THE PUBLIC IS PAYING TWICE:
HOW STANFORD V. ROCHE UNDERMINES THE
CONGRESSIONAL INTENT OF THE BAYH-DOLE ACT
ASHLIE DEPINET*
I. INTRODUCTION
An employee is hired as an inventor at “Soap Company.” She signs an
employment contract in which she agrees that any intellectual property she
may develop as part of her employment belongs to Soap Company.
During her working hours, she uses her employer’s facilities and supplies
to run tests. The testing results in a new type of soap that will
revolutionize the way Americans do laundry. The employee then presents
the newly-invented product to other companies to see if she can assign her
rights in the invention to the highest bidder.
In the private sector, this scenario is unimaginable. The employee was
hired to do a job that involved researching and inventing improved
products. She signed a contract that made it clear that her employer owned
her work-related inventions. The employer paid her for her time and
supplied an infrastructure that enabled her to create the product. She used
work time and equipment to develop the invention. The new soap belongs
to her employer,1 and she will be compensated as agreed upon at the time
of hiring.
The case in Board of Trustees of the Leland Stanford Junior University
v. Roche Molecular Systems, Inc. is similar, but more strongly in favor of
the public employer’s right to title because the product was invented with
the use of public funds. In the case, an inventor hired by the university
used university equipment and federal grant money to invent a valuable
method to test for Human Immunodeficiency Virus (HIV) levels in the
blood (hereinafter “the assay”).2 He also assigned his rights in the assay to
a small research company, Cetus, as a condition of conducting research at
Copyright © 2013, Ashlie Depinet.
*
Thank you to my Associate Note Editor, Katie Comella, and my expert, Professor
Floyd Weatherspoon, for all of your help and suggestions. Also, thank you to my friends
and family for their support and encouragement.
1
See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131
S. Ct. 2188, 2196–97 (2011) (“No one would claim that an autoworker who builds a car
while working in a factory owns that car.”).
2
Id. at 2192–93.
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Cetus; Roche Molecular Systems acquired Cetus’s assets related to the
research a few years later.3 While the district court held that the rights to
the invention belonged to the employer university, the Supreme Court of
the United States agreed with the Court of Appeals for the Federal Circuit
that Roche had the right to title.4 The Supreme Court’s holding was based
on specific wording in the employment contract the researcher signed at
Stanford and the Visitor’s Confidentiality Agreement he signed for Cetus.5
This completely circumvented the university’s right to the invention in
spite of the Bayh-Dole Act, a federal law that directly favors university
rights in such cases.
The point of this Comment is not to argue that sophisticated research
universities are being cheated out of their money. Universities will, and
likely have, moved quickly to revise their employment contracts and
technology commercialization procedures to meet the strict wording
requirement noted in the Stanford decision.6 However, public entities will
risk losing the rights to intellectual property created under differentlyworded contracts in place prior to the Court’s holding. The decision will
likely discourage the beneficial collaborations between universities and
private industries that Congress supported when it passed the University
and Small Business Patent Procedures Act of 1980, commonly called “the
Bayh-Dole Act.”7 The decision will also discourage inventors from
developing useful intellectual property, due to potential problems arising
from state ethics laws and federal conflict of interest regulations. Private
investment in these activities will be actively discouraged because of
uncertainties about ownership of the inventions. The decision ultimately
puts a cloud on the ownership of inventions and will have a negative
impact on a society that looks to universities for research and inventions.
This Comment first lays out the background of Stanford v. Roche,8 the
underlying employment law regarding employee rights to inventions
3
Id. at 2193.
Id. at 2194, 2199.
5
Id. at 2194.
6
See, e.g., OFFICE OF THE EXEC. VICE CHANCELLOR & PROVOST, UNIV. OF CAL., S.F.,
STANFORD V. ROCHE AND THE UC PATENT ACKNOWLEDGEMENT (Nov. 10, 2011),
http://evcprovost.ucsf.edu/PAI.pdf (recommending an update to the University’s patent
acknowledgement language in the wake of the Stanford decision).
7
University and Small Business Patent Procedures Act of 1980, 35 U.S.C. §§ 200–212
(2006). See also Stanford, 131 S. Ct. at 2192 (noting both the official and common names
of the Act).
8
See discussion infra Part II.A.
4
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THE PUBLIC IS PAYING TWICE
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created during working time,9 and the cases in the Federal Circuit that led
to the ultimate decision by the Supreme Court.10 It then describes the
Court’s holding,11 how the holding undermines the congressional intent
behind the Bayh-Dole Act,12 and the effect the holding will have on
investigators under the Ohio Ethics Law and the National Institutes of
Health Conflict of Interest Regulations.13 Finally, this Comment addresses
proposals to aid public universities and their inventor employees to clarify
ownership rights under the new framework created by the Stanford
holding.14
II. BACKGROUND AND OVERVIEW
A. Background of Stanford v. Roche
In 1988, Stanford University hired Dr. Holodniy as a research fellow in
the Department of Infectious Diseases.15 He signed an employment
contract with Stanford, agreeing to assign his interest in any inventions
resulting from his employment to Stanford.16 Dr. Holodniy then began
conducting research at Cetus, a small pharmaceutical company that was
working on methods of quantifying blood-borne levels of HIV.17 He
signed a Visitor’s Confidentiality Agreement with Cetus, which stated that
he assigned any interest in his ideas, inventions, and improvements to the
company.18 This standard confidentiality agreement was the document that
the Supreme Court compared to the employment contract and which
ultimately allowed Cetus (Roche) to take title.19
Over the next several years, Stanford obtained written assignments of
rights from multiple Stanford employees who were involved in testing and
refining the HIV measurement technique.20 These agreements allowed
9
See discussion infra Part II.B.
See discussion infra Part II.C.
11
See discussion infra Part II.D.
12
See discussion infra Parts II.E, III.A.
13
See discussion infra Part III.B.
14
See discussion infra Part III.C.
15
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.
Ct. 2188, 2192 (2011).
16
Id.
17
Id. Roche acquired some of Cetus’s assets in 1991. Id. This Comment refers to the
company as “Cetus” for pre-1991 activities and as “Roche” for post-acquisition events.
18
Id.
19
See id. at 2199.
20
Id. at 2192.
10
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Stanford to use certain materials and information supplied by Cetus, and
the university filed several patent applications for the procedure.21
Dr. Holodniy created an integral component to an HIV detection
assay.22 His procedure allowed physicians to calculate the quantity of HIV
in their patients’ blood.23 This made it possible for physicians to determine
the impact of HIV therapy on individual patients.24
In 1991, Roche Molecular Systems acquired Cetus’s PCR-related
assets and began manufacturing the HIV detection kits using Dr.
Holodniy’s process.25 Stanford had received funding from the National
Institutes of Health (NIH) for HIV research and notified the NIH that it had
a nonexclusive, nontransferable, irrevocable license to use the patented
procedure.26 At that point, Dr. Holodniy was working with his colleagues
at Stanford to perfect the process.27 Stanford then notified the NIH that it
was electing to retain title to the invention, as required under the BayhDole Act,28 and Stanford obtained three patents for the procedure created
by Dr. Holodniy.29 At this point, neither Stanford nor Roche knew that the
other was claiming ownership of the invention.30
The reveal was inadvertent.31 In 2000, a technology licensing
associate from Stanford gave a presentation at Roche.32 The presentation
stated that Stanford owned the HIV detection assay.33 When Roche
disputed the ownership, Stanford brought suit in the Northern District of
California.34 The district court upheld Stanford’s right to title under the
21
Id.
Id.
23
Id.
24
Id.
25
Id.
26
Id. at 2193.
27
Id. at 2192.
28
Id. at 2193.
29
Id. at 2192.
30
See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,
583 F.3d 832, 838 (Fed. Cir. 2009), aff’d, 131 S. Ct. 2188 (2011) (noting that Roche began
manufacturing the kits while Stanford filed the patent application).
31
See id.
32
Id.
33
Id.
34
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 487 F.
Supp. 2d 1099 (N.D. Cal. 2007), mandamus denied sub nom. In re Roche Molecular Sys.,
Inc., 516 F.3d 1003 (Fed. Cir. 2008), aff’d, 583 F.3d 832 (Fed. Cir. 2009), aff’d, 131 S. Ct.
2188 (2011).
22
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Bayh-Dole Act.35 Roche appealed to the Federal Circuit, which vacated
that part of the district court’s holding.36 Stanford appealed to the Supreme
Court, which granted certiorari,37 and the decision was announced in June
of 2011.38
B. Employee Rights to Inventions and the Impact of Bayh-Dole
A general principle of patent law is that “[o]wnership springs from
invention.”39 In other words, the invention generally belongs to the person
who created it.40 However, this ownership is treated differently when there
is an employee/employer relationship and an employee created the
invention during the course of employment.41 Common law “shop rights”
have allowed employers to use, without charge, their employees’
inventions that were developed using the employer’s capital.42
Additionally, contract law allows employees to contract to their employers
all rights to inventions they create in the course of their employment.43
Congress sought to clarify ownership rights in federally funded
research and technology by passing the Bayh-Dole Act.44 The Bayh-Dole
Act was passed as a way to provide incentives to universities to market
inventions created by their employees.45 Congress’s stated intent for
passing the act was “to use the patent system to promote . . . the
commercialization and public availability of inventions made in the United
States . . . [to] protect the public against nonuse or unreasonable use of
inventions; and to minimize the costs of administering policies in this
area.”46
35
Id. at 1124.
Stanford, 583 F.3d at 836–37.
37
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.
Ct. 502 (2010).
38
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.
Ct. 2188 (2011).
39
Teets v. Chromalloy Gas Turbine Corp., 83 F.3d 403, 407 (Fed. Cir. 1996).
40
Id.
41
Id.
42
McElmurry v. Ark. Power & Light Co., 995 F.2d 1576, 1580 (Fed. Cir. 1993).
43
See Teets, 83 F.3d at 407.
44
See Lita Nelsen, Identifying, Evaluating, and Reporting Innovative Research
Developments at the University, in UNDERSTANDING BIOTECHNOLOGY LAW 25, 26 (Gale R.
Peterson ed., 1993).
45
See id. at 26–27.
46
35 U.S.C. § 200 (2006).
36
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Congress sought to achieve this goal by creating a “straightforward
and predictable ownership framework” as a way to encourage future
research and discovery.47 The idea was that universities would be more
willing to invest money in research because of their ownership interest, and
private industry would be more willing to work with universities when
there was little doubt as to the owner of the intellectual property.48
The Bayh-Dole Act provides the government the right to take title to
any intellectual property that was developed through the use of federal
funds.49 If the government refuses, the university is next in line to claim
the right to title. The inventor is free to assign the rights only after the
university also declines.50 The Bayh-Dole Act provides steps to ownership
for each party involved.51
To retain title to an invention, the university is required to follow the
steps outlined specifically in the Bayh-Dole Act.52 The procedure requires
that the funding agreement between the university and the government
state the procedures for retaining title.53 The university is then required to
disclose each patentable invention created as a result of the funding to the
federal funding agency within a reasonable time.54 To ultimately retain
title, the university must make a written election to retain title to the
invention within two years of disclosure to the funding agency.55
To this point, the Bayh-Dole Act seems to be working. Universities
have invested money into extensive licensing offices and hold numerous
patents.56
Additionally, the Association of University Technology
Managers (AUTM) was created in 1974 to address the single issue of how
That
to effectively commercialize federally funded inventions.57
organization has expanded into a network of “more than 350 universities,
47
Brief of the Nat’l Venture Capital Ass’n as Amicus Curiae in Support of Petitioner at
4, Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S. Ct.
2188 (2011) (No. 09-1159).
48
See id.
49
35 U.S.C. § 202(c).
50
Id. § 202(d).
51
See id. § 202.
52
See id.
53
Id. § 202(c).
54
Id. § 202(c)(1).
55
Id. § 202(c)(2).
56
See Nelsen, supra note 44.
57
See The Founding of SUPA/AUTM, AUTM, http://www.autm.net/The_Founding_of_
SUPA_AUTM/8118.htm (last visited Jan. 9, 2013).
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research institutions, teaching hospitals and government agencies” and
“hundreds of companies” to manage and license inventions that are a result
of academic and nonprofit research.58 By 2011, the AUTM organization
had 3,220 members.59
It is apparent from the commercialization efforts of many universities
and the large number of institutions and individuals involved in the
professional association that the Bayh-Dole framework is doing what
Congress intended. Specifically, universities are relying on their ability to
retain title to inventions created by their researchers with the use of federal
funds.60 Universities and their employees benefit from the ease of
interaction with private industry.61
The public also benefits from these types of relationships between
universities and industry.62 In fact, a study of university technology
licensing from 1996 to 2007 shows that this type of licensing contributed
as much as $187 billion to the U.S. Gross Domestic Product and as much
as $457 billion to gross industry output.63 The same study showed that at
least 279,000 new jobs were created in the United States because of
university-licensed products during that period.64 These figures indicate
that the passage of Bayh-Dole led to greater commercialization efforts on
the part of universities and a corresponding willingness of industry to
collaborate with these institutions.
This has ultimately benefited
universities, researchers, industry, and the economy as a whole. When
there are clear ownership frameworks, all involved parties are more willing
to invest.65 In the same way that the real property system depends on
58
Association of University Technology Managers (AUTM), MICH. ST. U. TECHS.,
http://www.technologies.msu.edu/resources/association-university-technology-managersautm (last visited Jan. 9, 2013).
59
E-mail from Narcisa Despoiu, Admin. Assistant, AUTM, to author (Jan. 10, 2012,
06:11 EST) (on file with author).
60
Bayh-Dole Act, AUTM, http://www.autm.net/Bayh_Dole_Act1.htm (last visited Jan.
9, 2013).
61
See DAVID ROESSNER ET AL., THE ECONOMIC IMPACT OF LICENSED COMMERCIALIZED
INVENTIONS ORIGINATING IN UNIVERSITY RESEARCH, 1996–2007, at 7–8 (Sept. 3, 2009),
http://www.bio.org/sites/default/files/BIO_final_report_9_3_09_rev_2_0.pdf.
62
See id.
63
Id.
64
Id. at 8.
65
See WENDY H. SCHACHT, CONG. RES. SERVICE, THE BAYH-DOLE ACT: SELECTED
ISSUES IN PATENT POLICY AND THE COMMERCIALIZATION OF TECHNOLOGY 13 (Mar. 16,
2012), available at http://www.autm.net/Bayh_Dole_Act_Report.htm.
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recording statutes to ensure orderly transfer of property, the system for
university commercialization depends on clear ownership pathways for
inventions that university employees create in collaboration with private
industry and federal funds.
C. Cases in the Federal Circuit Prior to Bayh-Dole
The Supreme Court’s emphasis on exact wording in the contract in
Stanford was foreshadowed by the Federal Circuit’s holding in FilmTec
Corp. v. Allied Signal Inc.66 In that case, the inventor worked at the North
Star Division of Midwest Research Institute (MRI) under a federal grant.67
His research was on the ability of a reverse osmosis membrane to “reduce
the concentration of solute molecules and ions in solution.”68 The contract
the inventor signed with the Government stated that he “agrees to and does
hereby grant to the Government the full and entire domestic right, title and
interest in” any invention created under the contract.69 The inventor later
left the research institute and formed FilmTec with four other individuals,
who also previously held positions at MRI.70 Around the same time, the
inventor submitted a patent on the technology related to the reverse
osmosis technique.71 The inventor claimed that he developed this
invention one month after leaving MRI, but Allied disputed this claim, as it
was essentially the same technology being researched under the federal
grant.72 The trial court did not decide this issue and simply found that the
Government held only equitable title to the invention.73
On appeal, the Federal Circuit remanded the case to the trial court to
determine who had title to the invention and the patent.74 The court
focused on the present-tense wording in the contract, which indicated that
the inventor had assigned all of his rights to MRI and thus had nothing to
assign to FilmTec.75
66
939 F.2d 1568 (Fed. Cir. 1991).
Id. at 1570.
68
Id. at 1569–70.
69
Id. at 1570.
70
Id.
71
Id.
72
Id.
73
Id.
74
Id. at 1569.
75
See id. at 1571–72.
67
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Several years later, the Federal Circuit decided Central Admixture
Pharmacy Services, Inc. v. Advanced Cardiac Solutions, P.C.76 In that
case, the inventor was employed by the University of California.77 During
his employment, he received a grant from the National Institutes of Health
(NIH) and developed a solution to keep patients’ hearts nourished during
cardiovascular surgery.78 When he developed the solution, the University
of California informed the NIH that the university was abandoning its
interest in the patent application.79 The inventor requested permission to
pursue the patent application outside of his employment capacity.80
However, the inventor failed to execute the license to the NIH, meaning
that he was no longer in compliance with the standards set out by BayhDole.81 The court cited to an earlier case, Campbell Plastics, and noted
that a Bayh-Dole violation grants the government “discretionary authority”
to take title to the invention.82 Essentially, when an inventor violates the
standard set out in Bayh-Dole, the previously-valid patent might be
voidable if the government chooses to take action.83 The Federal Circuit,
however, emphasized that this right is discretionary; if the government
does not choose to pursue this option, then the inventor can retain title to
the invention.84 This case helped develop the idea that even if the inventor
does not fully comply with Bayh-Dole, the government does not have an
automatic right to take title, but it can choose to take action to invoke
forfeiture.85
This decision further weakened the impact of the very direct and
straightforward steps of the Bayh-Dole Act. The Act was passed to
provide a clear ownership framework,86 but this decision showed the
Federal Circuit’s willingness to add caveats to the clear ownership process.
The court’s holdings in FilmTec and Central Admixture helped to put
76
482 F.3d 1347 (Fed. Cir. 2007).
Id. at 1351.
78
Id. at 1349, 1351.
79
Id. at 1351.
80
Id.
81
Id. at 1351 n.3.
82
Id. at 1352 (citing Campbell Plastics Eng’g & Mfg., Inc. v. Brownlee, 389 F.3d 1243
(Fed. Cir. 2004)).
83
Central Admixture, 482 F.3d at 1352.
84
Id. at 1352–53.
85
Id.
86
35 U.S.C. § 200 (2006).
77
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cracks in the steps to ownership set out in the Bayh-Dole Act.87 Now,
rather than being assured ownership by following the timeline and
procedures described in the Act, universities also needed to be concerned
about the specific wording in their employment contracts, which is not
mentioned in the Bayh-Dole Act.88 Additionally, the decisions weakened a
central tenant of the Bayh-Dole Act: the ability of the government to step
in and take title to federally-funded inventions.89
D. Supreme Court Holding in Stanford v. Roche and the Bayh-Dole Act
The June 2011 Supreme Court holding in Stanford is a departure from
pre-FilmTec interpretation of the Bayh-Dole Act and is ultimately
inconsistent with Congress’s reasoning for passing the Act.90 In Stanford,
the district court held that Stanford was next in line for title after the
government, as outlined by Bayh-Dole.91 Because Stanford properly
exercised its right under Bayh-Dole, first by its employment contract and
second by filing invention disclosures with the NIH when the assay was
invented, Stanford was the owner of the assay that was invented using
federal funds.92 Therefore, according to the district court, the inventor had
no interest to assign to Cetus.93
The district court’s holding was consistent with the basic purpose for
enacting Bayh-Dole. It provides a clear framework by vesting ownership
in the university, as long as the university follows the rules outlined in the
Act.94 This gives the university an incentive to invest in research and
87
See Central Admixture, 482 F.3d at 1352–53 (requiring that the government take
affirmative action to take title to an invention and invoke forfeiture); FilmTec Corp. v.
Allied-Signal Inc., 939 F.2d 1568, 1569 (Fed. Cir. 1991) (holding that the record was not
clear on who had title to the invention).
88
See 35 U.S.C. § 202 (listing procedures for nonprofit organizations and small
businesses to follow but excluding any mention of specific language required in
employment contracts).
89
See id. § 202(d).
90
See id. § 200 (“It is the policy and objective of the Congress to use the patent system
to promote . . . the commercialization and public availability of inventions made in the
United States . . . and protect the public against nonuse or unreasonable use of inventions;
and to minimize the costs of administering policies in this area.”).
91
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc, 487 F.
Supp. 2d 1099, 1118–19 (N.D. Cal. 2007), aff’d, 583 F.3d 832 (Fed. Cir. 2009), aff’d, 131
S. Ct. 2188 (2011).
92
Id. at 1119.
93
Id. at 1119–20.
94
See 35 U.S.C. § 202(a).
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commercialization.95 It also gives outside companies an incentive to work
toward commercialization because they know that the university holds title
to the invention and has systems in place to license the rights to the
invention.96
The Federal Circuit reversed the district court’s holding based on a
minor wording difference in the documents the inventor signed at Stanford
and at Cetus.97 The Supreme Court affirmed the Federal Circuit’s
holding.98 When the inventor was hired by Stanford, he signed an
employment contract stating that he agreed to assign his rights and title to
future inventions to Stanford.99 He had not invented anything before he
began his employment at the university.100 During his employment at
Stanford, the inventor began a relationship with Cetus; Roche acquired
Cetus’s PCR-related assets in 1991.101 When he began visiting Cetus, he
signed a Visitor’s Confidentiality Agreement stating that he assigned rights
to future inventions to Cetus.102 The Court said this language made a
present assignment of rights to Cetus, whereas the employment contract
was a promise to assign rights in the future.103 By the time the assays were
invented and Stanford filed its invention disclosure, the inventor had
already assigned rights to the invention to Cetus through the Visitor’s
Confidentiality Agreement he signed before even beginning his consulting
work at Cetus.104
The dissent rightfully disagreed, stating that the majority’s reasoning,
based on slight wording differences, made “too much of too little.”105 The
dissent argued that the majority’s holding would allow inventors to use
public funds while being free from the restrictions of the Bayh-Dole Act,
and that it would make it less clear who actually owns the property.106 As
95
See Brief of the Nat’l Venture Capital Ass’n, supra note 47, at 4–8.
Id.
97
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583
F.3d 832, 841–42 (Fed. Cir. 2009), aff’d, 131 S. Ct. 2188 (2011).
98
Stanford, 131 S. Ct. at 2199.
99
Id. at 2192.
100
See id. (stating that Holodniy was hired by Stanford and then “undertook to develop
an improved method for quantifying HIV levels in blood samples”).
101
Id.
102
Id.
103
Id. at 2194.
104
See id. at 2193–94.
105
Id. at 2202–03 (Breyer, J., dissenting).
106
Id. at 2201–02.
96
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a result, the goal of clarity in ownership has been bypassed in favor of
technical wording requirements in employment contracts and
confidentiality agreements.107 This will have far-reaching effects on
university technology commercialization and will ultimately discourage
the type of novel research anticipated by Bayh-Dole.
Additionally, as the appellate court noted, “‘the primary purpose of the
Bayh-Dole Act is to regulate relationships of small businesses and
nonprofit grantees with the Government, not between grantees and the
inventors who work for them,’”108 indicating that the Act was not intended
to have an impact on the relationship between universities and private
business. However, Congress’s stated intent for passing the Bayh-Dole
Act was to “promote the utilization of inventions arising from federally
supported research . . . [and] to promote collaboration between commercial
concerns and nonprofit organizations . . . .”109 The appellate court’s
statement to the contrary and the Supreme Court’s affirmation of the
appellate court’s ruling further indicate that the Court may be moving in a
new direction in regard to interpreting the Bayh-Dole Act.
This judicial uncertainty will also hinder the relationships between
universities and private entities that have helped to foster technological
commercialization since Bayh-Dole was enacted. If a private company
wants to invest in technology commercialization at a university, that
company will want to know that the university is the true owner of the
technology.110 If not, the company could face legal challenges from other
private companies or even from the university itself. Congress enacted
Bayh-Dole to clarify these relationships and to give private companies and
universities confidence in how ownership of university-created technology
was to be decided.111
E. Interaction of the Federal Conflict of Interest Regulations and the Ohio
Ethics Law
Any investigator who receives funding from the NIH is bound by
federal Conflict of Interest Regulations.112 In the past year, stricter
107
See id. at 2203.
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 583
F.3d 832, 845 (Fed. Cir. 2009) (quoting Fenn v. Yale Univ., 393 F. Supp. 2d 133, 141–42
(D. Conn. 2004)).
109
35 U.S.C. § 200 (2006) (emphasis added).
110
See Brief of the Nat’l Venture Capital Ass’n, supra note 47, at 6.
111
35 U.S.C. § 200.
112
See 42 C.F.R. § 50.602 (2011).
108
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regulations have been enacted, and the compliance date for institutions
applying for or receiving PHS funding was August 24, 2012.113 These
regulations spell out what constitutes a significant financial interest for
investigators and note that any investigator doing research sponsored by
the company in any way, who also has a significant financial conflict of
interest, must have the conflict managed, eliminated, or reduced.114 Due to
recent high profile conflict of interest issues,115 the NIH regulations are
stricter than previous enactments, and the amount of money considered
“significant” has decreased from $10,000 to $5,000.116 Additionally, many
institutions have adopted the Association of American Medical College
and Association of American Universities’ recommendations found in the
associations’ reports, which indicate that there is a rebuttable presumption
that any investigator who has a significant financial interest in an entity
should be barred from serving as principal investigator on any human
subjects research sponsored by the company in any way.117 For example, if
Dr. Holodniy wanted to remain employed at Stanford and do research on
the HIV assay he created, he would not be permitted to serve as the
principal investigator if the project involved the use of human subjects and
was funded by a federal grant.118
Not only do the new regulations signal a tighter federal reign on
individuals who use public money for research, but also they place
significantly higher requirements on investigators who collaborate with
and consult for industry.119 However, the Court’s holding in Stanford may
take away an important option that investigators currently use to
commercialize inventions, make royalties, and remain eligible to lead
113
76 Fed. Reg. 53,256 (Apr. 25, 2011) (to be codified at 42 C.F.R. pt. 50, 45 C.F.R. pt.
94).
114
42 C.F.R. §§ 50.603(1), 50.605(a).
See, e.g., Barry Meier, 2nd Medtronic Consultant Draws Senate’s Scrutiny, N.Y.
TIMES, July 29, 2009, at B2 (discussing a doctor who urged members of a Senate panel to
continue paying for certain medical research but failed to disclose he was a consultant for
the medical device maker being paid for his appearance).
116
Compare 42 C.F.R. § 50.603(1)(i) (2011) (stating that a significant financial interest
exists if the value of remuneration received exceeds $5,000), with 42 C.F.R. § 50.603(6)
(2010) (stating that salary, royalties, or other payments are not to exceed $10,000).
117
ASS’N OF AM. MED. COLLS. & ASS’N OF AM. UNIVS., PROTECTING PATIENTS,
PRESERVING INTEGRITY, ADVANCING HEALTH: ACCELERATING THE IMPLEMENTATION OF COI
POLICIES IN HUMAN SUBJECTS RESEARCH 2, 6, 15 (Feb. 2008).
118
See id. at 7, 15.
119
See 42 C.F.R. § 50.603 (2011).
115
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research in their areas of interest: when the intellectual property is owned
by the university employer, the royalties the investigator receives are from
the university. Even the updated regulations exclude royalty payments to
the investigator from his or her university employer for commercialized
technology.120 In contrast, any amount of royalties paid to a researcher
from a commercial entity would be factored into their financial conflict of
interest and thus would preclude the researcher from certain research roles
involving the commercial entity.121
There is an additional potential problem for faculty and staff at public
universities in Ohio. The Ohio Ethics Law is fairly stringent and broadly
applied.122 Any public employee is considered a public official subject to
the law.123 Thus, all employees at the state’s public universities are
considered public officials and as such are bound by the Ohio Ethics
Law.124 Additionally, the laws apply to the employees, not to the
university,125 so penalties associated with breaking the laws are borne by
the employee. Unlike the federal Conflict of Interest Regulations, in which
a financial conflict can be managed and is considered “significant” only if
it is more than $5,000, the Ethics Law has no de minimis amount, and
there is no option for management.126 Any amount of financial interest in
an outside entity that could exert an improper influence on the employee’s
duties, no matter the dollar amount, could be criminally sanctioned under
the Ohio Ethics Law.127
The most relevant provision of the Ohio Ethics Law for the purposes
of this discussion forbids public officials from using the influence of their
employment to secure something of value that is likely to exert “substantial
and improper influence” upon the employees in the performance of their
duties.128 The laws define “anything of value” as money and every other
120
Id. § 50.603(3).
Id. § 50.603(1).
122
See OHIO REV. CODE ANN. § 2921.01(A) (West Supp. 2012).
123
State v. Lozano, 740 N.E.2d 273, 276 (Ohio 2001).
124
See § 2921.01(A).
125
See id.
126
Compare 42 C.F.R. § 50.603(1)(i) (stating that a significant financial interest exists
if the value of remuneration received exceeds $5,000), and 42 C.F.R. § 50.605(a)
(discussing the management of financial conflicts of interest), with OHIO REV. CODE ANN
§§ 102.03(D), 2921.01(G) (declining to state a specific amount of remuneration or any
requirement for management).
127
See OHIO REV. CODE ANN. § 102.03(D).
128
Id.
121
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thing of value, which would include royalty payments from an external
company.129 The Ohio Ethics Commission has not issued an advisory
opinion that deals directly with the issue of inventor compensation, but it
has held that engaging in business activity is a “thing of value” under
section 102.03.130 The Ethics Commission has also generally held that the
compensation received by a public employee from engaging in private
business activity is a thing of value and of such a character as to manifest
substantial and improper influence on the employee.131
In an advisory opinion, the Ohio Ethics Commission noted that public
employees may engage in private business activities but may not use
public resources in their private business.132 Public employees are also
prohibited from using the authority of their office or employment to benefit
their private business.133 The prohibition on use of public resources
includes using public “facilities, personnel, or resources” while engaging
in private employment.134 This indicates that public employees in Ohio are
prohibited from using public facilities, such as office and laboratory space
provided by a university employer, and from using public funds, such as a
federal research grant, to engage in private business.135
The holding in Stanford allowed the inventor to use the infrastructure
of Stanford to obtain federal funding to research the assay using Stanford
facilities.136 The inventor was then able to assign the rights to his invention
to Cetus, which commercialized the assay.137 The HIV detection kit is now
129
Id. § 102.03(G); id. § 1.03 (West 2004).
See, e.g., Advisory Op. No. 92-005, at 11 (Ohio Ethics Comm’n Mar. 6, 1992),
http://www.ethics.ohio.gov/opinions/92-005.pdf; Advisory Op. No. 89-010, at 7 (Ohio
Ethics Comm’n Oct. 18, 1989), http://www.ethics.ohio.gov/opinions/89-010.pdf; Advisory
Op. No. 79-002, at 2 (Ohio Ethics Comm’n May 17, 1979), http://www.ethics.ohio.gov/
opinions/79-002.pdf.
131
See Advisory Op. No. 96-004, at 10 (Ohio Ethics Comm’n Nov. 15, 1996),
http://www.ethics.ohio.gov/opinions/96-004.pdf.
132
Id. at 5–6.
133
See id. at 6.
134
Id. at 5.
135
See id.
136
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.
Ct. 2188, 2192–93 (2011).
137
Id. at 2192.
130
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widely used around the world.138 Roche acquired Cetus’s PCR-related
assets and then commercialized the procedure.139
For employees at Ohio public universities, this action could be held to
violate the state’s Theft in Office statute, for which there are criminal
penalties.140 The Ethics Commission has noted that public agencies
provide resources to their officials and employees for the performance of
their assigned “tasks and not for the official’s or employee’s personal
financial gain or benefit.”141 The Commission has further stated that public
officials may not perform their duties in a manner that enables them to
realize “personal financial gain.”142 Because the Supreme Court held that
the ownership of inventions created using federal funds depends less on the
Bayh-Dole Act and more on the wording of the contracts the investigator
signs,143 an investigator could have inadvertently assigned some of the
rights to his or her inventions to industry. This permits public officials to
realize personal gain from their inventions in the form of royalty payments
from private companies that are not their public university employers.
The general public most likely does not know the type of infrastructure
required to obtain federal funding for research. This type of infrastructure
is necessary to help improve the chances of obtaining competitive federal
grants for a university’s employees.144 Universities have elaborate systems
in place that allow investigators to submit proposals for funding and carry
out their research in ways that comply with federal regulations and state
laws.145 This includes compliance with Conflict of Interest Regulations,146
138
Id.
Id.
140
OHIO REV. CODE. ANN. § 2921.41(B) (West Supp. 2012) (“Whoever
violates . . . section 102.021, 102.03, 102.04, or 102.07 of the Revised Code is guilty of a
misdemeanor of the first degree.”).
141
Advisory Op. No. 96-004, supra note 131, at 5.
142
Id. at 5–6.
143
Stanford, 131 S. Ct. at 2199.
144
See, e.g., Grants Process Overview, U.S. DEP’T OF HEALTH & HUM. SERVICES,
http://grants.nih.gov/grants/grants_process.htm (last visited Jan. 12, 2013) (providing an
overview of the steps required to apply for and obtain NIH funding).
145
See, e.g., Office of Sponsored Programs, OHIO ST. U., http://osp.osu.edu/ (last visited
Jan. 12, 2013); Sponsored Research Services, U. CIN., http://srs.uc.edu/Home.aspx (last
visited Jan. 12, 2013); The University of Toledo Research Enterprise, U. TOL.,
http://www.utoledo.edu/research/forms.html (last visited Jan. 12, 2013).
146
42 C.F.R. §§ 50.601–50.607 (2011).
139
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745
time and effort reporting,147 and institutional review board requirements for
animal and human subjects research.148 There are also requirements
instituted by nonmandatory accreditation programs that cause the NIH to
look favorably upon the institution when considering funding
opportunities.149 All of the systems take considerable resources and
personnel to administer and represent a significant expenditure for
universities.150 The inventors would not have access to these resources if
they were not employees of the university. Thus, their employment at a
research university is a major reason they are able to win federal funding
for their research interests.
One way the university may offset those funds is to reserve the rights
to inventions that result from that infrastructure, which helps employees
obtain federal grants for research.151 In fact, universities are turning to
commercialization as a way to get through the current economic
downturn.152 This practice complies with the Ohio Ethics Law and
relevant federal Conflict of Interest Regulations, even though the
investigator continues to receive royalties from the invention.153 The
royalties are paid by the university and not by an outside company, so there
147
See, e.g., Time and Effort Reports, BAYLOR U., http://www.baylor.edu/research/osp/
index.php?id=34616 (last visited Jan. 12, 2013); Time & Effort Reporting, ILL. ST. U.,
http://comptroller.illinoisstate.edu/faculty/grants/TimeEffortReporting.shtml (last visited
Jan. 12, 2013).
148
45 C.F.R. § 46.101(a)(2) (2005).
149
See, e.g., Our Mission, Vision, and Values, ASS’N FOR ACCREDITATION HUM.
SUBJECTS RES. PROTECTION PROGRAMS, INC., http://www.aahrpp.org/learn/about-aahrpp/
our-mission (last visited Jan. 12, 2013).
150
See Nelsen, supra note 44, at 34–45.
151
See, e.g., Press Release, The Ohio State Univ., Ohio State Univ. Names
Commercialization Chief (Mar. 22, 2011), available at http://www.osu.edu/news/news
item3045; Entrepreneurial Affairs and Technology Commercialization, U. CIN. INTELL.
PROP. OFF., http://www.ipo.uc.edu/index.cfm?fuseaction=home.mission (last visited Jan.
12, 2013) (“The Office of Entrepreneurial Affairs and Technology Commercialization
serves as a key component in the overall strategy of the university to be a major player in
regional economic development initiatives, commercialization of its technologies and
education of the region’s workforce.”).
152
See Entrepreneurial Affairs Technology Commercialization, supra note 151.
153
See Advisory Op. No. 2003-03, at 7 (Ohio Ethics Comm’n Dec. 17, 2003), available
at http://www.ethics.ohio.gov/opinions/2003-03.html (“R.C. 2921.43(A) prohibits an
official or employee of a public college or university from accepting anything, including
gifts, entertainment, and travel, as compensation for the performance of her duties, from
any person or entity other than the college or university she serves.”).
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is no exertion of substantial and improper influence on the performance of
duties.154 The employer simply pays the inventor for work enabled by the
employment and federal grants.
Since the holding in Stanford, investigators have been free to benefit
from their positions at public universities, obtain federal funds for research,
and assign the rights to their inventions to outside entities.155 This could
lead to problems with the Ohio Ethics Law in a situation similar to the
following hypothetical.
A public university faculty member conducts research at a university
pursuant to institutional responsibilities and has a consulting agreement
with a pharmaceutical company, Pharma. If the faculty member conducts
research at the university under a grant from a public health service
funding entity and develops intellectual property (IP), the faculty member
may be able to assign rights in the invention to Pharma, depending on
whether the employment contract with the university, which may have
been signed years before, assigned a present or future interest in the as-yet
uncreated invention.
Practically speaking, the faculty member used the influence of
employment at Public University to secure the federal grant, which led to
the creation of the IP. Influence includes the university’s reputation and
administrative infrastructure (sponsored programs office, proper
accreditation standards, etc.) that enabled the faculty member to obtain the
grant in the first place.
In this way, the faculty member can use the employment to secure a
federal grant and facility for research, and then assign any rights to a
pharmaceutical company who will pay royalties directly to the faculty
member, the inventor. What will happen when the faculty member is then
asked to consult for the pharmaceutical company or if the pharmaceutical
company funds future research at the university? Even with the best of
intentions, the faculty member is not likely to report unfavorably on the
work the company is doing while continuing to collect paychecks.156 In
154
See 42 C.F.R. § 50.603(3) (2011) (explaining that the term significant financial
interest does not include the following types of financial interests: salary and royalties “paid
by the Institution to the Investigator if the Investigator is currently employed or otherwise
appointed by the Institution, including intellectual property rights assigned to the Institution
and agreements to share in royalties related to such rights . . . .”).
155
See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,
131 S. Ct. 2188, 2194, 2199 (2011).
156
See Meier, supra note 115 (providing an example of an actual scenario similar to the
hypothetical).
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this way, the faculty member used the position at the public university to
secure a grant, conduct research, create intellectual property, and assign it
to a private company. Receiving such royalties could exert a substantial
and improper influence on the faculty member’s future dealings with the
company, in violation of the Ohio Ethics Law.157
F. Significance
Through the Bayh-Dole Act, Congress established an infrastructure
and clear ownership framework to increase university and private industry
collaboration.158 Overall, the Act seems to be having its desired effect.159
However, to continue to increase university commercialization efforts and
achieve Congress’s intended goals, researchers, universities, and industry
need to continue working together to develop and commercialize new
technology.
Because of the Supreme Court’s holding in Stanford, universities will
be less likely to invest in research from which they will receive no benefit.
Companies will be less likely to license patents from universities whose
ownership is unclear. Researchers will be less likely to seek to
commercialize their inventions if there are penalties under the Ethics Law
and further consequences under federal Conflict of Interest Regulations.
Society will suffer if this type of collaboration becomes less frequent.
These types of collaborations improve economic conditions, and without
them, lifesaving inventions may linger in university labs.160
If both Cetus and Stanford were uncertain who owned Holodniy’s
invention, it is unlikely either would have invested in the research, and the
HIV testing assays would not be helping people all over the world.
III. ANALYSIS
A. The Congressional Purpose for Enacting the Bayh-Dole Act Does Not
Support the Supreme Court’s Holding in Stanford v. Roche
The passage of Bayh-Dole has been described as a milestone effort to
increase university competitiveness by increasing incentives for
universities to exploit intellectual property.161 Before the Act was passed,
157
OHIO REV. CODE. ANN. § 102.03 (West Supp. 2012).
See SCHACHT, supra note 65, at 1.
159
Id.
160
See Gerald Barnett, A Guide to the Bayh-Dole Act, RES. ENTERPRISE (Dec. 1, 2011),
http://rtei.org/blog/guide-to-bayh-dole/.
161
Nelsen, supra note 44, at 26.
158
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universities did not have effective systems for technology transfer, making
ownership rights unclear.162 As a result, companies were less likely to
collaborate with universities because they did not want to invest in
technologies the university may not actually own or that the investigator
may assign to another entity.163
Congress passed Bayh-Dole to clarify ownership rights in order to
promote collaboration between industry and nonprofits, including
universities.164 The ultimate goal was to “encourage ‘future research and
discovery.’”165
Groups, including the National Venture Capital
Association, warned that the Stanford decision would discourage industry
investment in beneficial inventions because ownership to the patents would
be murky.166
1. Under Bayh-Dole, Stanford Was Next in Line After the Government
to Claim Ownership of the Invention
Historically, patent law in the United States has developed around the
idea that an invention “presumptively belongs to its creator.”167
Additionally, that creator can assign or transfer ownership interest in the
patent in the same way as personal property.168
The enactment of the Bayh-Dole Act seemingly changed this
ownership pathway for inventions created with federal funds.169 The Act
allows the federal government and its contractors to retain title to any
federally funded invention, as long as the statutory procedures are
followed.170 Contractors include “any person, small business firm, or nonprofit organization that is party to a funding agreement.”171 The
162
Id.
Cf. 35 U.S.C. § 200 (2006) (listing Congress’s policy and objective in passing the
Bayh-Dole Act).
164
Brief for the United States as Amicus Curiae Supporting Petitioner at 5, Bd. of Trs.
of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S. Ct. 2188 (2011)
(No. 09-1159).
165
Id. (quoting 35 U.S.C. § 200).
166
Brief of the Nat’l Venture Capital Ass’n, supra note 47, at 4–5.
167
Israel Bio-Engineering Project v. Amgen Inc., 475 F.3d 1256, 1263 (Fed. Cir. 2007)
(quoting Teets v. Chromalloy Gas Turbine Corp., 83 F.3d 403, 407 (Fed. Cir. 1996)).
168
See 35 U.S.C. § 261.
169
See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,
131 S. Ct. 2188, 2200 (2011) (Breyer, J., dissenting).
170
35 U.S.C. § 202.
171
Id. § 201(c).
163
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contractors must: (1) disclose the invention to the federal agency within
reasonable time, (2) make an election in writing within two years after the
initial disclosure stating the contractor is opting to retain title, and (3) file a
patent application prior to any statutory bar date.172 If the contractor fails
to take these steps, the federal government can step in and take title or
grant the rights to the inventor.173
The district court’s decision was correct in that under Bayh-Dole,
Stanford was next in line after the federal government to take title to the
invention.”174 When the inventor assigned his rights in future inventions to
Cetus, he broke the chain of title required in Bayh-Dole.175 Because the
university exercised its right to title of the assays appropriately under
Bayh-Dole, the inventor had no interest to assign to Cetus.176
In its opinion, the Supreme Court stated, “The question here is whether
the University and Small Business Patent Procedures Act of 1980—
commonly referred to as the Bayh-Dole Act—displaces [the patent law]
norm and automatically vests title to federally funded inventions in federal
contractors. We hold that it does not.”177 The Supreme Court’s holding is
based on norms of patent law, which were superseded by the Bayh-Dole
Act.178 While Bayh-Dole sought to clarify ownership rights that were
murky under the common law179 and the subject matter in this case (an
invention created with the use of federal funds) clearly fell within the
guidelines of Bayh-Dole,180 the Supreme Court relied on common law to
find in favor of Roche.181
172
Id. § 202(c)(1)–(3).
Id. § 202(d).
174
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 487 F.
Supp. 2d 1099, 1119 (N.D. Cal. 2007), mandamus denied sub nom. In re Roche Molecular
Sys., Inc., 516 F.3d 1003 (Fed. Cir. 2008), aff’d, 583 F.3d 832 (Fed. Cir. 2009), aff’d, 131
S. Ct. 2188 (2011).
175
Id.
176
Id.
177
Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 131 S.
Ct. 2188, 2192 (2011).
178
Id. at 2202 (Breyer, J., dissenting).
179
Brief of the Nat’l Venture Capital Ass’n, supra note 47, at 4–5.
180
Stanford, 131 S. Ct. at 2193.
181
Id. at 2197–99.
173
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2. The Wording of an Employment Contract
The Supreme Court relied on minor wording differences in
employment contracts instead of the lines of ownership established in
Bayh-Dole.182 The inventor was bound to Cetus simply by signing a
standard Visitor’s Confidentiality Agreement.183
The holding is also troublesome from a common sense standpoint.
Under this rule, when an inventor signs an agreement that “hereby assigns”
future inventions, ownership of those hypothetical inventions immediately
transfers to the assignee.184 But how can there be a present transfer of
something that does not yet (and may never) exist? The Bayh-Dole system
gives clear time points for filings to be made to secure the rights to existing
inventions.185 This new rule based on employment contract wording will
create confusion and discourage investment in important inventions.
The impact on current employment contracts is difficult to predict, but
this holding likely calls into question the validity of many titles to
inventions that were thought to be secure. University technology licensing
contributed $187 billion to the U.S. Gross Domestic Product and $457
billion to gross industry output between 1996 and 2007.186 Any employers
who used slightly different wording than “I do hereby assign” now have
reason to be concerned about their ownership of current patents, as does
anyone who has secured a license from a university. This lack of clarity in
ownership is what caused Congress to pass the Bayh-Dole Act.187 Now
universities are in the same position they were before the Act was passed—
unclear about whether they own the inventions of their employees—
making it less likely that private companies will want to invest in
university technology whose ownership rights are speculative.
182
Id. at 2194, 2199. See also id. at 2202–03 (Breyer, J., dissenting) (discussing the
“slight linguistic differences” in the language of the contracts).
183
Id. at 2192.
184
See Brief for Alexander M. Shukh, Ph.D. as Amicus Curiae in Support of Petitioner
at 10–11, Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,
131 S. Ct. 2188 (2011) (No. 09-1159).
185
35 U.S.C. § 202 (2006).
186
ROESSNER ET AL., supra note 61.
187
Brief of the Nat’l Venture Capital Ass’n, supra note 47, at 6.
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B. The Stanford Decision May Further Hinder Bayh-Dole by Causing
Ohio Public Employees to Violate the Ethics Law and Conflict of
Interest Regulations
Ohio has fairly stringent ethics laws that apply to public employees.188
They provide for criminal penalties189 and forbid the use of one’s public
employment to gain something of value that could have a substantial or
improper influence on the employee’s office.190 Although the Ohio Ethics
Committee interpretations of the rule can vary, trends in research
compliance suggest that investigator conflict of interest is becoming more
heavily scrutinized.191 For example, in August of 2011, the NIH
introduced more stringent restrictions on university investigators who
receive compensation from outside entities.192 However, the definition of
“significant financial interest” still explicitly excludes royalties paid to the
inventor from the university.193
1. Theft in Office Under Stanford v. Roche
The Supreme Court holding in Stanford allows for theft in office in a
fairly sophisticated form.194 Researchers can now use the university
infrastructure to obtain federal funding, while the university may not have
any right to the invention created by its own employee who used university
resources and facilities made possible by federal funding.195 Investigators
could then receive royalties for the invention they create, but instead of
receiving them from the university, they could now receive the royalties
directly from a private company.196 The Ohio Ethics Commission
188
See OHIO REV. CODE. ANN. § 102.03 (West Supp. 2012).
Id. § 102.99(B).
190
Id. § 102.03(D).
191
See generally 42 C.F.R. §§ 50.601, 50.604 (detailing institutions’ responsibilities to
ensure research funded by the federal government will be free from investigator financial
conflicts of interest).
192
Id. at § 50.604.
193
Id. at § 50.603(3).
194
See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc.,
131 S. Ct. 2188, 2194, 2199 (2011).
195
See id. at 2198–99.
196
See id. at 2194, 2199 (holding that an inventor using public funds may assign the
rights to the invention to a private party). But see 42 C.F.R. § 50.603(1) (stating that
payments received from private entities by an investigator may be a significant financial
conflict of interest); Advisory Op. No. 96-004, supra note 131, at 5 (stating that a payment
(continued)
189
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considers payment from an entity other than the public employer to
constitute a “substantial and improper influence” on the investigator’s
performance of public duties.197 The investigator will, in effect, have
capitalized off of university-employee status to receive federal funds and
use those funds to obtain payment from an outside entity.
2. The Stanford Decision Will Impact Federal Conflict of Interest
Regulations
The Stanford holding also interacts with the federal Conflict of Interest
Regulations. Under those rules, an investigator who receives royalties in
excess of $5,000 per year from an entity other than the employer is
considered to have a significant financial conflict of interest.198 If an
employee has a significant financial conflict of interest with a company,
investigator is essentially barred from serving as principal investigator on
human subjects or animal subjects research which is sponsored in any way
by the company.199
Under both the federal Conflict of Interest Regulations and the Ohio
Ethics Law, the investigator may still receive royalty payments from her
employer university without triggering sanctions under the Ohio Ethics
Law200 or a significant financial conflict of interest determination under the
federal Conflict of Interest Regulations.201 The federal Conflict of Interest
Regulations specifically exclude royalties received from the investigator’s
employer from being considered a potential conflict of interest.202
Similarly, the Ohio Ethics Law does not address payment to the employee
from her employer.203 The logic is that these are just payments to
employees from their employers for doing their jobs, which will not exert
an improper influence.
Now investigators are free to assign their inventions to industry (and
may have already done so unknowingly) and to receive royalties from that
from an entity other than the public employer is a substantial and improper influence on the
public employee).
197
Advisory Op. No. 96-004, supra note 131, at 5.
198
42 C.F.R. § 50.603(1).
199
ASS’N OF AM. MED. COLLS. & ASS’N OF AM. UNIVS., supra note 117, at 15.
200
See generally OHIO REV. CODE ANN. § 102.03 (West Supp. 2012) (declining to
mention a prohibition of accepting something of value from a public employee’s employer).
201
42 C.F.R. § 50.603(3).
202
Id.
203
See generally OHIO REV. CODE ANN. § 102.03 (declining to mention a prohibition of
accepting something of value from a public employee’s employer).
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company.204 However, those royalties could preclude investigators from
doing further research in her area of interest.205 This will further
discourage the goals of Bayh-Dole by making investigators less likely to
seek out commercialization because of the regulatory hassle that may occur
if they begin to receive royalties from industry, as opposed to receiving
them from their employer.
C. Proposals for University Policies to Ensure That Collaborations with
Industry Remain Strong and Ownership Interests Are Clear, Even After
Stanford v. Roche
Ohio public universities are bound by the Ohio Ethics Law, the federal
Conflict of Interest Regulations, and the decision in Stanford. They have
developed technology commercialization systems that rely on clear
ownership lines for the rights to inventions created by their own
employees.206 Moving forward, this group needs to determine how best to
comply with the conflicting laws. The universities’ goals are most likely
the same as when Bayh-Dole was passed—to commercialize university
research, to increase collaboration between universities and industry, and
to develop cutting edge inventions.207
1. Employment Contracts
Employment contracts should use present tense assignment
language.208 An example provided by Rothman & Stulberg is “‘the
employee will assign and hereby does assign the employee’s right, title,
and interest in all patentable inventions, including future inventions’
arising from the research conducted at the institution.”209 This language
takes care of concerns about future and present assignments. Employers
should request that all current and future employees sign an updated
contract that contains this language. This step will ensure that any future
204
See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 131 S.
Ct. 2188, 2194, 2199 (2011).
205
See ASS’N OF AM. MED. COLLS. & ASS’N OF AM. UNIVS., supra note 117, at 11.
206
See, e.g., Our Business: The Research Process, OHIO ST. U., http://osp.osu.edu/
introduction/documents/TheResearchAdministrationProcess.pdf (last visited Jan. 13, 2013).
207
35 U.S.C. § 200 (2006).
208
See Stanford, 131 S. Ct. at 2194, 2199; id. at 2202–03 (Breyer, J., dissenting)
(discussing the effect of present tense assignment language on the majority’s opinion).
209
Consider This Guidance for TTOs Following Stanford v. Roche Decision, TECH.
TRANSFER BLOG (Sept. 21, 2011), http://www.technologytransfertactics.com/content/2011/
09/21/consider-this-guidance-for-ttos-following-stanford-v-roche-decision/.
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inventions created by university employees using federal funds will fall
under the ownership framework laid out in the Bayh-Dole Act and will not
be superseded by contractual wording.
2. Identification of Previous Employment Contracts that May Assign a
Future, Rather Than a Present, Interest
Updated employment contracts will not account for the group of
individuals for whom ownership rights are now in question. Universities
should work to identify patents with questionable ownership and
investigate any assignments that may have been inadvertently made by the
inventor. Depending on how the university is organized, technology
commercialization offices may be in the best position to address this issue
on a case-by-case basis, especially if they are in contact with prolific
university inventors. Those individuals could be the first who are redflagged and sent to the legal department for review and revision as
necessary for compliance with the Stanford v. Roche holding. This step
alone may increase outside companies’ confidence in the university’s
ownership because the university will have taken proactive steps to ensure
its rights to the inventions. These steps would normally be unnecessary
under the rigid framework of Bayh-Dole but are now urgently necessary as
a result of the Supreme Court’s holding.210
3. Investigator Education: Signing Contracts and Responsibilities
Under the Ohio Ethics Law and Federal Conflict of Interest
Regulations
Inventor employees should be educated about what they are signing,
starting with their university employment contract.
Supervisors,
department chairs, or human resources professionals should clarify with
the inventor that the university employer owns the rights to inventions
created during the course of the employment. Additionally, this team
should be notified if an outside company approaches an employee for
consulting work. At this point, they can clarify and reiterate the terms of
the employment contract. Additionally, they can educate the employee
about terms to be wary of in any document that the outside company may
ask the employee to sign. In Stanford, the inventor signed away his
interests in a standard confidentiality agreement.211
210
Compare 35 U.S.C. § 202 (providing a rigid framework for the disposition of rights),
with Stanford, 131 S. Ct. at 2194, 2199 (holding that a public university employee using
public funds to make an invention may assign the rights to the invention to a private party).
211
Stanford, 131 S. Ct. at 2192, 2194.
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Universities will benefit from becoming more involved in external
consulting contracts signed by employees.212 For example, a university
official could be required to sign consulting contracts instead of the
inventor.
A system already exists for this at The Ohio State University, where
investigators are required to submit external grant funding requests through
the university.213 All requests are submitted through a university office and
are managed centrally.214 There is not a similar system that could catch
potential university commercialization in the same way, but this type of
system could be expensive and would require additional staff. Universities
will need to determine if the cost of increased commercialization of
university technology outweighs the burden of implementing additional
administrative procedures.
These steps would have avoided the problem that occurred in Stanford.
The inventor would have been familiar with the terms of his own
employment contract and would have known what to look for before
signing a contract with someone other than his university employer. A
university official would have been actively involved in the process and
would have stopped the inventor from signing a document that could
potentially circumvent the university’s ownership rights.
IV. CONCLUSION
A. The Bayh-Dole Act
The Bayh-Dole Act was passed to encourage collaboration between
universities and industry by providing for clear ownership rights to
inventions.215 The Supreme Court’s holding in Stanford does not further
that goal, and it may actively hinder important research. Rather than
following the clear ownership framework laid out in Bayh-Dole, the
Supreme Court has shown that common law may be followed in some
circumstances.216 However, this is exactly what Congress tried to avoid by
passing the Bayh-Dole Act.217 Now universities and private companies
212
Cf. id. at 2194. If someone in Stanford’s Technology Licensing Office had reviewed
the confidentiality agreement, the employee likely would not have been allowed to sign the
agreement.
213
See Office of Sponsored Programs, supra note 145.
214
See id.
215
35 U.S.C. § 200 (2006); Brief for the United States, supra note 164.
216
Stanford, 131 S. Ct. at 2197–99.
217
See 35 U.S.C. § 200; Stanford, 131 S. Ct. at 2202 (Breyer, J., dissenting).
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need to be wary of technology that the university purports to own under
Bayh-Dole.
B. Employment Contracts
Universities now need to worry that current patents they purport to
hold actually belong to another entity due to a wording difference in
employment contracts. Picky wording choices may make the difference in
technology ownership post-Stanford.218 Universities now need to carefully
scrutinize their employment contracts to ensure that they do not allow a
private company to step in and assert ownership of the rights to university
employees’ inventions. Under Bayh-Dole, employment contract wording
mattered less than the ownership process laid out in the Act itself.
However, the Supreme Court has shown that it is willing to determine
technology ownership based on minor wording differences in employment
contracts.219
C. Ethics Law and Conflict of Interest Regulations
Since the Court’s decision in Stanford, Ohio public employees may
have several valid concerns about the status of the inventions they research
and create while employed by public institutions. First, federal conflict of
interest rules consider royalties paid by an entity other than the inventor’s
employer to be a significant financial conflict of interest,220 which could
preclude the inventor from participation in certain research roles.221
Additionally, the potential for investigators to assign rights in inventions
created using the privilege of their employment could run afoul of the Ohio
Ethics Law.222 Inventors may be less willing to put effort into
commercializing their inventions if it comes with a corresponding criminal
penalty. This will ultimately create an academic environment that is less
friendly to industry, which was what Congress tried to prevent when it
passed the Bayh-Dole Act.223
If universities are careful, they can avoid the outcome in Stanford.
However, this does not change the fact that the Supreme Court’s holding
does not support Congress’s laudable goal of increasing collaboration
218
Stanford, 131 S. Ct. at 2202–03 (Breyer, J., dissenting).
Id. at 2194, 2199. See also id. at 2202–03 (Breyer, J., dissenting) (discussing the
“slight linguistic differences” in the language of the contracts).
220
42 C.F.R. § 50.603 (2011).
221
See ASS’N OF AM. MED. COLLS. & ASS’N OF AM. UNIVS., supra note 117, at 11.
222
See OHIO REV. CODE. ANN. § 102.03 (West Supp. 2012).
223
See 35 U.S.C. § 200 (2006).
219
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between universities and industry in order to increase the amount of
university technology commercialization.