The Federal Circuit’s recent Stanford v. Roche decision (September 30, 2009), which has more twists and turns than a law school exam, provides several interesting lessons about how ownership of patents is acquired (or not!).
The basic facts are as follows:
- Stanford scientists, in partnership with Cetus, developed a method of using PCR to measure HIV virus blood concentration
- Roche subsequently bought Cetus’s PCR business.
- Stanford offered to license the rights to Roche, but the license negotiations stalled. Stanford sued under patents it believed it owned.
Roche, however, saw things differently, claiming that it also or alternatively was the owner of the patent rights at issue.
It turns out that this is a tale of four agreements, which related to the assignment of the invention at issue.
The first agreement concerning the invention in question was between an inventor and Stanford and included the following provision concerning assignment:
“I agree to assign or confirm in writing to Stanford and/or Sponsors that right, title and interest in . . . such inventions”
CAFC held that such language was merely a promise to assign rather than a present assignment (a topic that has been big at the court in recent years – – see, e.g., the Court’s 2007 IpVenture decision cited in this case).
The result is that the first agreement gave Stanford, at most, equitable rights to the invention, but did not grant it actual ownership.
Stanford’s applicable invention rights policy (which might have governed ownership of inventions as is commonly the case in organizations) allowed “all rights to remain with the inventor if possible”. Strike two for Stanford
The same inventor subsequently signed another agreement concerning the invention with Cetus, which, by contrast, included the following provision:
I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements.”
Unlike the clause above, this language constituted a present assignment of the title of the invention to Cetus.
But wait! Our very agreeable inventor then again assigned the invention, this time to Stanford, in association with the actual filed patent application. However, the CAFC pointed out that there is a limit to how much a patent (like any other piece of property) can be sold – –
“[B]ecause Cetus’s legal title vested first, Holodniy [the inventor] no longer retained his rights, negating his subsequent assignment to Stanford during patent prosecution.”
RECORDATION WITH USPTO
Patent ownership can be transferred without recordation with USPTO, but recordation under U.S. law offers a key benefit, namely, where two entities claim ownership to a patent, the second assignee can actually hold title if it records first with USPTO! Specifically, 35 USC 261 provides
A [prior] assignment . . . shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.
Note, however, that to take advantage of this quirk in the law, the subsequent assignee must be a bona fide purchaser. Here, CAFC explained that a bona fide purchaser is “one who purchases legal title to property in good faith for valuable consideration, without notice of any other claim of interest in the property.”
Cetus never recorded the first effective assignment with USPTO. Uh oh…
But, not so fast! “Notice” under § 261 can include “constructive or inquiry notice, in addition to actual notice.” “Therefore, Stanford’s claim that it remained ignorant of the VCA until shortly before the current litigation is inconsequential.” The inventors supervisor at Stanford directed him to work with Cetus, as part of his research at the University. CAFC found that this was enough to put Stanford on “inquiry” notice.
STATUTE OF LIMITATIONS
So, things look good for Roche, right? Not exactly. Roche’s claim for ownership of the patent it turns out was barred by the statute of limitations for contract disputes under California law (which ran 4 years from the date that Roche became aware of the breach of contract at issue). Here, Stanford had presented it’s claim of ownership to the invention more than four years before Roche brought its ownership claim. As such, it was barred from bringing the action for ownership of the patent.
But not all was lost for Roche. While statute of limitations barred it’s ownership claim, it was still able to raise a standing defense against Stanford based on Stanford’s lack of ownership of the patent. Such a defense can be raised any time and is not subject to any statute of limitations. Since Stanford had not acquired rights in the patent it did not have standing to bring the current suit against Roche and the case was dismissed.
The CAFC has had lots of opportunities in recent years to opine on present assignment language versus promised to assign. Organizations need to take note. The Stanford case also highlights the risk of failure to record assignments with USPTO. On the other hand, the case similarly raises the ineffectiveness of subsequent assignments, which may be very commonly relied on in industry practice creating a hidden time bomb for organizations believing they have secure patent ownership positions.