US moves closer to Australia on assignment of employee inventions:Bayh-Dole no saviour for government-funded research institutes

In the US, the Bayh-Dole Act of 1980 (“Act”) is considered by some to be the most “inspired” legislative enactment of the 20th century.  The provisions of the Act are few and (seemingly) straightforward.  Contractors — universities, national laboratories, teaching hospitals and the like — that enter into a research funding agreement with a US federal government agency are granted a right to ownership of any invention that is created in the course of the funded research.  In return, contractors must comply with a number of obligations, including making disclosure of the invention to the relevant federal agency, filing a patent application for the invention, granting a non-exclusive paid-up licence to the invention to the federal agency and giving preference to small business and US industry when commercialising the invention.

A recent decision by the US Supreme Court has reversed what was thought to be implicit in the operation of the Act.  The conventional wisdom was that, because of the Act, employees of a government-funded contractor automatically had the rights to their inventions assigned to their employer.  In Board of Trustees for Leland Stanford Junior University v Roche Molecular Systems, Inc (2011) 583 F 3d 832, the Court held that the Act does not override the fundamental principle of patent law that the rights of an invention belong to the inventor unless they are explicitly assigned to another.

In the late 1980s, Stanford was carrying out government-funded research relating to HIV.  A research fellow working on the project — Holodniy — “agreed to assign” all rights relating to inventions stemming from his work on the project to Stanford.  Some time later, Holodniy was seconded to work at a privately-owned research company — Cetus — that was collaborating with Stanford.  There, Holodniy agreed to “assign and do hereby assign” all rights in any relevant inventions.  Working with Cetus employees, Holodniy devised a procedure to measure the amount of HIV in a person’s blood.  Holodniy eventually returned to Stanford where the procedure was tested.  Stanford applied for and was granted a patent for the invention.  Roche — which had previously acquired the assets of Cetus — began to commercialise the procedure through HIV test kits.  Stanford sued for patent infringement.

In the court below, Holodniy’s assignment to Cetus was held to take priority over the earlier purported assignment to Stanford because of the very specific wording used.  This aspect of the decision was not appealed to the Court but was criticised in Breyer J’s dissenting judgment as making too much of “slight linguistic differences in the contractual language”.

Before the Court, Stanford argued that, quite apart from its agreement with Holodniy, all of Holodniy’s rights to the invention had automatically vested in Stanford by operation of the Act by reason of his employment with the university.  In short, Stanford’s position was that Holodniy’s assignment to Cetus was ineffective because at that point in time Holodniy had no rights to assign.

A majority of the Court disagreed.  The majority held that “nowhere in the Act is title expressly vested in the contractor or anyone else; nowhere in the Act are inventors expressly deprived of their interest in federally funded inventions”.  The majority also pointed to several provisions of the Act that it said confirmed this interpretation of the Act. 

The case highlights that:

  • US government-funded contractors have to ensure that they take assignment of rights to inventions from all employee inventors as this is not inherent in the operation of the Act;
  • US government-funded contractors need to be cautious about other assignment agreements an employee has entered into with third parties: priority rules will determine the exact nature of the contractor’s interest in the employee’s inventions vis-à-vis the employee and any third parties; and
  • entities (including Australian entities) entering into agreements with US government-funded contractors that touch on rights in inventions or patents (eg, licences) should consider negotiating a warranty to the effect that the contractor warrants that it is the owner of any relevant inventions and patents.

The case offers a good opportunity for a recap on the law in Australia.  There is no “Australian Bayh-Dole Act”.  Despite some calls for the enactment of an Australian equivalent to the Act, in 2007, the Productivity Commission in its Research Report on Public Support for Science and Innovation adopted a “cautious approach” and questioned whether the issues faced in the US at the time the Act was passed “apply as strongly to Australia” today. 

Importantly, the University of Western Australia v Gray [2009] FCAFC 116 (“UWA v Gray”) saga suggests that Australian research institutions, like their US counterparts, cannot rely on an automatic assignment to them of their staff’s inventions.  In UWA v Gray, the University of Western Australia argued that it was the owner of Dr Bruce Gray’s inventions because of an implied term in Gray’s employment contract requiring assignment to the University.  That argument was not successful before the Federal Court or the High Court: see our posts here and here.  In the course of hearing the University’s unsuccessful special leave application, Gummow J made the following perceptive observation: “On a practical level the lesson of this case may be [that] there is a need for express arrangements”.

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