Close Encounters: Government Contracts Law Meets Patent Law at the Federal Circuit
Robert K. Huffman[*]
Table of Contents
I.Introduction
II.The Three Decisions
A.Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc.
1.Factual Background
2.The District Court Litigation
3.The Federal Circuit Decision
4.The Supreme Court Decision
B.Mabus v. General Dynamics C4 Systems, Inc.
1.Factual Background
2.The Board Decision
3.The Federal Court Decision
C.Zoltek Corp. v. United States
1.Procedural Background
2.Zoltek I
3.Zoltek II
4.Zoltek III
5.Zoltek IV
6.Zoltek V:The Federal Circuit’s Sua Sponte En Banc Decision
III.Comparative Analysis of the Three Decisions
IV.Conclusion
I.Introduction
The United States Court of Appeals for the Federal Circuit (Federal Circuit) is the successor to both the United States Court of Customs and Patent Appeals and the appellate branch of the Court of Claims.[1] However, despite the court’s dual lineage, the professional background of most Federal Circuit’s judges has been in patent law.[2] Relatively few active or senior Federal Circuit judges practiced government contracts law prior to their appointment to the bench.[3] Even the former Chief Judge of the Federal Circuit has publicly noted the lack of government contracts experience on the part of his fellow judges, and has called for the government contracts bar to push for appointment of one or more of their own to the Federal Circuit to remedy this disparity.[4]
Government contract professors and practitioners sometimes point to the Federal Circuit judges’ relative lack of practical experience in government contracts to explain the court’s government contracts decisions.[5] Some commentators have gone further and suggested that the Federal Circuit judges’ patent infringement background and docket have influenced the manner in which they decide government contract cases. For example, Professor Ralph Nash noted in an article on the Federal Circuit’s government contract decisions that the court appears to be moving away from the “decisional attitude” of its predecessor, the Court of Claims, in part because “it is no longer exclusively a court hearing claims against the [G]overnment,” as evidenced by the fact that approximately one-third of the court’s case load involves cases between private parties, i.e., patent infringement cases.[6]
Given the vast differences between patent law and government contracts law, it is difficult to percieve the influence, if any, that the Federal Circuit’s patent docket or approach to deciding patent cases has had on its government contracts decisions. One possible way to discern such an effect is to examine those (relatively few) Federal Circuit appeals that involve both patent law and government contracts. In these cases, the observer can compare and contrast the manner in which the Federal Circuit applies patent law and government contracts law in the same factual context. Three relatively recent Federal Circuit decisions — Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc.[7](Stanford), Mabus v. General Dynamics C4 Systems, Inc.[8](Mabus),and Zoltek Corp. v. United States[9] (Zoltek V) – involved the application of patent law to government contracts or in the context of government contracts. While these cases do not constitute a representative sample, they do providea glimpse into whether the Federal Circuit’s approach to deciding patent cases differs from its approach to deciding government contracts cases, and whether there is any truth to the notion that the court’s approach to patent cases influences its approach to government contract cases.
This Article examines the Federal Circuit’s analysis and application of patent law and government contracts law in the Stanford, Mabus, and Zoltek V decisions. It compares and contrasts the approaches taken by the court in these three cases.[10] This analysis reveals that the Federal Circuit has adopted a variety of approaches to deciding cases involving both patents and government contracts.[11] These approaches vary from a formalistic application of patent law in the government contracts context to a pragmatic, policy-driven reinterpretation of patent statutes and precedents based upon the practical consequences of those statutes and precedents on government contractors.[12] This wide range of approaches appears to result not from the professional backgrounds of the judges, but rather from the presence or absence of amici and the differing views of the judges regarding the purposes of the statutes and doctrines that they were called upon to interpret, the practical circumstances out of which their decisions arose, and the appropriate amount of deference to be afforded to the fact-finding tribunals.
II.The Three Decisions
A.Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc.
Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc.[13](Stanford)concerned the ownership of three patents for monitoring the effectiveness of treatments for human immunodeficiency virus (HIV).[14] The patented process was developed by research scientists at the Leland Stanford Junior University (Stanford) using federal funds.[15] One of those scientists, Dr.Mark Holodniy, performed research both at Stanford and at Cetus Corporation (Cetus).[16] When Dr.Holodniy joined Stanford as a researcher, he“signed a Copyright and Patent Agreement (CPA)stating that he ‘agree[d] to assign’ to Stanford his ‘right, title and interest in’ inventions resulting from his employment at the University.”[17] Thereafter, when Dr.Holodniy’s supervisor at Stanford arranged for Dr.Holodniy to conduct research at Cetus, Dr.Holodniy also signed a Visitor’s Confidentiality Agreement (VCA).[18] The VCA provided that Dr.Holodniy “‘will assign and do[es] hereby assign’ to Cetus his ‘right, title and interest in each of the ideas, inventions and improvements’ made ‘as a consequence of [his] access’ to Cetus.”[19] Subsequently, a dispute arose between Stanford and Roche Molecular Systems, Inc. (Roche), which had purchased the relevant portion of Cetus’s business, regarding the ownership of certain patents that resulted from Dr.Holodniy’s (and other Stanford scientists’) research.[20]
1.Factual Background
In 1985, Cetus developed polymerase chain reaction (PCR) technology, a technique for making billions of copies of specific sequences of DNA from a small number of starting molecules.[21] In 1988, Cetus and Stanford began to collaborate on the use of PCR in HIV/AIDS research to “test the efficacy of new AIDS drugs.”[22] Around that time, Dr.Holodniy joined Stanford as a research fellow and signed the CPA.[23] In relation to his work at Stanford, Dr.Holodniy began to make regular visits to Cetus to learn about PCR and to develop a PCR-based test for HIV.[24] As a condition of his access to Cetus, Dr.Holodniy signed the VCA.[25]
Dr.Holodniy’s research with Cetus resulted in a PCR-based procedure for measuring the amount of HIV in a patient’s blood.[26] Dr.Holodniy then returned to Stanford and conducted clinical studies to test the HIV measurement technique.[27] Because “[s]ome of Stanford’s research related to the HIV measurement technique was funded by the National Institutes of Health (NIH),”it was subject to the requirements of the Bayh–Dole Act.[28] As a result of the work of Dr.Holodniy and other Stanford employees, Stanford obtained three patents to the HIV measurement process.[29] In accordance with the Bayh-Dole Act, Stanford “disclosed the invention,conferred on the Government a nonexclusive, nontransferable, paid-up license to use the patented procedure, and formally notified NIH that it elected to retain title to the invention.”[30]
In 1991, Roche acquired all of Cetus’s assets related to PCR including “all rights Cetus had obtained through agreements like the VCA signed by [Dr.]Holodniy,”[31] and“[a]fter conducting clinical trials on the HIV quantification method developed at Cetus,” Roche began selling HIV test kits to medical care providers.[32]
In 2005, Stanford filed suit against Roche alleging that Roche was marketing HIV detection kits that infringed its patents.[33] Roche responded that, among other things, it possessed ownership interests in the patents because of Holodniy’s VCA with Cetus and that, as a result, Stanford lacked standing to sue Roche for patent infringement.[34]
2.The District Court Litigation
The district court rejected Roche’s claim of ownership on several grounds.[35] As relevant to this Article, the court held that Dr. Holodniy’s assignment to Cetus was ineffective to convey an interest in the patents because, under the Bayh-Dole Act, he lacked any such interest to assign.[36] The district court reasoned that,“[w]hen the individual inventor is not a contracting party . . . the Bayh-Dole Act provides that the individual inventor may obtain titleonly after the [G]overnment and the contracting party have declined to do so.”[37] Because “Stanford exercised its right and obtained title in the patents” under the Bayh-Dole Act, “[Dr.] Holodniy had no interest to assign to Cetus.”[38]
In a subsequent proceeding, the district court held that the patents were invalid for obviousness.[39] Stanford appealed the invalidity decision to the Federal Circuit, and Roche cross-appealed on the ownership issue.[40]
3.The Federal Circuit Decision
The Federal Circuit concluded as a matter of law that Roche possessed an ownership interest in the patents that deprived Stanford of standing to sue for infringement.[41] The court therefore vacated the district court’s judgment of invalidity and remanded with instructions to dismiss Stanford’s action.[42]
The Federal Circuit’s finding regarding Roche’s ownership interest turned on its reading of Dr.Holodniy’s CPA with Stanford and his subsequent VCA with Cetus.[43] In the CPA, Dr.Holodniy acknowledged that “Stanford enters into ‘Contracts and Grants’ with third parties, such as the Government, and that he may ‘conceive or first actually reduce to practice’ various inventions” subject to these contracts or grants.[44] However, Dr. Holodniy went on to state that: “I agree to assign or confirm in writing to Stanford and/or Sponsors that right, title, and interest in . . . such inventions as required by Contracts or Grants.”[45] The court regarded this “agree to assign” language as merely a promise by Dr.Holodniy to assign his rights to Stanford at an undetermined time.[46] Thus, “Stanford did not immediately gain title to [Dr.]Holodniy’s inventions as a result of the CPA, nor at the time the inventions were created.”[47]
By contrast, the Federal Circuit viewed Dr.Holodniy’s VCA with Cetus - in which Dr.Holodniy stated that he “‘will assign and do[es] hereby assign to [Cetus]’” his interest in inventions conceived as a consequence of his access to Cetus facilities and information - as “effect[ing] a present assignment” to Cetus of his future inventions.[48] The court concluded that “Cetus’s legal title vested first” and that Dr. Holodniy therefore had no rights to assign to Stanford with respect to the invention.[49]
Stanford argued that Dr.Holodniy held only a contingent interest in any inventions resulting from government-funded work that vested only if Stanford elected not to retain title.[50] Thus, Stanford argued, by subsequently electing to retain title, Stanford voided whatever rights Dr. Holodniy had previously assigned to Cetus.[51] The Federal Circuit found that Stanford “identifie[d] no authorities or reasons why its election of title under Bayh-Dole had the power to void any prior, otherwise valid assignments of patent rights.”[52] The court cited its prior holding in Central Admixture Pharmacy Services, Inc. v. Advanced Cardiac Solutions, PC,[53] that while a contractor or grantee’s violations of the Bayh-Dole Act may cause its title to be voidable, “‘it is not void: title remains with the named inventors or their assignees. Nothing in the statute, regulations, or our caselaw indicates that title is automatically forfeited.’”[54] The court observed that “[j]ust as we explained [in Central Admixture]that Bayh-Dole does not automatically voidab initio the inventors’ rights in government-funded inventions... we see no reason why the Act voids prior contractual transfers of rights.”[55] Therefore, the court concluded, “the Bayh-Dole statutory scheme did not automatically void the patent rights that Cetus received from [Dr.] Holodniy.”[56]
Having found that the Bayh-Dole Act did not void or supersede Dr. Holodniy’s assignment of his patent rights to Cetus, the court concluded that Stanford lacked standing to pursue its infringement claim because it did not own Dr.Holodniy's interest in the patents and that, under the court’s precedent, “‘all co-owners normally must join as plaintiffs in an infringement suit.’”[57] Based on that determination, the court vacated the district court’s judgment that the patents were invalid and remanded with instructions to dismiss Stanford’s action.[58] Stanford sought certiorari in the Supreme Court.[59]
4.The Supreme Court Decision
Stanford, with the support of the United States as amicus curiae, argued in the Supreme Court that “the Bayh–Dole Act reorders the normal priority of rights in an invention when the invention is conceived or first reduced to practice with the support of federal funds.[60] The Court summarized Stanford’s arguments as requiring the Bayh-Dole Act to “[move] inventors from the front of the line to the back by vesting title to federally funded inventions in the inventor’s employer—the federal contractor.”[61]
The Supreme Court rejected the Appellant’s argument.[62] Writing for the 7-2 majority, Chief Justice Roberts noted the general rule that “unless there is an agreement to the contrary, an employer does not have rights in an invention” that is “‘the original conception of the employee alone.’”[63] Although Congress has the power to alter the general rule of ownership and divest inventors of their rights to inventions, the Court found that whenever Congress had altered the priority of rights, it had done so expressly and unambiguously.[64] Because the Bayh-Dole Act does not contain any language divesting inventors of their ownership interest, the Court concluded that the Bayh–Dole Act does not reorder the normal priority of rights in an invention that is federally funded.[65]
The Court further noted that, rather than expressly vesting title in contractors or divesting non-contractor inventors of title, the Bayh-Dole Act provides that contractors or grantees may “‘elect to retain title to a subject invention.’”[66] Because the Act defined a “subject invention” as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement,”[67] the contractor could elect to retain title only to an invention “of the contractor.”[68] The Court rejected Stanford’s argument that the phrase “of the contractor” should be read to include all inventions made by the contractor’s employees with the aid of federal funding.[69] Stanford’s reading “assumes that Congress subtly set aside two centuries of patent law in a statutory definition.”[70] Furthermore, reading “of a contractor” to mean “all inventions made by the contractor’s employees with the aid of federal funding” would render superfluous the language regarding federal funding that was already in the “subject invention” definition.[71] Finally, the Court held that the statute’s use of the word “of” in the phrase “of the contractor” denotes ownership by the contractor.[72]
The Court also found that the Bayh-Dole election “to retain title” to a subject invention could not vest title in the contractor unless the contractor already possessed such title.[73]Citing Webster’s Dictionary, the Court explained that “‘retain’ means to ‘hold or continue to hold in possession or use,’[74]... [y]ou cannot retain something unless you already have it.”[75] Thus, the Bayh-Dole Act “does not confer title to federally funded inventions on contractors or authorize contractors to unilaterally take title to those inventions; it simply assures contractors that they may keep title to whatever it is they already have.”[76] This provision “makes sense in a statute specifying the respective rights and responsibilities of federal contractors and the Government.”[77] By contrast, had Congress intended to effect the “sea change” in intellectual property rights of “supplant[ing] one of the fundamental precepts of patent law and depriv[ing] inventors of rights in their own inventions,” it “would have said so clearly—not obliquely through an ambiguous definition of ‘subject invention’ and an idiosyncratic use of the word ‘retain.’”[78]
The United States, as amicus curiae, argued that 35 U.S.C. §210(a), which states that the Bayh-Dole Act “‘take[s] precedence over any other Act which would require a disposition of rights in subject inventions . . . that is inconsistent with’ the Act,”[79] displaces the traditional rule that an inventor owns the rights to his invention.[80] However, because the Bayh–Dole Act, including §210(a), “applies only to ‘subject inventions’ —‘inventions of the contractor’” —the Court concluded that the Act “does not displace an inventor’s antecedent title to his invention. Only when an invention belongs to the contractor does the Bayh–Dole Act come into play.”[81] According to the Court, the “disposition of rights” provided by the Act — “like much of the rest of the Bayh–Dole Act — serves to clarify the order of priority of rights between the Federal Government and a federal contractor in a federally funded invention that already belongs to the contractor. Nothing more.”[82] The Court also pointed to the common practice of contractors to obtain assignments from their employees and noted that such assignments would be unnecessary if the Act displaced an inventor’s antecedent title to his invention.[83]