Roche Supreme Court case to test Bayh-Dole Act

Nov. 10, 2010, 2:05 a.m.

The fight between Stanford and biotechnology firm Roche Holdings AG is heating up as the U.S. Supreme Court is set to hear the patent dispute. The lawsuit could upset current interpretations of the Bayh-Dole Act of 1980, which defines the ownership of patents that arise from research at federally funded institutions.

The case questions whether an inventor employed by a contractor that decides to retain ownership of a patent can negate that contractor’s ownership under Bayh-Dole by assigning his rights to the invention to another party. It started in 2002 when the University sued Roche for royalties on HIV screening kits sold by the company that used technology developed by School of Medicine professor Mark Holodniy.

Roche Supreme Court case to test Bayh-Dole Act
(CAROLINE MARKS/The Stanford Daily)

The Bayh-Dole Act allows federal contractors to retain the title to inventions developed with federally funded research, meaning potentially significant income for universities. Universities are required by the Act to grant royalty-free licenses to the government, share revenue from patent licenses with the inventor and give preference to small businesses to market subsequent products.

In 1989, as a research fellow in Stanford’s Department of Infectious Disease, Holodniy was simultaneously employed as a visiting researcher at Cetus Corporation, a Berkeley biotechnology firm acquired by Roche in 1991. His work exposed him to a DNA amplification technology called polymerase chain reactions (PCR) that was invented at Cetus in the early 1980s.

As a condition of his employment, Holodniy signed a “Visitors Confidentiality Agreement” with Cetus in 1989, requiring him to assign the rights to Cetus to any intellectual property that arose from technology he used at Cetus.

The year before, as an employee of the University, Holodniy was required to sign a “Copyright and Patent Agreement” assigning the rights to his inventions to Stanford.

Stanford earned $65.1 million in royalties from 517 licensing agreements in fiscal year 2008-2009, according to the Office of Technology Licensing (OTL). Among those agreements, 39 brought in more than $100,000. But that income is a relatively small percentage of last year’s $1.13 billion sponsored research budget.

Stanford’s patent policy dictates that the titles to all inventions developed at the University, regardless of their funding source, be assigned to the University. Stanford deducts 15 percent of all royalties to cover the OTL’s administrative costs and the patent’s filing fees, after which income is divided evenly between the inventor, the inventor’s department and the inventor’s school.

The University has not made any policy changes in response to the case, said senior University counsel Patrick Dunkley.

Taking Sides on Bayh-Dole

Provost John Etchemendy Ph.D. ’82 defended the Bayh-Dole Act at the Nov. 5 Faculty Senate meeting, adding that the University itself is not worried about income from royalties, but that “it’s really worrying about income to the department and the faculty member, and [the University is] very, very worried about the principle.”

The Obama administration showed support for Stanford with an October amicus brief filed by acting solicitor general Neal Katyal. The brief argues that the appeals court’s decision “upend[s] the Bayh-Dole Act’s hierarchy of rights” and urges the Supreme Court to “correct the court of appeals’ serious misunderstanding of the Bayh-Dole Act’s framework” for patent ownership.

A host of universities and education organizations, including the Massachusetts Institute of Technology, the American Association of Universities and the Wisconsin Alumni Association, have also filed briefs supporting Stanford.

Lawyers for Roche said in a brief that a ruling in Stanford’s favor would harm collaboration between industry and nonprofits like universities.

“The government, like Stanford, appears to believe that discoveries conceived on the back of private investment may be snatched away retroactively if a university…decides to incorporate them into federally-funded project,” they wrote.

Adrian Pruetz, an attorney defending Roche, would not comment on pending litigation.

Law professor Mark Lemley, an expert in intellectual property law, declined to comment on the case, adding that he has “an employer on one side [of the case] and a client on another.”

The most recent ruling by the Federal Circuit Court held that the patents were assigned to Holodniy before the University, and therefore the Cetus agreement gave Stanford and Roche dual ownership rights.

“Ultimately, the Federal Circuit’s opinion turns on its head one of the Bayh-Dole Act’s principal objectives — establishing a uniform and clear path for establishing title to inventions arising from federally funded research at universities,” said Stanford in the petitioner’s reply brief.

The University will file its first brief in the case itself Dec. 16. Dunkley expects the Court will hear the case in March of next year.

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