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University Technology Transfer and Licensing Legal Alert: Universities Need to Protect Their Intellectual Property

Universities Need to Protect Their Intellectual Property: Recent Decisions from the Federal Circuit and the United States Supreme Court That Impact Intellectual Property Agreements

A number of recent Federal Circuit decisions and a decision from the United States Supreme Court have highlighted the importance of assignment clauses in the transfer of intellectual property, particularly patents, at universities. These cases often distinguish between an agreement to assign intellectual property in the future or the current assignment of intellectual property that may be created in the future. Although the distinction in language may seem minor, the outcome of who owns the intellectual property created in the future is not. Choose the wrong language of assignment and you may find that your university does not own the intellectual property that is created in the future. Two of these important cases are Leland Stanford Junior University v. Roche Molecular Systems, Inc. and Abraxis Bioscience, Inc. v. Navinta LLC,, both of which are discussed below.

Leland Stanford Junior University v. Roche Molecular Systems, Inc.

The United States Supreme Court issued its decision in Leland Stanford Junior University v. Roche Molecular Systems, Inc. concluding that the inventor of a patent owns the patented invention even if federal funding is used to fund the research under the Bayh-Dole Act. The decision affirms that under the Patent Act inventors own their inventions absent an agreement to the contrary. The decision is yet another reminder to review assignment agreements from inventors to make sure that they assign future inventions with the language “do hereby assign” instead of the language “agree to assign,” which the Federal Circuit has held is insufficient to convey title by itself to future inventions.

The case involved a research fellow, Dr. Holodny, who joined Stanford University’s Department of Infectious Diseases in 1988. When Dr. Holodny joined Stanford he signed an agreement in which he “agreed to assign” to Stanford his interest in inventions resulting from his employment at Stanford. The research at Stanford was funded in part by the federal government under the Bayh-Dole Act.

Dr. Holodny’s supervisor arranged for him to conduct research at a predecessor to Roche to further Dr. Holodny’s work. In order to gain access to Roche’s predecessor, Dr. Holodny signed an agreement providing that he “will assign and does hereby assign” to Roche’s predecessor his “right, title and interest in … the ideas, inventions, and improvements” made as a consequence of his access” to Roche’s predecessor facilities and research. During his work at Roche’s predecessor, Dr. Holodny worked on a new test procedure for HIV. When he returned to Stanford, he and other colleagues tested the procedure and Stanford subsequently obtained three patents on Dr. Holodny’s research.

Several years later, Roche put out a test kit that Stanford contended infringed the Holodny patents. Roche responded that it co-owned the patents as a result of the agreement that Dr. Holodny had signed with its predecessor and, therefore, Stanford lacked standing to sue. Stanford contended that because the patents were the result of government funding under Bayh-Dole it had superior rights and owned the inventions. Stanford also contended that it owned the patents by virtue of the assignment in which Dr. Holodny had “agreed to assign” future inventions.

The district court agreed with Stanford and held that Stanford had standing to sue Roche. The Federal Circuit, however, disagreed and found that the Bayh-Dole act did not automatically transfer inventorship rights to Stanford and that Stanford’s “agree to assign” language was not effective to assign future inventions without some further act or agreement, which did not occur. In contrast, the Roche language “do hereby assign” was effective to transfer future inventions without any additional action on the part of the inventor. Therefore, Roche had ownership rights and Stanford lacked standing to sue Roche.

Stanford petitioned for review by the Supreme Court on the ground that under the Bayh-Dole Act it had the ownership rights because it was a government contractor that used government funds for the Holodny research. Notably, it did not appeal the “agree to assign” issue to the Supreme Court.

The Supreme Court reviewed the Bayh-Dole Act language and found it does not automatically transfer title to federally funded inventions to federal contractors or authorize contractors to unilaterally take title to inventions that are created with the use of federal funds. The Supreme Court expressly noted that the Patent Act vests title in the inventor and absent overriding language from Congress, which the Bayh-Dole Act did not contain, the inventor owns the invention. Of course, an inventor can assign his or her patent rights, but absent such a contractual assignment, the inventor owns the invention and only an express grant of those rights will permit an employer, such as Stanford, to receive rights in the invention.

The Supreme Court noted that its construction of the Act also followed common practice by contractors who used contractual assignments to transfer ownership rights from inventors to the employer. The majority opinion also noted that Stanford had not challenged the Federal Circuit’s “agree to assign” construction and, therefore, that issue was not before the Court.

The concurring opinion and the dissenting opinion both questioned the Federal Circuit’s construction of the “agree to assign” language and the minor difference between the “hereby do assign” language that the Federal Circuit found effective to transfer future inventions. The dissent would have reversed and remanded on this ground, noting that the Federal Circuit’s construction went against the plain intent of the contracting parties.
Nonetheless, as a result of this opinion, the Federal Circuit’s decisions holding that the language “agree to assign” is ineffective to assign future inventions without some subsequent act remains the law.

Abraxis Bioscience, Inc. v. Navinta LLC,

The Federal Circuit decision in Abraxis Bioscience, Inc. v. Navinta LLC, Case No. 2009-1539 (Fed. Cir. Nov. 9, 2010), further highlights the necessity of reviewing assignment clauses now to make sure future intellectual property rights are preserved and protected. In Abraxis, the parties went through three years of litigation and a trial on the merits, in which the district court found that the defendant infringed the patents at issue, only to have the Federal Circuit reverse on the ground that the plaintiff, Abraxis, did not have standing to pursue the infringement action because it did not own the patents at issue at the time the complaint was filed.

What went wrong for the plaintiff? The chain of assignments of the patents at issue. In 2006, Abraxis entered into an asset purchase agreement that contained a “Further Assurances” clause, providing that the Seller would execute “any and all further . . . assignments . . . as necessary to . . . vest in Buyer [Abraxis] any of the Transferred Intellectual Property.” On the day the action was filed, the Seller obtained the assignment of the patents at issue from two related entities. This assignment occurred several months after the asset and purchase agreement was executed. Eight months after the lawsuit was filed, the Seller executed a separate Intellectual Property Assignment Agreement that assigned the patents at issue to Abraxis.

At the district court, the defendant challenged that Abraxis did not own the patents at issue at the time of the filing of the complaint. As all of the parties on the Abraxis side of the transaction intended Abraxis to own the patents (as evidenced by, among other things, the Further Assurances clause), the district court found that the intent of the various Seller entities was sufficient to imply a nunc pro tunc assignment based on the relationship between the corporate entities. The Federal Circuit–after three years of costly litigation on the merits–disagreed.

In reversing the district court, the Federal Circuit began by noting that “[a]lthough state law governs the interpretation of contracts generally . . . the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is intimately bound up with the question of standing in patent cases. We have accordingly treated it as a matter of federal law.” Applying federal law, the Federal Circuit then noted that the wording of the assignment itself is dispositive and “[w]hether an assignment of patent rights in an agreement is automatic or merely a promise to assign depends on the contractual language itself” This is a critical distinction in federal law–as set out by the Federal Circuit–that can be dispositive of ownership issues.

For example, if a contract expressly conveys rights in future inventions, e.g., the language states that all rights and future rights are hereby assigned, then no further act is required once an invention comes into being and the transfer of title occurs immediately by operation of law. In contrast, language stating that the party “agrees to assign” is not effective to assign future inventions and instead is only a mere promise to assign rights in the future. This language is not an immediate transfer of the interests in the intellectual property and requires a subsequent act of assignment.

Applying this reasoning, the Federal Circuit concluded that the Further Assurances clause was a mere promise to assign in the future and could not automatically transfer the patents. Thus, the assignment to the Seller on the day the lawsuit was filed did not provide Abraxis with the patents on that day. Instead, the assignment was not effective until eight months later when the additional assignment document was executed by the Seller. The Federal Circuit held that Abraxis was required to have legal title to the patents on the date the lawsuit was filed and that this requirement could not be met retroactively. Accordingly, Abraxis lacked standing and the action had to be dismissed.

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The language that the Federal Circuit has found effective to transfer future inventions, “do hereby assign,” should be used in assignment agreements to ensure that future rights are assigned. Although the Supreme Court left open the ability to challenge the Federal Circuit’s construction of “agree to assign,” it is not likely that this issue will come before the Supreme Court in the near term. As a result, universities would be well advised to revise their assignment agreements as soon as possible to include the “do hereby assign” language. It would also be prudent to review all old assignment agreements and make sure that those agreements containing the “agree to assign” language are modified and that additional assignments are sought for inventions that were created after the date of those agreements. Otherwise, the inventor still owns the inventions and may attempt to assign them to someone else.