby assigns his past, present and future patent rights, title and interest in his inventions” for so long as he was employed by Stanford, rather than simply “agreeing to assign” (showing only intent) — the outcome may have been quite different.

The decision demonstrates that even private sector employers would be well served to add invention assignment language in their employment agreements to include an active and automatic assignment of rights that occurs constructively at the moment of invention (e.g., “hereby do assign”).  Such language would not harm the employment agreement, but may well avoid the problem encountered by Stanford in the cited case, when their agreement with the employee secured only a promise to later assign his rights to his invention.  If the employee claims rights in patents created as part of his/her employment, the proposed active assignment language thus gives the employer the right to claim ownership of the patent, although future courts may frown upon assignments of future rights to inventions before they are even conceived.  But what is clear is that the courts have found that ownership is not transferred by a mere promise to assign.  Such a promise to assign may give an employer the option of claiming breach of contract by the inventor – but as shown by the Stanford case – it does not necessarily convey ownership of the inventor’s rights.