Five Law Cases for University IP Management

Here are some law cases involving intellectual property that faculty considering IP policies and scholarship should be aware of. I give a date for a primary decision (there are all sorts of proceedings for these cases), a brief summary, and a note why the case is important. For each case, of course, there are those who think the case is wrongly decided, and there is all manner of nuance to entertain attorneys not working for paying clients. University administrators may form their own views. Faculty should too. This is my take. Read the cases for yourself. Consider the implications.

1.  Stanford v Roche, 2011.  Supreme Court and CAFC decisions.

The situation. Stanford sues Roche for patent infringement after Roche refuses to take a license to an invention Stanford claims. Turns out Roche has a co-ownership position in the invention based on a long-term Stanford-approved consulting relationship with one of the inventors. The CAFC decision turns on which assignment takes priority. Look at 35 USC 261. The assignment to the company is valid, so the later attempt to obtain assignment by Stanford fails for lack of anything to assign. The Supreme Court decision turns on the interpretation of the Bayh-Dole Act. Many university administrators and their front organizations line up claiming that Bayh-Dole vests ownership of inventions with the universities that host the research. The Supreme Court rejects this view. 

In accordance with these principles, we have recognized that unless there is an agreement to the contrary, an employer does not have rights in an invention “which is the original conception of the employee alone.”

But, as noted, patent law has always been different:  We have rejected the idea that mere employment is sufficient to vest title to an employee’s invention in the employer.  Against this background, a contractor’s invention–an “invention of the contractor”–does not automatically include inventions made by the contractor’s employees.

It would be noteworthy enough for Congress to supplant one of the fundamental precepts of patent law and deprive inventors of rights in their own inventions.  To do so under such unusual terms would be truly surprising.  We are confident that if Congress had intended such a sea change in intellectual property rights it would have said so clearly–not obliquely through an ambiguous definition of “subject invention” and an idiosyncratic use of the word “retain.”

Outcomes. Faculty inventors own their inventions until they assign those inventions in a written instrument. If they are forced to assign, either there is a contract that is binding under which they have agreed to assign, or it is a shakedown. When the university is a public institution, the shakedown is eminent domain and requires due process and just compensation. A demand for ownership, even if made first thing, does not necessarily succeed over a later assignment, for consideration, if the assignee does not have notice of the prior assignment and that assignment has not been recorded in the USPTO within the prescribed time frame.

Why you should care.  Administrators got Bayh-Dole very wrong and aren’t revising their IP policies to reflect the decision. Instead, they have misread the decision to mean that they should take ownership of all inventions upfront, before anything is invented. To this end, they are imposing “present assignments.” In addition, they are expanding the scope of what is assigned beyond that of inventions that are or may be patentable to include all sorts of scholarship, including know-how and data. The scope of what previously was reportable is now what is claimed outright.

Administrators are also claiming that they intended this outcome all along, so the present assignment is not a change in policy and does not need faculty review or revision of employment contracts.  This is all so much hooey.

For the policy issues, read Shaw (below). For innovation, consider when it has been the case that bureaucrats insisting to own creative work has been a source of innovation. For academic freedom, when was there an exception to academic freedom if university bureaucrats decided they might be able to make money by controlling someone’s scholarship?

2.  Shaw v The Regents of the University of California, 1997.  California Superior Court, on appeal.

The situation. The University of California requires Shaw to sign a patent agreement.  UC later unilaterally changes the royalty sharing schedule. Shaw objects, but UC refuses to honor the earlier agreement. The trial court finds for Shaw. UC appeals. The appeals court rejects the UC claims that the royalty sharing schedule is not part of the patent policy and that patent policy changes can be imposed at will on employees.

We find no merit in the University’s suggestion that, as a public employee who is employed pursuant to statute, not contract, Shaw has no vested contractual right in his terms of employment, such terms being subject to change by the University.

When a public employer chooses instead to enter into a written contract with its employee (assuming the contract is not contrary to public policy), it cannot later deny the employee the means to enforce that agreement.

We also reject the University’s argument that the Patent Policy is a mere personnel policy which it may modify unilaterally. Although the University is entitled to revise its Patent Policy, it cannot do so with respect to Shaw because of its written agreement with him.

Outcomes. UC changes the title of its “Patent Agreement” to “Patent Acknowledgement” and introduces in the acknowledgement that employees agree to any changes UC may make in the patent policy.  A name change does not change the function of the document.  It is still a patent agreement, and is still what is authorized by the UC patent policy.  Further, an agreement to agree is not enforceable as a contract. UC’s effort is to rely on its “mandamus” right as an instrument of government to impose policies. In another case, Singer v The Regents, UC argued that its policies have “the force of law.” The effort is to make employees agree to the policy however it reads–as if it were a law–without the policy appearing to be a contract or a law. Absolute power corrupts, you know.

Why you should care.  This case just keeps on giving. It lays out that at UC, at least, UC can change its patent policy, but it cannot force employees entering into a contract to accept the changes. Wherever a university makes a patent policy a condition of employment, and makes it clear that employees must agree to the patent policy, they are attempting to form a contract. If there is a contract, then they cannot change that contract at will, even if they change their patent policy. If there is no contract, and the university is simply demanding ownership, then the only thing that provides the university with that ownership is the inventor’s decision to assign. For public universities, demand for ownership without a contract would appear to be eminent domain–the government taking private property for public purposes. For that, there should be just compensation–not merely a royalty sharing schedule that applies if the university ever makes money licensing the invention but doesn’t have to.  The just compensation is due upon taking.

3.  Madey v Duke, 2002.  Court of Appeals for the Federal Circuit.

The situation. Madey, a Stanford research professor, is recruited to Duke, bringing with him his laser research lab. At Stanford, Madey made inventions covered by patents he owned, and which laser technology in his research practiced. Some time later a dispute arose between Duke and Madey over the use of certain lab equipment. Duke removed Madey as director of his own lab, and Madey resigned from Duke. Duke continued to use lab equipment covered by Madey’s patents.  Madey sues. Duke argues that its use comes under a common law “experimental and nonprofit” use exception. The District Court agrees.  Madey appeals. The appeals court rejects the experimental use defense.

Before the district court, Madey argued that Duke’s research in its FEL lab was commercial in character and intent…. Based on language in Duke’s patent policy, Madey argues that Duke is in the business of “obtaining grants and developing possible commercial applications for the fruits of its ‘academic research.'”

In Embrex, we followed the teachings of Roche and Pitcairn to hold that the defense was very narrow and limited to actions performed “for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry.”  Further, use does not qualify for the experimental use defense when it is undertaken in the “guise of scientific inquiry” but has “definite, cognizable, and not insubstantial commercial purposes.” The concurring opinion in Embrex expresses a similar view: use is disqualified from the defense if it has the “slightest commercial implication.” Moreover, use in keeping with the legitimate business of the alleged infringer does not qualify for the experimental use defense.

In short, regardless of whether a particular institution or entity is engaged in an endeavor for commercial gain, so long as the act is in furtherance of the alleged infringer’s legitimate business and is not solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry, the act does not qualify for the very narrow and strictly limited experimental use defense. Moreover, the profit or non-profit status of the user is not determinative.

Outcomes. Universities largely lost the expectation of the “experimental use” defense for infringement, as well as the general claim that their non-profit status should be taken into account. The presence of patent policies claiming ownership of inventions made in research, and of dedicated patent licensing offices with commercialization as a primary purpose ensure no such defense is available. Public universities may still have a defense in sovereign immunity (states cannot be sued in federal court unless they agree to such action), but overall this case spelled the end of universities expecting to find in common law around patents something akin to a “fair use” exception. Thus, any faculty inventor obtaining patents on inventions used by the university in research may have a claim against the university for infringement, but for the university obtaining a license.

Why you should care. University administrators feel exposed to patent positions taken by their faculty (and others). Faculty hired from industry, or arriving from graduate school, or recruited from other institutions may own patents, as did Madey. Institutional ownership claims in new inventions, however, do not fully address the problem. Similarly, university patent policies that provide that the university if it is not timely developing an invention may re-assign ownership to the inventor may not adequately address retaining a non-exclusive license to practice the invention–and may not have any compelling reason to reserve such a license. The administrative pressure to own all possible inventions arises in part, however, from the fear of exposure to claims of infringement should other university employees use such an invention, if patented, without permission.

4.  Lindsay v R.M.S. Titanic, Inc., et al., 1999.  District Court, S.D.N.Y.

The situation. R.M.S. Titanic, Inc. (RMST) is exclusively authorized to salvage the wreck of the Titanic. Lindsay conceives of a documentary of the wreck using high illumination lighting equipment and approaches RMST. Lindsay prepares storyboards identifying specific camera angles and sequences, designed the lighting towers, and directed, produced, and otherwise controlled the production of the project at the site of the wreck, including daily planning sessions with the crew of the submersible doing the actual filming. No contract was made between Lindsay and RMST. Subsequently, Lindsay brings suit, alleging that RMST is “unlawfully profiting from the exploitation” of the film project.  RMST argues that Lindsay cannot be an author since he did not operate the cameras, and that in the alternative, the camera operator was a joint author who was working for hire for RMST and thus RMST is a joint owner of any copyright in the footage.

Lindsay’s alleged storyboards and the specific directions he provided to the film crew regarding the use of the lightowers and the angles from which to shoot the wreck all indicate that the final footage would indeed by the product of Lindsay’s “original intellectual conceptions.”

The fact that Lindsay did not literally perform the filming, i.e. by diving to the wreck and operating the cameras, will not defeat his claims of having “authored” the illuminated footage.

To prove co-authorship status, it must be shown by the individual claiming co-authorship status that each of the putative co-authors (1) fully intended to be co-authors, and (2) made independently copyrightable contributions to the work.

In other words, where one contributor retains a so-called “veto” authority over what is included in a work, such control is a strong indicator that he or she does not intend to be co-authors with the other contributor.

Outcomes. Despite all the filming being done by a crew working for hire for a company, the authorship of the work is exclusively with Lindsay, who established how the work would be created and supervised its development. Copyright follows authorship, not the mechanical act of creating a tangible expression of the work. Work for hire agreements do not vest ownership of copyrights in the employer if another, and not the employer, exercises the role of author.

Why you should care. Consider a faculty member seeking assistance with the preparation of an on-line course by using staff programmers working for a university and made available to the faculty member for this purpose. Under Lindsay, if the faculty member exercises control over the project and has “veto” power over what is included, then the faculty member is the author, and copyright in the work produced by staff programs vests in the author, not the university-as-employer. Unless the faculty author intends to include staff programmers as co-authors, they are not co-authors, even if they write the code and arrange the content that implements the on-line course.

A similar analysis applies to the faculty author with regard to his or her employment by the university. Unless the university commissioned the work, and provided the “original intellectual conception” (there is a multi-point test for agency), then the faculty member is not “working for hire”–that is, while the on-line course may be within the faculty member’s “scope of employment” for the purpose of authorized access to resources, it is not within the faculty member’s “scope of employment” for copyright purposes, because it is the faculty member who controls the work in its entirety, not the university through its administrative representatives. The university does not “employ” the faculty member in such a capacity as a servant to create what it has conceived.

5.  Yale v Fenn, on-going, 2005.  US District Court, D. Connecticut.

The situation.  Fenn invents a mass spectrometer after being forced by Yale’s retirement policy to give up his lab space and graduate student assistance. Fenn later earns a Nobel Prize for his work. Yale declines to pursue patenting and Fenn obtains patents and grants licenses for commercial development. Fenn sues Yale for licensing his invention to another company. Yale countersues Fenn for theft and unjustly profiting from his invention, and Fenn is required to pay Yale more than $1m. The court finds that Fenn misled Yale on the value of the invention. A series of appeals continue.

(the first two quotes are from IPBIZ’s account of the decision) [I will check my copy of the decision and update].

Dr. Fenn only obtained the patent through fraud, civil theft, and breach of fiduciary duty; he may not profit from his own wrongdoing.  A patent is property which, when wrongfully obtained, may be reassigned to its rightful owner.

Clearly, Dr. Fenn’s motives included an intentional desire to ‘show up’ and embarrass Yale by depriving the institution of a valuable patent, but also included a desire to keep permanently the patent and the profits it generated.

(from the appeal cited in the first link above)

Procedurally, the [Bayh-Dole] Act requires all institutions who have entered into research funding contracts with a federal agency to “disclose each subject invention to the Federal agency within a reasonable time after it becomes known to contractor personnel responsible for the administration of patent matters.” . . .  If a contracting institution elects to retain title to a subject invention, the individual inventor (who typically is employed by the institution) has no further rights.

Outcomes.  Yale prevails. Some students and alumni decry Yale’s actions: “‘Vindicating the Yale patent policy’ is a poor excuse for treating a Nobel Laureate with a 68-year association with and dedicated service to the University, in such a contemptible manner.”.

Following the Supreme Court Stanford v Roche decision, it is clear that the District Court here got Bayh-Dole very wrong. Bayh-Dole does not vest title in the university by operation of a notice to the government to “elect to retain title.” The case illustrates the paranoia that university administrators have that faculty inventors might downplay the value of an invention in the hope that the university will waive its claim or reassign an invention. If an inventor wants title to his or her invention, that is taken as a sure sign that the invention has value, and that someone is willing to pay for a license. Thus, few inventions, unless proven worthless, are ever returned by universities to their inventors, despite procedures in Bayh-Dole for inventors to retain ownership of inventions made with federal support.

Why you should care.  The determination by university administrators to take ownership of inventions to make money should never be underestimated, nor the willingness of judges to ignore academic freedom or the details of the relationship between faculty and their employing institutions, and allow university administrators to reason by analogy to corporate employment environments for such things as scope of employment. If a university owns your invention, there is no “fair use”–if you leave the university, even for another university, you cannot practice your invention, and you cannot teach others to use your invention, without the threat of infringement litigation. No one will work with you under such conditions. If you do not like this result, then get your university’s patent policy changed to reflect academic freedom, the true state of the employment relationship with regard to scholarship, and freedom to innovate.

University administrative claims to own inventions made by faculty may be based on defective arguments or implementation. This is especially true of claims based on the Bayh-Dole Act, which have been shown to be misplaced, and after 2011, if not qualified, are simply fraudulent. To comply with the standard patent rights clause authorized by Bayh-Dole, a university must implement the (f)(2) agreement, which requires the university to require its research personnel to make a written agreement to protect the government’s interest, including establishing the government’s rights in subject inventions. That cannot happen unless the (f)(2) agreement entails a delegation of authority under university policy to permit inventors to sign agreements regarding patent rights or assignment of title. Without the (f)(2) agreement in place, universities are in breach of their federal funding obligations. Thus, what the court applied to Fenn may now be applied as well to university administrators:

A patent is property which, when wrongfully obtained, may be reassigned to its rightful owner.

It may well be that there are many–thousands–of such patents sitting in university administrative databases, patents obtained on inventions for which university administrators claimed a right under Bayh-Dole to take ownership. But such patents have been wrongfully obtained, and perhaps the time has come for such patents to be reassigned to their rightful owners.

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