Contractors Should Expect Government To Impose Strict Invention Ownership Requirements In Response To Supreme Court's Stanford v. Roche Decision

On June 6, the Supreme Court held that the Bayh-Dole Act (35 U. S. C. §§ 200–212) does not automatically vest title to federally funded inventions in federal contractors, or authorize contractors to unilaterally take title to such inventions ahead of individual inventors. Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. 563 U.S. __ (2011).

Many legal commentators believe that the Court's decision in Stanford will have no long-term consequences for patent owners. Not so. Rather, the decision highlighted a significant loophole in the allocation of rights to federally funded inventions under the Bayh-Dole Act, namely: an inventor working on a contractor's federally funded project can intentionally or unintentionally "contract around" federal procurement regulations by assigning inventions to a third party – and thereby defeat patent license and "march-in" rights granted to the Government by the Act. To close this loophole and protect its rights in federally funded inventions, the Government will undoubtedly make significant changes to procurement regulations and policies.

Contractors and universities should expect that the Government will eventually require proof that all researchers working on federally funded projects have properly assigned their inventions to the contractor. Such requirements will have long-term and substantial consequences for contractors that have made the strategic decision to assign title to intellectual property developed by their researchers to third parties for tax or liability purposes, such as a foundation or intellectual property holding company. One day soon, such contractors may be forced to make an unwelcome choice between receving federal funds on the one hand, and obtaining the advantages of assigning inventions to a third party on the other.

The Bayh-Dole Act and Federally Funded Inventions

The Bayh-Dole Act was enacted in 1980 to allow contractors to "retain" title to patents protecting inventions created with the support of federal funds. Before the Act, the Government generally took title to such patents. After the Act, contractors were permitted to retain title, but in exchange, the Act required contractors to do certain things:

First, the Act provides that "the Federal Government may receive title to any subject invention" if it is not timely disclosed by the contractor, or if the contractor does not timely elect to retain rights or does not timely file a patent application. 35 U.S.C. 202(c)(1)-(3). Second, the Act grants the Government "a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced" the invention for governmental purposes. 35 U.S.C. 202(c)(4). Third, if the contractor fails to take "effective steps to achieve practical application," to adequately "alleviate health or safety needs," or to require exclusive licensees to manufacture substantially in the United States, the federal government has "the right" to require the contractor or its licensee to grant a license to another responsible applicant. 35 U.S.C. 203(a). The Act's provisions reflect an effort to assure that rights to inventions arising out of research for which the public has paid are distributed and used in ways that further the public interest. Notably, the Act imposed...