Supreme Court Rebuffs Stanford's Bid to Assert Control of Invention

June 06, 2011

[Updated (6/8, 3:35 p.m.) with comment from Stanford University.]

The Supreme Court ruled on Monday against Stanford University in a case that is viewed as a victory for faculty members and private companies involved in technology transfer and research partnerships. The ruling was also a warning to universities to carefully check the language and grammar of the contracts they sign with researchers.

A seven-member majority of the justices decided that neither institutions that receive federal research grants nor the government itself has an automatic right to patents or inventions that may result from federally financed research.

In the case, Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems Inc., et al., No. 09-1159, the university argued that a contract it had signed with a researcher, Mark Holodniy, gave it the rights to an HIV-detection kit developed through work Mr. Holodniy completed during his time consulting at a private company, the Cetus Corporation. Mr. Holodniy signed a later contract with Cetus, which was eventually acquired by Roche Molecular Systems Inc., an arm of the Swiss pharmaceutical giant.

The Supreme Court majority ruled that Stanford's position was an unwarranted expansion of the Bayh-Dole Act, a 1980 law meant to protect the federal government's investment in research it sponsors by allowing institutions to "elect to retain title" to inventions produced in the course of grant-sponsored scientific studies.

Chief Justice John G. Roberts Jr., writing for the majority, said Stanford's interpretation of the Bayh-Dole Act would have given patent rights to a university "even if the invention was conceived before the inventor became an employee, so long as the invention's reduction to practice was supported by federal funding. It also suggests that the school would obtain title were even one dollar of federal funding applied toward an invention's conception or reduction to practice."

In addition, the majority let stand a federal appellate court's decision that Cetus's competing contract with Mr. Holodniy was more relevant than the Stanford contract because it assigned present rights from any inventions by Mr. Holodniy. The Cetus contract stated that Mr. Holodniy "will assign and do[es] hereby assign" to Cetus his "right, title, and interest in ... the ideas, inventions, and improvements" made "as a consequence of [his] access" to Cetus.

By contrast, Stanford's contract said that Mr. Holodniy "agree[d] to assign" to Stanford his "right, title, and interest in" inventions resulting from his employment there, which "amounted to a promise to assign those rights in the future," according to an American Bar Association analysis of the case.

By letting that distinction stand, the Supreme Court has muddied the waters for universities looking for guidance on writing those kinds of contracts, said Douglas Hallward-Driemeier, a lawyer with Ropes & Gray who wrote a brief supporting Stanford on behalf of the Association of American Universities. "There's always a chance when you think that you have the right assignment language that someone comes up with something better," he said.

In a written statement issued as part of a Stanford news release, the university's general counsel, Debra Zumwalt, said Stanford "respectfully disagrees" with the court's decision.

"We are disappointed with the ruling by the Supreme Court in this case," she wrote, "but will move forward to protect the interests of all parties in inventions created with federal funding, including the interests of the federal government and companies that license technology from Stanford."

In a dissenting opinion, Justice Stephen G. Breyer, joined by Justice Ruth Bader Ginsburg, argued that the court should have sent the case back to the federal appellate court because of several unresolved issues that might make a higher court's ruling unnecessary.

In their petition asking the Supreme Court to hear the case, research universities argued that letting the lower-court ruling stand could "cloud universities' title to thousands of federally funded inventions." But David P. Swenson, an intellectual-property specialist and author of a brief supporting Roche, said the decision would not affect a majority of universities that are already writing their contracts with these issues in mind.