Justice Roberts (picture, below left), giving the majority opinion of the Court stated, after the usual round of dicta about the Progress Clause and unnecessary factual references to the first US Patent (not No.1. as they were not numbered back then), that:
"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. Under the law in its current form, "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefor."
Like with the UK, the general rule is that the rights in an invention belong to the inventor (Gayler v Wilder (1851));Solomons v US (1890)). An inventor can assign his rights in an invention to a third party (US v Dubilier Condenser Corp (1933)). 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" (Dubilier Condenser Corp at 189).
Stanford and the US Government (an obvious amicus curaie in the case given their interest in not this but thousands if not millions other federally funded inventions), argued that the Bayh-Dole Act reorders that normal priority of rights in an invention when it is conceived or practiced as a result of federal funds. The Act essentially moves the inventor from the front of the line (not que, thank you) to the back with the inventor's employee or federal contractor obtaining title. However, the Court argued that where this "re-ordering" does occur in statute it is unambiguously clear that it does. For example, in the instances of nuclear materiel and atomic energy patents, USC 42 section 2182 states that title in such inventions "shall be vested in, and be the property of, the [Atomic Energy] Commission."
Such clear statutory language, the Court held, was "notably' absent" from the Bayh-Dole Act. The Act does not state that title in an invention is expressly vested in contractors or anyone else or that inventors are deprived of their priority interest in federally funded inventions (picture, below right - the building that stands for all things federal). All that the Act does is provide that contractors may "elect to retain title to any subject invention". A "subject invention" means "any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement." Stanford argued that the phrase "invention of the contractor" means "all inventions made by the contractor's employees with the aid of federal funding." The Court disagreed and said the definition is not so broad as to include all inventions "made by" the contractor, but all inventions "owned by the contractor". Stanford's reading, although plausible because it is often the case that whatever an employee produces in the course of his employment belongs to his employer, is not the case in patent law. The Court had repeatedly rejected the idea that mere employment is sufficient to vest title to an employee's invention to the employer. Against this over 200-year background the definition has to be read of meaning "inventions owned by the contractor" not merely "made by the contractor" or its employees.
But what does this "elect to retain title" provision mean then? One cannot elect to retain something that they do not already have, surely? Well, first you have to have it, says the Supreme Court (and Stanford didn't under the agreement). The Court held that the provision "elect to retain title" does not mean that the contractor owns or that the Act confers ownership in the invention to the contractor - all it does is assure that contractors keep title to whatever it is they already have. If they do not have it, by way of an assignment - then they do not get to retain it.
So far, not good for Stanford. However, the US Government had one more argument to swing at the Supreme Court. The Act states that it
"take[s] precedence over any other Act which would require a disposition of rights in subject intentions . . . that is inconsistent with the [Act]."
The United States argued that this provision operates to displace the basic principle that an inventor owns the rights to his invention. However, the Court held that the Act only applies to "subject inventions" as "inventions of the contractor" not an inventor's antecedent title to his invention. It is only when an invention belongs to the contractor does the Act come into operation. Nice try, in other words.
Some arguments relating to the procedural operation of the Act were also considered by the Court, but again bruskly dismissed as doing nothing but supporting the Court's view against Stanford. The Court concluded stating that although it was unnecessary for the Court to state it was nevertheless worth noting that its construction of the Act reflects the common practice among the parties who operate under the Act:
"Contractors generally institute polices to obtain assignments from their employees. Agencies that grant funds to federal contractors typically expect those contractors to obtain assignments. So it is with NIH, the agency that granted the federal funds at issue in this case. In guidance documents made available toe contractors, NIH has made clear that "[b]y law, an inventor has initial ownership of an invention" and that contractors should therefore "have in place employee agreements requiring an inventor to 'assign' or give ownership of an invention to the organization upon acceptance of Federal funds."
Stanford's employment contract with Holodniy did not do that - it was only a mere promise to assign, unlike Cetus's agreement which was an actual assignment. Had Stanford's contract been an effective assignment, those inventions, if federally funded would have become "subject inventions" and the Act would have worked the way in which Stanford was arguing it should. The Act would have done so
"without violence to the basic principle of patent law that inventors won their inventions"
The Dissent
Although the Court's decision may seem like a no-brainer, it did leave at least 2.5 Justices a bit uneasy (Justice Breyer (picture, below left), joined by Justice Ginsburg, and a little bit of "dissent" from Justice Sotomayor in respect of the FilmTec point). Justice Breyer argued that the majority's decision could not be easily reconciled with the objective of the Act and that there were questions to be raised with the Court of Appeals interpretation of the Stanford and Roche contracts.
First, Justice Breyer argued that the three-tier system in the Act sets out that the ownership in an invention would first vest in the contractor, then the US Government, and then the employee. The Act does this not because it blindly takes the inventor's rights and grants them to the Government, but rather it assumes that the federal funds' recipient, such as a university, will and should possess those rights for public policy reasons. This mechanism seeks to encourage those institutions to commercialize inventions for public benefit which was the basis of the legislation in the first place. It was because of this that the dissenting Justices stated that they could not easily accept the majority's conclusion that an individual inventor can lawfully assign an invention produced by public federal funds to a third party. This result would be at odds with Act's intention.
Second, Justice Breyer argued that to come to a more consistent opinion with the statute's objectives the Supreme Court could set aside the federal Circuit's interpretation fo the licensing agreements and its related licensing doctrine. That doctrine governs the interpretation of agreements made before an invention is conceived. The Federal Circuit held that "hereby assign" means that when an invention comes into existence the clause automatically operates to assign that invention to Cetus, whereas "agree to assign" did not. At the time of Holodniy's agreement with Stanford, patent law appeared to have specified that a present assignment of future inventions vested equitable, but not legal title to the assignee. As such, Cetus's agreement would have also only given rise to an assignment of equitable interests. In 1991, the Federal Circuit in FilmTec adopted a new rule that
"[o]nce the invention is made and [the] application for [a] patent is filed. . . .legal title to the rights accruing thereunder would be in the assignee . . , and the assignor-inventor would have nothing remaining to assign."
Under the Federal Circuit's interpretation, it is Cetus would win but without any explanation by the Federal Circuit for what seems to a significant change to the law on assignments to future inventions, especially where they implicate the Bayh-Dole Act. However, because Stanford did not challenge the decision on these grounds, the Justices' hands were tied, at least until a future case is before them.
The Lesson
IP lawyers and judges could say this until they are blue in the face, but it is true: Draft your patent assignment agreements with care! Further caution should also be taken in the wake of the Court's warning about their interest to review the words "blessed by the Federal Circuit" in FilmTec. Let the drafting challenge begin!
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