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Supreme Court Rules in Favor of Transnational Corp. over Stanford University in Patent Case

Not all University-Industry Relationships are Friendly

The U.S. Supreme Court SOURCE: US Supreme Court/Franz Jantzen West façade of the Supreme Court Building.

The Supreme Court’s June 6 decision in Stanford University v. Roche Molecular Systems will have a lasting impact on the way universities and corporations collaborate in the commercialization of federally funded research.

The Supreme Court settled a six-year-long patent dispute between Stanford University and Roche Molecular Systems Inc., a global diagnostics and pharmaceutical company based in Switzerland, over the rights to an HIV test developed by a researcher who worked at both institutions. A major point of contention was an interpretation of the University and Small Business Patent Procedures Act of 1980, commonly referred to as the Bayh-Dole Act, which allows research institutions and universities to obtain patents for federally funded inventions they produce. The question in this case was whether or not the Bayh-Dole Act automatically grants the rights to such inventions to the institutions responsible for their creation, or if the individual inventor can unilaterally assign the rights to third parties.

The Stanford researcher who developed the test, Mark Holodniy, signed a contract that assigned Stanford University the rights to his invention in 1988. Since research on the HIV test was funded in part by the National Institutes of Health, the university acquired several patents for the procedure under the Bayh-Dole Act. When Holodniy used facilities at Cetus, a biotechnology company later purchased by Roche, in 1989 to conduct some of his work he signed a visitor confidentiality agreement that assigned the rights to his inventions to Cetus (and therefore Roche).

When Roche commercialized and distributed the completed HIV test, Stanford sued for patent infringement. Roche claimed the suit was invalid because the contract Holodniy signed with Cetus made Roche a co-owner of the patents. Stanford argued that the Bayh-Dole Act granted the university superior rights to the invention, and that Holodniy never had the right to assign ownership of the test to Roche (via Cetus).

In a 7-2 majority decision, the Supreme Court ruled in favor of Roche and interpreted the Bayh-Dole Act to not automatically vest ownership in federally funded inventions to public institutions, leaving room for the individual inventor to contract the rights to his or her invention to other parties. Roche and Stanford University were deemed co-owners of the patents.

A close look at the Bayh-Dole Act

The Bayh-Dole Act, named for Sens. Birch Bayh (D-IN) and Bob Dole (R-KS) was created in 1980 to respond to the need to transform research findings into commercialized products that could be distributed to the public, a process known as “tech transfer.”

Before the Bayh-Dole Act, patents on federally funded inventions could only be acquired by the United States government, an inefficient arrangement that left it with tens of thousands of patents, few of which were ever licensed to private industries and brought to the marketplace. Since the act allows research institutions to patent the products of their federally funded projects, these institutions can license their inventions to private companies so that they can be produced and distributed—an arrangement that has significantly improved tech transfer over the last few decades. It also allows publicly funded institutions to receive a share of the profit on the sale of the commercialized inventions, ensuring that public funding for research products returns to the public institutions that created them for investment in future research.

In light of the history and goals of the Bayh-Dole Act, the Court’s majority decision to vest the primary ownership of an invention to the inventor instead of the associated public research institution seems to contradict the act’s central purpose. This opinion is in line with an amicus curiae brief filed by the United States on behalf of Stanford, which stated that “allowing an inventor to transfer ownership of a federally funded invention outside The Bayh-Dole Act’s framework frustrates Congress’s purposes” in the creation of the act: protecting taxpayer investments, encouraging research and innovation, and benefiting United States industry and labor.

Arti Rai, the Elvin R. Latty Professor of Law at Duke Law School and an expert in patent law and innovation policy, said that the Court’s decision to prioritize the inventor even in the context of publicly funded research is not unexpected. “The default rule in patent law has long been that patents belong in the first instance to the inventor, and then can be assigned away via contract to other parties,” said Rai in an interview with Science Progress. The majority opinion in this case cited an over 200-year-old tradition of U.S. patent law, which indicates the inventor as the primary proprietor of his or her ideas and inventions, as a significant reason for their ruling.

Justice Stephen Breyer’s dissenting opinion, which was joined by Justice Ruth Bader Ginsburg, suggested that the history and framework of the Bayh-Dole Act changes the traditional hierarchy of ownership retention in the special circumstance of federally funded research, giving the highest priority to the federally funded institution, followed by the government, and then the inventor.  Whether or not the language of the Bayh-Dole Act actually provides for this is difficult to determine.

“There are situations where the default has been changed by particular statutes, but they tend to be more definitive than the Bayh-Dole Act is in terms of changing that rule,” said Rai. “It’s difficult when the specific language is hardly a model of clarity. There is nothing in legal history or the Bayh Dole Act that suggests [Congress and the creators of the act] thought about the possibility of conflicting assignment agreements.”

Implications of the decision

While the decision in this case lends difficulty to balancing the specific language of the Bayh-Dole Act with its overall purpose, the alternative ruling would present several issues as well. The majority opinion noted that allowing institutions to automatically retain ownership of federally funded inventions opens the door for institutions to do so even if only one dollar of federal funding is used. It also cited the possibility that institutions could automatically acquire ownership of ideas that were conceived by an inventor before he or she affiliated with the institution in question.

Stanford v. Roche also reflects difficulties in accounting for the collaborative nature of scientific research and innovation. In this case, the research and conception of the HIV test did not exclusively occur at Stanford, and Roche’s role in the process was not limited to the commercialization of the finished product. Roche (via Cetus) had already started working on developing an HIV test before they entered into collaboration with the university. Although the inventor was employed by Stanford and not Cetus, he still utilized Cetus’s facilities with the purpose of learning how to perform a fast DNA replication technique called polymerase chain reaction (PCR), a relatively new procedure at the time. This technique was developed and patented by Cetus (and then sold to Roche), and also happened to be crucial to Holodniy’s development of the HIV test.

“I think the majority opinion did raise the idea that Roche, in this case, was a really involved third party,” said Rai. “If the university automatically got rights to everything their funding had played even a small part in, a third party like Roche would be negatively affected.” The automatic retention of ownership by public institutions when third-party collaborators make instrumental contributions to the research process does seem problematic. A ruling of that kind might have alienated the private sector, which could hinder innovation and commercialization by making private industries more reluctant to collaborate with public and academic institutions.

However, the majority ruling’s establishment of Roche as a co-owner of the patents to the HIV test means that Roche has no contractual obligation to share royalties with Stanford University, rendering the Supreme Court’s interpretation of the Bayh-Dole Act as one that seems to support transnational corporations at the expense of research institutions funded by the American public. “The dissent was a bit more concerned with the overall purpose of Bayh-Dole, which is commercialization,” said Rai. “The majority was perhaps more concerned with what would happen to the private sector that thought it had rights because it funded some of the work.”

Stanford University warned that the Court’s decision could have significant negative impacts on federally funded inventions, but it is possible that these impacts may be more symbolic than effectual. “It is a preservation of status quo more than anything else,” said Rai.

Although the ruling may not seriously affect the tech transfer process, it might strain already-tense public-private and academic-industrial relationships. But the same would be true for an opposite ruling. “It just shows that no matter how you set the default rule, if universities and the private sector are both concerned about making money, as they are, you’re going to have conflicts.”

In the meantime, universities and other research institutions can continue to acquire patents for federally funded inventions under the Bayh-Dole Act; they will just have to pay closer attention to the contracts they engage in with their employees and work harder to ensure that their researchers do not sign conflicting contracts with third parties.

Michelle Spektor is a Science Progress intern at the Center for American Progress and is an undergraduate at Cornell University in Ithaca, New York.What do you think? Comment on this article and join the conversation at facebook.com/scienceprogress or by tweeting at us @scienceprogress.

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