Thursday, October 01, 2009

Stanford takes a hit at the CAFC in Roche HIV matter

The bad news for Stanford University appeared early in the CAFC decision:

because the district court incorrectly declined to consider Roche’s affirmative defense
based on ownership, and because we conclude as a matter of law that Roche possesses an ownership interest in
the patents-in-suit that deprives Stanford of standing, we vacate the district court’s
judgment of invalidity and remand with instructions to dismiss Stanford’s action.

The subject matter of the patents: The claimed methods use the polymerase chain
reaction (“PCR”) to measure ribonucleic acid (“RNA”) from HIV in the blood plasma of
infected humans who are taking drugs such as zidovudine (AZT).

The issue in the case related to obligations to assign patent rights:

The technology related to the patents-in-suit was developed in the late 1980s
and early 1990s by researchers at Stanford and Cetus, a company where PCR
techniques matured in the early 1980s. The collaborations between Stanford and Cetus
included a series of written agreements. In 1988, Holodniy joined Merigan’s laboratory
at Stanford as a Research Fellow in the Department of Infectious Disease, and signed a
“Copyright and Patent Agreement” (“CPA”) that obligated Holodniy to assign his
inventions to the university. J.A. 741-47. Holodniy had no prior experience with PCR
techniques. In February 1989, Holodniy began regular visits to Cetus over several
months to learn PCR and to develop a PCR-based assay for HIV. Holodniy signed a
Visitor’s Confidentiality Agreement” (“VCA”) with Cetus. Id. 1657-58. The VCA stated
that Holodniy “will assign and do[es] hereby assign to CETUS, my right, title, and
interest in each of the ideas, inventions and improvements” that Holodniy may devise
“as a consequence of” his work at Cetus.

Roche purchased the PCR business of Cetus, and obtained its rights:

In December 1991, Roche purchased Cetus’s “PCR business,” including its
agreements with Stanford and its researchers, through an “Asset Purchase Agreement.”
Id. 3122, 3153-54. After this transaction, Roche began manufacturing HIV detection kits
employing RNA assays. In May 1992, Stanford filed the patent application to which the
patents-in-suit claim priority. The ’730 patent issued on October 19, 1999; the ’705
patent on January 7, 2003; and the ’041 patent on October 31, 2006, after this lawsuit
began. Stanford is the named assignee of all three patents.

Stanford offered Roche a license:

On April 6, 2000, Luis Mejia, a Senior Licensing Associate at Stanford, offered a
slide presentation at Roche that asserted Stanford’s ownership of the HIV RNA assay
invention and offered Roche an exclusive license to all patents descending from the
parent application. J.A. 1201-18; Contract Op. at 1110. E-mail correspondence shows
that as late as spring of 2004, Mejia and his Roche counterpart were negotiating
possible license terms and contesting Roche’s ownership rights in the patents. See
Contract Op. at 1113.

At the trial level, the district court found all asserted claims of Stanford obvious, but otherwise did not
agree with Roche's defenses. The CAFC changed this.

Roche had claimed to own an interest in the patents in question. Before the district court, Roche sought both to defeat Stanford’s suit based on Stanford’s alleged defective title and to obtain a judgment that it owned Holodniy’s
interest in the patents.

On who owns patent rights:

“[T]he question of who owns the patent rights and on what terms typically is a
question exclusively for state courts.” Jim Arnold Corp. v. Hydrotech Sys., 109 F.3d
1567, 1572 (Fed. Cir. 1997); see also MyMail, Ltd. v. Am. Online, Inc., 476 F.3d 1372,
1376 (Fed. Cir. 2007). However, this rule has exceptions: the question of whether
contractual language effects a present assignment of patent rights, or an agreement to
assign rights in the future, is resolved by Federal Circuit law. “Although state law
governs the interpretation of contracts generally, the question of whether a patent
assignment clause creates an automatic assignment or merely an obligation to assign is
intimately bound up with the question of standing in patent cases. We have accordingly
treated it as a matter of federal law.” DDB Techs., L.L.C. v. MLB Advanced Media, L.P.,
517 F.3d 1284, 1290 (Fed. Cir. 2008) (citations omitted).

An agreement to assign is NOT an automatic assignment:

We have held that the contract language “agree to assign” reflects a mere
promise to assign rights in the future, not an immediate transfer of expectant interests.
IpVenture, Inc. v. Prostar Computer, Inc., 503 F.3d 1324, 1327 (Fed. Cir. 2007)
(interpreting “agree to assign” as “an agreement to assign,” requiring a subsequent
written instrument); see also Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1580-81
(Fed. Cir. 1991) (holding that “will be assigned” does not create “a present assignment
of an expectant interest”).

The punchline was that Stanford's agreement did not accomplish much: Stanford did not
immediately gain title to Holodniy’s inventions as a result of the CPA, nor at the time the
inventions were created.

The Cetus agreement did accomplish the objective:

Next, when initiating his visits to Cetus, Holodniy signed the VCA on February 14, 1989.
Paragraph 3 of the VCA recites: “I will assign and do hereby assign to
CETUS, my right, title, and interest in each of the ideas, inventions and improvements.”
J.A. 1658 (emphasis added). In contrast to the CPA, the VCA’s language of “do hereby
assign” effected a present assignment of Holodniy’s future inventions to Cetus. E.g.,
Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000) (interpreting “shall
belong” as a present assignment); FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568,
1572-73 (Fed. Cir. 1991). Therefore, Cetus immediately gained equitable title to
Holodniy’s inventions.

Because Cetus had the better agreement, Cetus (and later Roche) had the upper hand:

However, because Cetus’s legal
title vested first, Holodniy no longer retained his rights, negating his subsequent
assignment to Stanford during patent prosecution.

The bottom line:

Thus, the chain of title to Holodniy’s rights leads to Roche, leaving Stanford with
defective title to the rights of all the inventors.

Stanford unsuccessfully invoked the Bayh-Dole Act:

The district court noted, however, that under 35 U.S.C. § 202(d), Holodniy, as an inventor, could keep
title to his inventions only “[i]f a contractor does not elect to retain title to a subject
invention.” On appeal, Stanford insists that Holodniy’s rights were “contingent” upon his
CPA obligations to assign them to Stanford, and that Stanford’s election of title in 1995
gave it all patent rights.

We are unconvinced of Stanford’s interpretation of the Bayh-Dole Act in this
case. Stanford identifies no authorities or reasons why its election of title under Bayh-
Dole had the power to void any prior, otherwise valid assignments of patent rights.

The CAFC invoked the Fenn case:

Regardless of any state law contractual obligations between an academic and
his university, “the primary purpose of the Bayh-Dole Act is to regulate relationships of
small business and nonprofit grantees with the Government, not between grantees and
the inventors who work for them.” Fenn v. Yale Univ., 393 F. Supp. 2d 133, 141-42 (D.
Conn. 2004). Therefore, in this case, the Bayh-Dole statutory scheme did not
automatically void the patent rights that Cetus received from Holodniy.

Stanford unsuccessfully invoked California's rules on non-compete clauses,
Cal. Bus. & Prof. Code § 16600 (2009): Stanford provides no evidence that the VCA restrained
Holodniy from engaging in any profession. Indeed, the record shows that Holodniy
freely continued his HIV research at Stanford, publishing articles and using the
knowledge he obtained from Cetus to further the science behind the patents-in-suit.
Nor does Stanford explain how Holodniy’s assignment of his rights to Cetus prohibited
Holodniy from using any public information in his later research.

The CAFC clarified a point in the DDB case:

Roche also claims that our holding in DDB Technologies., L.L.C. v. MLB
Advanced Media, L.P. precludes application of state statutes of limitation to patent
ownership claims. 517 F.3d 1284 (Fed. Cir. 2008). In DDB, we determined that an
inventor’s contract with an employer was an “automatic assignment” of future patent
rights. Because the assignment was automatic, the plaintiff’s statute of limitations,
waiver, and estoppel challenges to the patent assignment had “no merit.” Id. at 1290.
However, we affirmed this result only because the district court held that Texas law
prevents an assignor from urging estoppel or waiver against an assignee. See DDB
Techs., L.L.C. v. MLB Advanced Media, L.P., 465 F. Supp. 2d 657, 669 (W.D. Tex.
2006); see also Univ. of Tex. Med. Branch v. Allan, 777 S.W.2d 450, 453 (Ct. App. Tex.
1989). In the present case, Roche has not identified, nor can we find, any similar rule
under California law.

As to the standing matter, the CAFC did NOT cite the Lucent case, although it could

It is well settled that “all co-owners normally must join as plaintiffs in an infringement
suit.” Int’l Nutrition Co. v. Horphag Research Ltd., 257 F.3d 1324, 1331 (Fed. Cir. 2001)
(finding lack of standing where defendant co-owner did not voluntarily join); see also Isr.
Bio-Eng’g Project v. Amgen Inc., 475 F.3d 1256, 1264-65 (Fed. Cir. 2007) (“Absent the
voluntary joinder of all co-owners of a patent, a co-owner acting alone will lack
standing.”); Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1467 (Fed. Cir. 1998)
(“An action for infringement must join as plaintiffs all co-owners.”).

Stanford's lack of standing basically nullified the outcome of the previous district court proceeding.
Stanford cannot establish ownership of Holodniy’s interest and lacks standing to assert
its claims of infringement against Roche. Thus, the district court lacked jurisdiction over
Stanford’s infringement claim and should not have addressed the validity of the patents.
See Morrow v. Microsoft Corp., 499 F.3d 1332, 1344 (Fed. Cir. 2007).

***Of the Lucent case, from LBE's article in JMRIPL:

Although the Bell Labs of the 1940’s did not collaborate with many other private
entities, the Bell Labs of the 1980’s did collaborate, and therein gave us a lesson
about joint development agreements (“JDA”)
from the case Lucent Technologies, Inc.
v. Gateway, Inc.62 In 1988, AT&T/Bell Labs entered into a JDA with Fraunhofer
Gesellschaft in the area of digital compression, a technology later used in mp3
technology.63 One scientist of Fraunhofer, Karlheinz Brandenburg, went to work at
AT&T, a situation not uncommon in JDAs.64 There was later litigation between
Lucent and Microsoft, to whom Fraunhofer (but not Lucent) had granted a license.65

footnote 62: 543 F.3d 710 (Fed. Cir. 2008) (listing Gateway, Cowabunga, Dell, and Microsoft as defendants).

**Cross-reference to post on 271Blog Do Assignments Require Express Language to Cover CIP Patents? on the case
Gerber Scientific Int'l v. Satisloh AG, No. 3:07-CV-1382, (D. Conn., September 25, 2009, order)

**Comment to Patently-O on Oct. 2 (8:22am):

A comment likely cannot cover the issue but

1. The Stanford case holds that Stanford has no standing, an outcome related to the DDB case.
2. As to -- "Stanford would have won the case (at least the ownership issue) if it had written its employee agreement to automatically transfer rights upon creation of the invention." -- , would Stanford have won, or would Stanford merely have been a co-owner, in which case Stanford would not have won, anyway?
3. In the earlier Lucent/Microsoft case, one had a Fraunhofer scientist who went to Lucent under a JDA; in the Stanford case, one had a Stanford scientist going to Cetus more as a visitor, and look at what happened.

***On standing to sue of "exclusive" licensees of universities, from IPSpotlight-->

A recent case from the Northern District of Texas illustrates several issues that licensees should consider when licensing patents from universities and other research institutions. In Resonant Sensors Inc. v SRU Biosystems, Inc., No. 3:08-cv-1978-M, the University of Texas System Board of Regents issued an exclusive license to Resonant Optics Inc. (“ROI”) for the commercialization of two patents relating to a certain biosensor technology. ROI sued SRU Biosystems, Inc. for infringement of the patents, and in response SRU challenged ROI’s standing to bring suit without joining the Board of Regents as a plaintiff in the case.

In its opinion, the court first reviewed a substantial body of Federal Circuit caselaw holding that a patent licensee can sue others for infringement alone (i.e., without the patent holder) only if the license agreement transfers “all substantial rights” in the patent to the licensee. As examples, the court discussed prior cases where exclusive licenses were held not sufficient to support licensee standing. Those cases included situations where the license agreement (i) required the licensee to first obtain the patent holder’s consent to the litigation, or (ii) allowed the licensor to prevent renewal of the license agreement after a certain period of time.

In the ROI case, the court found that the exclusive license agreement was not sufficient to give ROI standing to sue under the patents. Elements of the agreement that the court found relevant to its decision were:

the Board of Regents retained the right to bring suit if the licensee (ROI) failed to do so within 6 months;
the Board of Regents retained rights to non-commercial, educational use of the patents;
the Board of Regents retained the right to terminate the license upon a determination that ROI had not sufficiently commercialized the patents, or upon ROI’s filing for bankruptcy;
the agreement only allowed ROI to grant sublicenses to those whose operations ROI controls; and
the Board of Regents owns all improvements relating to the patents.

See also post from docketreport.blogspot.


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