Opinion ID: 207967
Heading Depth: 3
Heading Rank: 1

Heading: Chain of Title

Text: “[T]he question of who owns the patent rights and on what terms typically is a question exclusively for state courts.” Jim Arnold Corp. v. Hydrotech Sys., 109 F.3d 1567, 1572 (Fed. Cir. 1997); see also MyMail, Ltd. v. Am. Online, Inc., 476 F.3d 1372, 1376 (Fed. Cir. 2007). However, this rule has exceptions: the question of whether contractual language effects a present assignment of patent rights, or an agreement to assign rights in the future, is resolved by Federal Circuit law. “Although state law 2008-1509, -1510 10 governs the interpretation of contracts generally, the question of whether a patent assignment clause creates an automatic assignment or merely an obligation to assign is intimately bound up with the question of standing in patent cases. We have accordingly treated it as a matter of federal law.” DDB Techs., L.L.C. v. MLB Advanced Media, L.P., 517 F.3d 1284, 1290 (Fed. Cir. 2008) (citations omitted). Holodniy signed multiple contracts defining his obligations to assign his invention rights. First, upon joining Stanford, Holodniy executed the CPA with Stanford on June 28, 1988. J.A. 741. Holodniy signed as a “Fellow” in the Department of Infectious Disease. In the CPA, Holodniy acknowledges that Stanford enters into “Contracts or Grants” with third parties, such as the Government, and that he may “conceive or first actually reduce to practice” various inventions. Paragraph 2 of the CPA then recites: “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.” Id. (emphasis added). We have held that the contract language “agree to assign” reflects a mere promise to assign rights in the future, not an immediate transfer of expectant interests. IpVenture, Inc. v. Prostar Computer, Inc., 503 F.3d 1324, 1327 (Fed. Cir. 2007) (interpreting “agree to assign” as “an agreement to assign,” requiring a subsequent written instrument); see also Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1580-81 (Fed. Cir. 1991) (holding that “will be assigned” does not create “a present assignment of an expectant interest”). Therefore, in the CPA, Holodniy agreed only to assign his invention rights to Stanford at an undetermined time. Additionally, Stanford’s contemporary Administrative Guide to “Inventions, Patents, and Licensing” states: 2008-1509, -1510 11 “Unlike industry and many other universities, Stanford’s invention rights policy allows all rights to remain with the inventor if possible.” J.A. 743. While Stanford might have gained certain equitable rights against Holodniy, see Arachnid, 939 F.3d at 1581 (“[A]n agreement to assign . . . may vest the promisee with equitable rights.”), Stanford did not immediately gain title to Holodniy’s inventions as a result of the CPA, nor at the time the inventions were created. Next, when initiating his visits to Cetus, Holodniy signed the VCA on February 14, 1989. Paragraph 3 of the VCA recites: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements.” J.A. 1658 (emphasis added). In contrast to the CPA, the VCA’s language of “do hereby assign” effected a present assignment of Holodniy’s future inventions to Cetus. E.g., Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000) (interpreting “shall belong” as a present assignment); FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568, 1572-73 (Fed. Cir. 1991). Therefore, Cetus immediately gained equitable title to Holodniy’s inventions. “Once the invention is made and an application for patent is filed, however, legal title to the rights accruing thereunder would be in the assignee . . . , and the assignorinventor would have nothing remaining to assign.” FilmTec, 939 F.2d at 1572. “Ordinarily, no further act would be required once an invention came into being; the transfer of title would occur by operation of law.” Id. at 1573. Stanford filed the parent application to the patents-in-suit, Serial No. 07/883,327, on May 14, 1992, and there can be no dispute that Holodniy conceived his contribution to the invention by that date. Therefore, Cetus’s equitable title converted to legal title no later than the parent 2008-1509, -1510 12 application’s filing date. Holodniy executed an assignment of his rights in the parent application to Stanford on May 4, 1995. J.A. 5070-71. However, because Cetus’s legal title vested first, Holodniy no longer retained his rights, negating his subsequent assignment to Stanford during patent prosecution. Stanford contends that there is a genuine factual dispute about whether the patents arose “as a consequence of” Holodniy’s access to Cetus’s facilities or information, as the VCA requires. We agree with the district court that “[t]his contention merits little discussion.” Contract Op. at 1120. Stanford’s various arguments boil down to assertions that the patented inventions were developed from nonconfidential information, or were conceived and reduced to practice after Holodniy ended his visits to Cetus. However, Holodniy testified that the collaboration provided him with “technical advice . . . from some of the Cetus scientists,” J.A. 4509, information about PCR assays, id. 4514, and “the necessary reagents for the PCR reaction,” id. 4523. Stanford also admitted in the parties’ Joint Statement of Undisputed Facts that Holodniy received a PCR protocol, equipment for HIV RNA extraction, and access to equipment to perform reverse transcription of HIV RNA. J.A. 4790. It is undisputed that Holodniy took this information and material from Cetus and used them to develop the PCR assay for HIV RNA, and thus developed the inventions “as a consequence” of his access to Cetus. Even if Holodniy conceived and reduced to practice after departing Cetus, it was no later than May 14, 1992, and his research was directly related to the collaboration with Cetus. Thus, the chain of title to Holodniy’s rights leads to Roche, leaving Stanford with defective title to the rights of all the inventors. 2008-1509, -1510 13
To overcome its defective chain of title, Stanford argues that it was a bona fide purchaser under 35 U.S.C § 261 (2006). Section 261 provides: “An assignment, grant or conveyance 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.” “Generally, 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.” Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323, 1329 (Fed. Cir. 2002) (collecting cases). Stanford contends that it purchased Holodniy’s rights through his 1995 assignment of the parent application for “good and valuable consideration,” J.A. 5070, that Cetus and Roche never recorded their interests with the Patent and Trademark Office, and that Stanford received no notice of Holodniy’s countervailing assignment to Cetus. However, Stanford’s argument fails because there can be no genuine dispute that Stanford had at least constructive or inquiry notice of the VCA. While “the bona fide purchaser defense to patent infringement is a matter of federal law,” the doctrine draws upon common law principles. Rhone-Poulenc, 284 F.3d at 1328-30. “Notice” under § 261 can include constructive or inquiry notice, in addition to actual notice. See FilmTec, 939 F.2d at 1574 (noting that either actual or inquiry notice might defeat a bona fide purchaser defense). Therefore, Stanford’s claim that it remained ignorant of the VCA until shortly before the current litigation is inconsequential. The CPA established an employment relationship between Holodniy 2008-1509, -1510 14 and Stanford, and Holodniy’s PCR work at Cetus related directly to his infectious disease research at the university. J.A. 741. Moreover, Merigan, Holodniy’s supervisor at Stanford, directed Holodniy to work with Cetus and himself executed Materials Transfer Agreements with Cetus that allocated intellectual property rights. See id. 4504-05. An organization can be charged with notice of its employees’ assignments. See FilmTec, 939 F.2d at 1574 (noting that where a company founder signed away his patent rights, the company “may well be deemed to have had actual notice of an assignment”); see also Santillan v. Roman Catholic Bishop of Fresno, 163 Cal. App. 4th 4, 11 (Ct. App. 2008) (“For this purpose, there is no difference between constructive and actual notice. The rule applies to employees, who are agents of their employer.”) (citations omitted); 3 Witkin Summary of California Law of Agency § 150 (“[A] corporation may be charged with notice of matters known to its employees.”). The fact that Holodniy promised in the CPA to “not enter into any agreement creating copyright or patent obligations in conflict with this agreement” does not prevent imputation of notice to Stanford. See Restatement (Third) of Agency § 5.04 cmt. b (2006) (“Ordinarily, an agent’s failure to disclose a material fact to a principal does not defeat imputation, nor does the fact that the agent’s action otherwise constitutes a breach of a duty owed the principal.”). Stanford claims that Holodniy signed the VCA on his own behalf, not Stanford’s. Although the VCA states that Holodniy was “[a]cting as a consultant and an independent contractor,” the context of the VCA reveals that this refers to Holodniy’s status as a consultant to Cetus, not Stanford. The VCA specified a limited time period for Holodniy’s visits, restricted him from “perform[ing] consulting services” for other 2008-1509, -1510 15 companies, and listed his address as “Stanford University Medical Center, Division of Infectious Disease.” J.A. 1657-58. Stanford also argues that there was no evidence that Holodniy “had authority to act as Stanford’s agent in assigning patent rights.” Stanford’s Reply Br. 50. This contention misses the mark—Holodniy signed away his individual rights as an inventor, not Stanford’s, while performing work for Stanford after promising to assign his rights to the university. Stanford identifies no other disputed facts that could establish its bona fide purchaser status, and thus cannot prevail on this theory.
The district court held in the alternative that the Bayh-Dole Act negated Holodniy’s assignment to Cetus because it empowered Stanford to take complete title to the inventions. Congress passed the Bayh-Dole Act “to promote the utilization of inventions arising from federally supported research or development” and “to ensure that the Government obtains sufficient rights in federally supported inventions.” 35 U.S.C. § 200 (2006). The Act allows the Government to take title to “subject inventions” under certain circumstances, id. §§ 202(a), 202(b), or the “contractor” universities or inventors to retain ownership if the Government does not, id. § 202(d). Stanford contends—and the district court agreed—that Bayh-Dole allowed Stanford a “right of second refusal” to the patents after the Government refrained from exercising its rights. The court acknowledged our holding in Central Admixture Pharmacy Services, Inc. v. Advanced Cardiac Solutions, P.C. that when the Bayh-Dole Act’s provisions are violated, “the government can choose to take action; thus, title to the patent may be voidable. However, it is not void: title remains with the named 2008-1509, -1510 16 inventors or their assignees. Nothing in the statute, regulations, or our caselaw indicates that title is automatically forfeited.” 482 F.3d 1347, 1352-53 (Fed. Cir. 2007). Thus, the Act did not automatically void Holodniy’s assignment to Cetus, and provided the Government with, at most, a discretionary option to his rights. The district court noted, however, that under 35 U.S.C. § 202(d), Holodniy, as an inventor, could keep title to his inventions only “[i]f a contractor does not elect to retain title to a subject invention.” On appeal, Stanford insists that Holodniy’s rights were “contingent” upon his CPA obligations to assign them to Stanford, and that Stanford’s election of title in 1995 gave it all patent rights. Stanford’s Reply Br. 47. We are unconvinced of Stanford’s interpretation of the Bayh-Dole Act in this case. Stanford identifies no authorities or reasons why its election of title under BayhDole had the power to void any prior, otherwise valid assignments of patent rights. Stanford was entitled to claim whatever rights were still available after the Government declined to exercise its option, including the rights of co-inventors Merigan, Katzenstein, and Kozal. However, Holodniy transferred his rights to Cetus more than six years before Stanford formally notified the Government of its election of title. As previously noted, Stanford’s invention rights policy “allow[ed] all rights to remain with the inventor if possible,” J.A. 743, which supports the conclusion that Holodniy still possessed rights at the time he signed the VCA with Cetus. Just as we explained that Bayh-Dole does not automatically void ab initio the inventors’ rights in government-funded inventions, Cent. 2008-1509, -1510 17 Admixture, 482 F.3d at 1352-53, we see no reason why the Act voids prior contractual transfers of rights. 1 The ownership dispute in University of Pittsburgh v. Townsend is instructive. 2007 U.S. Dist. LEXIS 56860 (E.D. Tenn. Aug. 3, 2007), aff’d, 542 F.3d 513 (6th Cir. 2008). There, the University of Pittsburgh sought patent rights from Townsend, the inventor. The University employed Townsend and claimed all rights in his inventions, but Townsend maintained simultaneous ties with a private company, CTI. After inventing a medical scanner, Townsend assigned his rights exclusively to CTI. Critically, the University then formally elected title under the Bayh-Dole Act. Before the district court, the University argued that this election voided Townsend’s earlier assignment. To support this argument, the University cited the Northern District of California’s analysis of Bayh-Dole in the current case between Stanford and Roche. 2007 U.S. Dist. LEXIS 56860, at -61. The Townsend district court rejected this position, noting that “the University’s ostensible exercise of its right to title . . . occurred after Dr. Townsend’s assignment to CTI.” Id. at -61. The University’s Bayh-Dole election did not give it superior title, nor prevent Pennsylvania statutes of limitation from barring the University’s contract and tort claims. The Sixth Circuit noted the University’s use of Bayh-Dole, but nevertheless affirmed the statutes of limitation holding. 542 F.3d at 520 & n.1. This outcome is consistent with our understanding that claiming title under Bayh-Dole does not override prior assignments. 1 We express no opinion as to whether Holodniy’s execution of the VCA violated any provisions of the Bayh-Dole Act, or whether the Act provides the Government or Stanford some other legal recourse to recover Holodniy’s rights. Cf. Cent. Admixture, 482 F.3d at 1353. 2008-1509, -1510 18 Regardless of any state law contractual obligations between an academic and his university, “the primary purpose of the Bayh-Dole Act is to regulate relationships of small business and nonprofit grantees with the Government, not between grantees and the inventors who work for them.” Fenn v. Yale Univ., 393 F. Supp. 2d 133, 141-42 (D. Conn. 2004). Therefore, in this case, the Bayh-Dole statutory scheme did not automatically void the patent rights that Cetus received from Holodniy. 4. California Business and Professions Code § 16600 Under California law, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Cal. Bus. & Prof. Code § 16600 (2009). Stanford argues that section 16600 voids the VCA because Holodniy conceived the patented invention after departing Cetus, and the VCA violates public policy if it encompasses inventions conceived after employment terminates. Stanford also contends that once Holodniy’s research was published, it became public information, and that Roche’s interpretation of the VCA would prevent Holodniy from using this information in his later clinical studies. We find no merit in Stanford’s arguments. By the plain language of section 16600, only those contracts that prevent “engaging in a lawful profession, trade or business of any kind” are void. Stanford provides no evidence that the VCA restrained Holodniy from engaging in any profession. Indeed, the record shows that Holodniy freely continued his HIV research at Stanford, publishing articles and using the knowledge he obtained from Cetus to further the science behind the patents-in-suit. Nor does Stanford explain how Holodniy’s assignment of his rights to Cetus prohibited Holodniy from using any public information in his later research. Moreover, California 2008-1509, -1510 19 courts apply section 16600 to employment restrictions on departing employees, not to patent assignments. See Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1429 (Ct. App. 2003); D’Sa v. Playhut, 85 Cal. App. 4th 927, 934-35 (Ct. App. 2000).