The question has come up: doesn’t a present assignment approach protect faculty from the conniving tricks of companies that will cheat them out of their rightful royalties to inventions?
The answer is no. It won’t–not as a condition of employment or a condition of consulting. It will have the opposite effect. It is the institution that cheats the faculty member out of the opportunities to collaborate, take the initiative, and benefit from his or her inquiry, scholarship, instruction, and invention. Furthermore, present assignment as a condition of employment actually creates additional liability for the university, increases the administrative burden, and hammers a linear model licensing office with way more noise to signal in trying to do its job. But that’s not the worst of the institutional double-cross.
There is a big problem in how the Stanford v Roche case is being presented. It is set up as if a company tricked a poor post doc into signing away a future invention worth millions of dollars. Somehow the company knew there would be this invention, and the inventor to be did not. Somehow, the money that was made was properly the university’s–or at least a nice share of it was–and that would have been shared with the inventors, including the post doc. The idea is, the company took something it shouldn’t have.
I don’t know the personal details. I am not sure at this point they are relevant. Someone correct me if they know better. The bit is this: the post doc was sent to Cetus by his faculty supervisor. The supervisor was also on the technical advisory board of the company. Everyone agreed on the deal–the post doc would work at the company and learn PCR, and the company would have the benefit of any inventions that might arise as the result of this access. No agreement on inventions, no access. The information and expertise was more important than the value of possible inventions. No one was “taken in” by the company. There is no way a small company with a hot proprietary new technology is going to allow an outsider to trot in, learn the technology, and then race to beat the company to what it is already working on. No, the company is going to insist on an assignment deal. It’s really quite delusional to think otherwise.
Furthermore, Stanford had material transfer agreements with Cetus in the same lab. Those granted the company royalty-free rights in inventions made with company materials. This was more than a one-off relationship; it was connected at a number of points. As I will argue, if anything, the post-doc was “taken” by the university. And the company almost was, too. Surely, the action here was not by a sneaky company cheating folks of their birthrights. Instead, I call it the “Stanford Double-Cross”. And it took the Supreme Court to prevent it from working. Now that a number of universities, including the University of California and the University of Washington have expressly cited the Stanford v Roche decision and have imposed present assignment requirements on their faculty, one may reasonably conclude that they believe that present assignments will allow them to execute the Stanford double-cross effectively. Companies, beware!
Folks have to get this, uncomfortable as it may be. There was a deal. It was not secret. It was reasonable and even necessary. The post-doc comes back to Stanford and uses what he learned at the company in his research–and right away. That is how I read the court decision. The court found that the post-doc was doing just what the company had addressed in its assignment deal.
What Stanford tried to do was to break that deal. It is a university trying to double-cross a company to make money by obtaining an IP position against the company, and giving it out that its inventors have been harmed by a sneaky company, that it is the victim of a foul trick. Not the case. This is the university’s doing. Really, they are the conniving ones. Their appeal to the Supreme Court was a desperate act. Even they had sought assignments from their inventors, something they would not have needed had Bayh-Dole really been a vesting statute. The Solicitor General’s office did the best they could with their brief, that Bayh-Dole didn’t quite vest title but it forced the inventor to assign only to the university and voided any other assignment that may have been made. The university needed to void the deal so that its own assignment would be valid, it would have standing to sue the company and make a lot of money if it won the case.
Let’s get at the hypothetical first. People argue that if it hadn’t been for the present assignment, Stanford would have had full title and could execute the double-cross. That’s a faulty hypothetical. Restated, it reads something like: “if the company had been run by utter incompetents, who had failed to secure assignment of future inventions made by an outsider intent on learning their hot new technology, then they would have got what was coming to them when powerful university reached into its bag of tricks and got federal funding to invent a lucrative application ahead of the company–and then they could sue the company for being so stupid as to let the university get a patent leg up on them!”
No, if the assignment deal with the company wasn’t there, the more likely hypothetical is that the post-doc would not have learned PCR so quickly, the invention would have been released in the wild by the company (with its successful product) and Stanford would not have got the grant to work on the project, and there would be no money for the university to pine for.
There was a deal. Stanford accepted it–people knew about it. Maybe not all the people that the people later wanted to know about it. But if they had known about it, what then? They would have prevented it from happening! And that’s my probable hypothetical, not the one in which they would have persuaded to the company to let the post-doc in so the double-cross later would execute properly.
There is no money that the company cheated the university out of. The collaboration was a fair trade. Certain knowledge about a hot new technology in exchange for uncertain may-never-happen inventions. There was no sneaky deal. The university still has patent rights. They could license the company’s competitors and make money. There was a robust market for the company’s product. So why didn’t the university license into that market? Surely someone would want to compete.
The double-cross is setting up a collaboration, and then using an IP position in an improvement or application to cut off the collaborating company and holding it up for infringement or the payment of royalties. This is the university’s doing, not the company’s. If one doesn’t like the deal, then don’t accept it. The time to do that, however, is when the consultant checks back in. Oddly, had the company *sponsored* research under which the post-doc worked at the company for nine months, the university may well have agreed to a royalty-free license, just as they had with the material transfer agreement. What then on the double-cross?
No, actually, the problem lies elsewhere than competing present assignments. Putting a present assignment at employment doesn’t address the situation and does other bad things, like attacking academic freedom, creating uncertainties in collaboration, suppressing opportunities and personal initiative, and creating new liabilities for the institution.
So, how did Stanford cheat Holodniy and the other inventors of a financial interest in the inventions in dispute? Here’s how it works.
1. Under the standard patent rights clause in federal funding agreements, the university agrees to require of its employees a written agreement to protect the government’s interests in inventions. That agreement is set out in paragraph (f)(2) of 37 CFR 401.14(a). Everything that happens follows these agreements. There is no federal law imposing its will on everyone independent of written agreements. No written agreement, no obligation. That’s how it works.
2. That agreement creates a personal obligation for inventors, including an obligation to assign title to the government, if it comes to that. The effect of the (f)(2) agreement is that it makes investigators parties to the federal funding agreement through the patent rights clause. The patent rights clause then applies to them personally as well as to the university.
(This situation is given effect in the definition of funding agreement in 37 CFR 401.2(a), which includes any “assignment, substitution of parties, or subcontract”. If inventors retain title, they are treated as small business contractors under 37 CFR 401.9. In essence, the university is required, whatever its own policies and claims on inventions, to treat its research employees as parties to the funding agreement, as conditional small business contractors. Rather much as contractors operating under a subcontract from the university, but still within the university. This is confirmed because (f)(2) cannot operate if the research employees do not have the right to establish the government’s rights in inventions. It is how research employees can report subject inventions “of the contractor”–because these are inventions of the employees-as-contractors under their individual bits of the funding agreement–the patent clause bit.)
3. If a contractor assigns rights under the patent rights clause, then per Bayh-Dole, the contractor also must assign the obligations under the standard patent rights clause to the new owner.
(This is made express for subcontracts, for instance, at 37 CFR 401.14(a)(g). But it is clearly anticipated from the definition of funding agreement. It is clear that the obligations under the patent rights clause may be assigned, and not merely title to a subject invention, and these obligations can be assigned before there is any invention, and prospectively before there is even any funding agreement. This what universities do when they designate a research foundation as their agent to handle inventions made with federal funds. Bayh-Dole understands this, and the regulations drafted to enable it. It is really quite beautiful.)
4. If the prime contractor is a nonprofit, then the assignee is subject to the nonprofit requirements of the patent rights clause at 37 CFR 401.14(a)(k). This means the assignee must share royalties with the inventors, even if the assignee is a for-profit.
5. Now consider the effect of an investigator operating with a proper (f)(2) agreement as a party to a federal funding agreement assigning the entire right, title, and interest in and to a subject invention. The assignee will receive necessarily the investigator’s share of the obligations under the funding agreement, which at the time are a subset of the university’s obligations, including the obligation to share royalties with inventors. If Cetus/Roche received assignment in the context of the (f)(2) agreement, it would also necessarily have a federal obligation to share royalties with inventors.
6. The amounts owed the inventors by the company under such a deal are arguably much more than they would have received from Stanford, which though it is a liberal policy is not anywhere close to 100%. And the enforcement would have been a matter of federal not state jurisdiction.
7. But Stanford did not require the (f)(2) agreement. Instead it attempted to rely on its own policy, which suffers from numerous defects, none of them having to do with a lack of a present assignment. One defect is that the Stanford policy is directed at Stanford’s ownership, not the government’s. A second is that the Stanford policy aims to be a private contract, and is not a federal agreement. A third is that it operates at employment, and may be displaced by a later agreement under which it is waived or superseded. A fourth is that it apparently assumed that federal funding requires the university to take title to subject inventions, and federal law and the standard patent rights clause do not do that.
Stanford, like most universities, is in breach of the standard patent rights clause by failing to implement an (f)(2) agreement in each federal funding agreement with its employees. In doing that, it failed to flow down to the post-doc Bayh-Dole authorized rights in subject inventions–and these are rights in the patent law, where Bayh-Dole is placed–that would have passed to Cetus with his assignment of the inventions. Those rights–and obligations–would have not only protected the government’s interests, but also would have established the obligation of Cetus, and then of Roche, to share royalties with inventors.
Conclusion: Stanford screwed Holodniy out of millions. There is no easy way to put it. I’m sorry. I really wish there was a way to soften the blow. There it is. Yes, there is a code of silence in university technology transfer, and I’m breaking it. I don’t expect any university tech transfer office to pip up and agree I’m right. But I challenge them to show how they are complying by producing their (f)(2) agreements. I do not think they can do it, and the silence will be a good indication that this is indeed the case.
No amount of litigation, throwing sticks in the air, or sad thoughts after many beers can recover the money that might have been owed, had Stanford required the (f)(2) agreement. A present assignment in Stanford’s policy would have done no good, because it was directed at the wrong agent, failed to flow down the proper rights, and in any case would have been waived by Stanford’s own policy that inventors owned their inventions “whenever possible” and this was one of those times, as the Supreme Court decision made clear. Universities don’t own, and don’t have to own, and don’t have a federal right to own, subject inventions. They don’t have to require ownership. They don’t even have to have an intellectual property policy or a technology transfer office. The just have to require that little (f)(2) agreement with researchers who are going to get paid under a federal funding agreement.
So while universities are actively plotting how to improve the double-cross pioneered by Stanford in order to have a better position later to beat down erstwhile company collaborators for royalties, they are also failing their federally funded inventors by not requiring the (f)(2) agreement, which would give those inventors standing to manage their own invention rights, within the protocols of the patent rights clause, as parties to the funding agreement. In a way, that’s the bigger double-cross, as it fails to give inventors the respect that federal law would have them have, and that each federal funding agreement requires the university to recognize.
The power of Bayh-Dole is realized in the role of inventors acting as agents, and selecting agents to collaborate with them in the development of their federally supported inventions. It is this standing of inventors, not title to the universities, that is the genius of Bayh-Dole and what is recognized and drafted for by the Department of Commerce regulations. If there’s a lesson in all of this, that’s the one to work with.