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IP: Your employees could unknowingly sign away innovation rights

A Supreme Court decision means you should take another look at your invention agreements

For the casual observer, a glance at the Supreme Court's decision in Stanford v. Roche Molecular Systems or the attendant media coverage this summer probably revealed little, if anything, to lose sleep over. The question presented regarded a university's rights under the Bayh-Dole Act to federally funded inventions. That’s hardly pulse-quickening, unless you work for a university or a company that engages in or uses federally funded research. And that's with all due respect to the Bayh-Dole Act, which has been tremendously important in moving innovations from universities into the marketplace over the last thirty years. Nevertheless, a closer look at this case should send a chill down the spine of any lawyer charged with protecting his client's intellectual property rights.

In the late 1980s and early 1990s, Stanford's Dr. Mark Holodniy developed an assay for HIV using federal funding, along with information and materials he obtained from a company called Cetus. Cetus was later purchased by Roche. When he started at Stanford in 1988, Holodniy “agreed to assign” his ownership rights in any inventions he might make. In 1989, he visited Cetus to learn a technique he later used in his assay. When he did so, he signed a visitor's agreement stating that he would “assign and does hereby assign” to Cetus his interest in any inventions he developed “as a consequence” of what he learned. Finally, around mid-1995, Holodniy actually assigned Stanford his interests in the patent application for his HIV assay. Stanford later sued Roche on the patents. Roche moved for summary judgment based on its ownership interest through the Cetus agreement. Stanford defeated Roche's motion at the District Court, but lost at the Federal Circuit and so appealed to the Supreme Court.

Although the nominal question presented (whether the Bayh-Dole Act automatically vested ownership of Holodniy's inventions in Stanford) is interesting, the remainder of this article will focus on two related questions of more general interest. First, why did the Federal Circuit and a seven-Justice majority of the Supreme Court hold that Roche was the sole owner of Holodniy's interest in the patents-in-suit, thus depriving Stanford of standing to assert the patents against Roche (or anyone else, for that matter)? And, second, why should anyone else care?

Here's the reasoning: Although Holodniy “agreed to assign” his inventions to Stanford in 1988, that was merely a promise to make a future assignment of his future inventions (giving at most some equitable title to Stanford). On the other hand, his 1989 agreement to “hereby assign” to Cetus was a present assignment of his future inventions, which meant he had nothing left to convey in the 1995 assignment to Stanford. According to the Federal Circuit, this conclusion flowed inevitably from the rule announced in FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568 (Fed. Cir. 1991). The Court's majority reached the same conclusion without citing FilmTec.

If the FilmTec (now Stanford) rule bothers you, you are in distinguished company. Justice Breyer, writing in dissent, called it “a technical drafting trap for the unwary” and complained that, “given what seem only slight linguistic differences in the contractual language, this reasoning seems to make too much of too little.”

So why should anyone care about this case? Well, what do your employee invention and other agreements say? How about agreements from twenty or more years ago? Back then – at least according to Justice Breyer – conveyances of future rights were written under the (it turned out) unwarranted assumption that a further assignment would be needed when the invention was made. When your innovators visit other facilities, do they know not to sign “visitor agreements” (or those “visitor logs” with some fine print at the top) without approval? What about the agreements your innovators signed before they were “your people,” in graduate school or under former employers? You might be surprised at what they signed away before they arrived on your doorstep, or what hidden obligations they brought with them.

How can you address these concerns? First, determine whether your employee invention, visitor, material transfer, and like agreements create a present assignment of future inventions. If not, make sure all future agreements do so. Where possible, revise current agreements that only create a (potentially worthless) obligation to assign in the future, keeping in mind that altering agreements with existing employees may require additional consideration to be enforceable in some jurisdictions.

Second, make sure you have policies and procedures to avoid being caught in invention agreement “traps,” and enlist your innovators’ assistance in executing those policies. At the very least, regular training of and interaction with your innovators will help you maintain accurate repositories of agreements pertaining to your IP and the IP of third parties as well as avoiding inadvertent assignment or encumbrance of IP rights. Finally, if you are working on the litigation side, explore the possibility of “hidden” owners of patents in a pre-suit investigation or during discovery.

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Cullen Pendleton

Cullen Pendleton, Ph.D., is a litigation partner at Marshall, Gerstein & Borun LLP. He is an alumnus of the University of Houston, the University...

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