Office of the Vice President for Global Communications

Wednesday, June 22, 2011

What high court's ruling in patent case could mean for research at U-M

A recent U.S. Supreme Court ruling in the case of Stanford v. Roche Molecular Systems has generated much interest among universities that engage in federally funded research to develop technology that is transferred to the private sector for commercialization. Kenneth Nisbet, executive director of U-M Tech Transfer, explains the ramifications of the ruling for U-M.


What is the issue at the heart of Stanford v. Roche, and how did the Supreme Court rule?

The case stretches back to the late 1980s. It essentially was an ownership dispute between Stanford and Roche concerning patent rights.


Click here to read the full text of the justices' opinions in Stanford v. Roche.

Mark Holodniy joined Stanford University under an employment agreement requiring him to assign to Stanford his rights in inventions made at Stanford. While working at Stanford, Holodniy visited a private company, Cetus, where he signed a "Visitor's Confidentiality Agreement" containing broad assignment language granting to Cetus any rights in inventions Holodniy made as a consequence of his access to Cetus. Roche Molecular Systems subsequently acquired Cetus' assets, including the rights to Holodniy's work. Essentially, the researcher inadvertently agreed to give patent rights to both Stanford and Roche.

Holodniy returned to Stanford where he co-invented, along with other Stanford researchers, an HIV testing procedure on which Stanford secured patents. These Stanford researchers used NIH funding in performing the research leading to this invention. When Roche commercialized HIV test kits that used the procedure, a dispute over the ownership of Stanford's patents erupted. The lawsuit involved many complicated issues. For example, who were the correct individuals named as inventors on the patents, and which patent assignment provisions had priority between the Cetus and Stanford agreements? Other issues included the validity of the patents, and the effect of the NIH funding on ownership of these patent rights.

The lower courts ruled that the Cetus/Roche patent assignment provision trumped the conflicting Stanford provision due to some particularities in those contracts. So, the question became whether the NIH funding behind the inventions automatically made the government contractor (Stanford in that case) the owner of the resulting patent rights. This was the only question the Supreme Court addressed.

To give some background, there's a federal statute, the Bayh-Dole Act that Congress enacted in 1980, establishing a system for universities to seek to disseminate federally funded inventions so that technology may benefit the public. Stanford's argument was that the Bayh Dole Act automatically made Stanford the owner of these patents because they resulted from federally funded research. Roche, on the other hand, argued that that Stanford's ownership was not automatic and that the lower court's ruling on the conflicting contractual assignments (favoring the assignment to Cetus over the assignment to Stanford) should stand.

The Supreme Court ruled in favor of Roche, holding that the Bayh-Dole Act does not automatically vest title to federally funded inventions in federal contractors (in this case Stanford), and thus the lower court ruling giving priority to the Cetus patent assignment agreement over the Stanford patent assignment was left standing.


How does this ruling affect U-M and researchers who hope to commercialize products that grow out of federally funded work conducted at the university?

The ruling in Stanford v. Roche will not change the basic assumption that patent rights associated with federally funded research conducted at U-M should rest with the university until they are contractually licensed to a third party seeking to commercialize the products of that research. It does not change government policy, university policy or a researcher's employment obligations.

The ruling, however, does point out the importance of the contractual relationships that researchers have with both universities and industry partners. Because of this case, everyone is going to be on heightened alert as to the importance of contracts and the potential for researchers inadvertently having conflicting obligations. These conflicting assignment provisions can create a cloud over the title to inventions and jeopardize the effort to disseminate federally funded inventions to benefit the public. So, extra care is required on everyone's part — researchers, the university, and industry partners — to ensure that clear chain of title exists for the important inventions coming from our researchers and valuable federal funding.

Certainly, one clear take away is that researchers who enter into separate, third-party consulting contracts must make sure those contracts do not conflict with the researchers' employment agreements with U-M. U-M and its industry partners are closely looking at how we can help our researchers with that process.


Will U-M change the way it deals with researchers over the issue of patent rights on technology that is developed at the university and transferred to the private sector?

It is worth noting the facts of Stanford v. Roche dealt specifically with Stanford's policies and the specific contractual language covering the Stanford researcher's activities at Cetus and at Stanford. My understanding is that it is possible, if not likely, the court would rule differently if addressing U-M's, or another university's, policies.

As I mentioned above, the biggest outcome from this case is that there will be more attention paid to contracts that researchers enter into. Avoiding the confusion over title to our researchers' inventions, as what occurred in the Stanford case, is important for a number of reasons. First, the Bayh-Dole Act, which has been enormously successful at transferring the results of federally funded research to the public, has some very important objectives, including: (1) sharing licensing revenues with inventors; (2) reinvesting remaining licensing revenues into further research and education; (3) and giving some preferences to U.S. industry and small businesses.

Also, confusion over rights in inventions can jeopardize some of the great entrepreneurial activity here on our campus. Every year at U-M we launch an average of 10 high-quality startup companies that are an important aspect of the local economy. We also have 80-100 agreements with industry partners each year, transferring technology to enhance their competitiveness and grow jobs. Most of the innovations behind our activities are derived from federal funding. So it is important that everyone involved with these deals is comfortable with the rights arising from federal funding and being disseminated through our partners. We want our researchers and partners to be able to focus on developing their great inventions, rather than worrying about conflicting agreements.

We are committed to protecting the interests of U-M, its researchers, the federal government that funds many of our inventions, and the public that provides that funding. We also will work to educate our researchers on the importance of the particular language in the contracts they enter into with companies. From our researchers, to our industry partners, to the public that benefits from our inventions, we feel that everyone's interests are aligned in trying to avoid the confusion of rights in inventions resulting from federal funding.