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Plaintiff Lacked Standing to Sue for Patent Infringement Where an Inventor Validly Transferred His Titleto a Third Party Before Reducing It to Practice

September 30, 2009

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Last Month at the Federal Circuit - October 2009

Judges: Linn (author), Prost, Moore

[Appealed from: N.D. Cal., Judge Patel]

In Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, Inc.,Nos. 08-1509, -1510 (Fed. Cir. Sept. 30, 2009), the Federal Circuit affirmed the district court’s ruling that the counterclaim of ownership by cross-appellants Roche Molecular Systems, Inc., Roche Diagnostics Corporation, and Roche Diagnostic Operations,Inc. (collectively “Roche”) was barred by California statutes of limitation, but claims for infringement by appellant Board of Trustees of the Leland Stanford Junior University (“Stanford”) failed for lack of standing due to Stanford’s defective title in the patents-in-suit.

The patents-in-suit, U.S. Patent Nos. 5,968,730(“the ’730 patent”), 6,503,705 (“the ’705 patent”),and 7,129,041 (“the ’041 patent”), claim methods for quantifying the Human Immunodeficiency Virus(“HIV”) in human blood samples and correlating those measurements with the therapeutic effectiveness of antiretroviral drugs. The claimed methods use polymerase chain reaction (“PCR”)to measure ribonucleic acid (“RNA”) from HIV in the blood plasma of humans taking such drugs. All three patents descend from a common parent. Three Stanford researchers—Mark Holodniy, Thomas Merigan, and David Katzenstein—are named inventors on all three patents.

Stanford sued Roche in the Northern District of California on October 14, 2005, alleging infringement. Roche answered and counterclaimed against Stanford, Merigan, and Holodniy, asserting, inter alia, that Stanford lacked standing and that Roche possessed ownership, license, and/or shop rights to the patents through Roche’s acquisition of Cetus’s PCR assets. Roche pleaded its ownership theory as a DJ counterclaim, an affirmative defense, and a challenge to Stanford’s standing to sue for infringement.

The parties cross-moved for SJ on Roche’s rights. The district court construed Roche’s pleading under Fed. R. Civ. P. 8(c) as a counterclaim but not as an affirmative defense. The district court held that (1) Roche’s ownership claims were barred by California statutes of limitation, laches, and the Bayh-Dole Act (“the Act”); (2) Roche’s license claims failed because Stanford never consented to Roche’s acquisition of Cetus’s patent licenses; and (3) Roche lacked shop rights. Roche petitioned for a writ of mandamus to vacate the ruling, but the Court denied it.

After a Markman hearing, the district court construed certain claim terms, whereupon Roche moved for SJ that the asserted claims were invalid as obvious. The district court ruled in Roche’s favor. Stanford appealed the district court’s claim construction and invalidity holding, and Roche cross-appealed the judgment regarding the parties’ respective rights in the patents.

On appeal, Stanford challenged the propriety of Roche’s cross-appeal on grounds that Roche’s license arguments did not seek to modify the judgment below and therefore were not the proper subject of a cross-appeal. The Court disagreed. Reasoning that Stanford’s appeal of the district court judgment applies only to the asserted claims of the patents-in-suit and that Roche’s ownership and license arguments apply to the patents as a whole, the Court held that Roche’s motion sought to enlarge its own rights under the judgment, and such efforts are the proper subject of a cross-appeal.

Before the district court, Roche had tried to defeat Stanford’s suit based on Stanford’s defective title and to obtain a judgment that it owned Holodniy’s interest in the patents-in-suit. The Court agreed with the district court that California’s statutes of limitation barred Roche’s counterclaim for a judgment of ownership, but rejected the district court’s holding that such determination defeated Roche’s ownership and standing defenses. The Court held that, pursuant to Rule 8(c)(2), the district court abused its discretion by striking Roche’s affirmative defense that Stanford has defective title to the patents-in-suit. According to the Court, Rule 8(c)(2) generally favors defendants by construing responsive pleadings liberally to maximize the defendant’s available legal theories, and it allows a party to plead alternative statements. The district court was thus obligated to consider Roche’s counterclaim and defenses.

The Court also held that California law allows a party to raise a defense at any time, even if a claim would be barred by a statute of limitations. Thus, California’s statutes of limitation regarding ownership disputes would not bar Roche’s defense of ownership. The Court also found Stanford’s assertions of laches defective for similar reasons. As for Stanford’s equitable estoppel claims, the Court held that they failed for lack of evidence that Roche made any misrepresentations or concealed any facts about ownership. The Court noted that Roche’s defense challenging Stanford’s standing due to defective title was critical, stating, “It is well settled that questions of standing can be raised at any time and are not foreclosed by, or subject to, statutes of limitation.” Slip op. at 10.

According to the Court, the substantive question of who owns the patents-in-suit turned on whether the relevant patent assignment clauses created an automatic assignment or a mere obligation to assign. Holodniy signed multiple contracts regarding the invention rights in dispute. The Copyright and Patent Agreement (“CPA”) with Stanford, for example, states that Holodniy “agree[s] to assign or confirm in writing to Stanford and/or Sponsors” the rights to inventions he may conceive or actually reduce to practice. Id. at 11 (emphasis omitted). The Court held that this language shows only an agreement to assign Holodniy’s invention rights at some future time, so Stanford did not obtain title to Holodniy’s inventions at the time of signing nor at the time of invention. The Visitor’s Confidentiality Agreement (“VCA”) with Cetus, meanwhile, recites, “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements.” Id. at 12 (emphasis omitted). According to the Court, such language served to immediately transfer to Cetus equitable title in Holodniy’s inventions. In addition, legal title vested in Cetus on May 4, 1992, when the parent application for the inventions was filed. Thus, the Court determined that Holodniy had no rights to transfer when he subsequently tried to assign them to Stanford on May 4, 1995.

The Court gave little consideration to Stanford’s assertions that a genuine factual dispute existed regarding whether the patents arose as a consequence of Holodniy’s access to Cetus’s facilities, as required under the VCA. According to the Court, it is undisputed that Holodniy received from Cetus a PCR protocol, equipment for HIV RNA extraction, and access to necessary equipment that he used to develop the HIV RNA assay. Moreover, even if Holodniy conceived and reduced to practice the invention after departing Cetus, this event took place no later than the application date of May 14, 1992, and his research was still directly related to the collaboration with Cetus. Accordingly, the Court held Holodniy’s later attempt to transfer title to Stanford in 1995 was still defective. The Court also rejected Stanford’s argument that it was a bona fide purchaser under 35 U.S.C. § 261 on grounds that Stanford had constructive notice of Cetus’s claims to Holodniy’s invention. According to the Court, a bona fide purchaser is one who purchases legal title to property in good faith for valuable consideration and without notice (constructive or actual) of any other claim of interest. The Court found that Stanford received constructive notice of Cetus’s interest at least through Holodniy’s employment by Stanford, and that, because Holodniy executed the VCA, his knowledge of it was imputed to his employer. Moreover, the Court also found that Stanford had similar notice through Holodniy’s supervisor, who directed Holodniy to work with Cetus and executed agreements of his own that transferred intellectual property rights to Cetus. Although Stanford asserted that Holodniy signed the VCA solely on his own behalf, not Stanford’s, the Court found that his argument missed the point. According to the Court, the VCA indicates that Holodniy was acting as an independent contractor with respect to Cetus, not with respect to Stanford, and that “Holodniy [had] signed away his individual rights as an inventor, not Stanford’s.” Id. at 15-16.

The Court overruled the district court’s holding that the Act negated Holodniy’s assignment to Cetus and that it empowered Stanford to take complete title to the inventions. The Court noted that 35 U.S.C. §§ 200, 202 allow the government to take title to “subject inventions” under certain circumstances, or the “contractor” universities or inventors to retain ownership if the government does not. Citing prior rulings, however, the Court held that nothing in the statutes, regulations, or Federal Circuit case law indicates that title is automatically forfeited when the Act’s provisions are violated. At most, the Act would provide the government with a discretionary option to Holodniy’s rights. Concerning Stanford’s rights, the Court held that its election of title under the Act also did not have “the power to void any prior, otherwise valid assignments of patent rights.” Id. at 17. Critically, Stanford’s claim of title under the Act occurred after Holodniy’s valid transfer of rights to Cetus (six years after), and the Court explained that such election cannot give Stanford superior title to a prior valid assignment.

The Court saw no merit in Stanford’s argument that Cal. Bus. & Prof. Code § 16600 (2009) voids the VCA. The Court noted that under section 16600, every contract is void to the extent that it restrains anyone “from engaging in a lawful profession, trade, or business of any kind.” Id. at 19. The Court found that Stanford provided no evidence that the VCA restrained Holodniy from engaging in any profession; rather, the record shows that Holodniy continued his research, published articles, and further developed the technology after ending his work at Cetus. Moreover, the Court held that section 16600 applies to restrictions on departing employees, not to assignments of patent rights.

The Court applied California statutory limitations law to determine that a four-year deadline applies to Roche’s DJ action requesting a judgment that it owns the patents-in-suit. Noting that such ownership disputes are normally a matter of state law, the Court held that Cal. Civ. Proc. Code §§ 337(1) and 343 (2009) apply to Roche’s claims and both set a limit of four years. The Court stated that tolling begins for a DJ action when the corresponding claim for damages or injunction accrues, but tolling is delayed until the plaintiff discovers, or has reason to discover, the cause of action. The Court agreed with the district court that Roche’s claim accrued no later than April 2000. The Court found that Stanford’s slide presentation to Roche on April 6, 2000, asserted Stanford’s ownership of the HIV RNA assays, indicated that applications descending from the parent were pending, and stated that Stanford was offering licenses to Roche for the relevant patents (including those yet to issue). The Court reasoned that these representations directly contradicted the transfer of rights manifested in the VCA and therefore put Roche on notice that Stanford was claiming rights to Holodniy’s inventions.

The Court rejected Roche’s argument that the cause of action for patent ownership does not accrue until each patent issues. The Court distinguished Stark v. Advanced Magnetics, Inc., 29 F.3d 1570, 1576 (Fed. Cir. 1994), which held otherwise and was cited by Roche, on grounds that the applications at issue in Stark were secret and the challenging party thus lacked actual knowledge. Roche, by comparison, had explicit notice that Stanford intended to secure additional patents to the same subject matter at least through the April 2000 slide presentation. Moreover, the Court found that the principle stated in Stark, that each patent is a separate chose in action, concerned whether an action for infringement could be brought before a patent issues, not whether a party had to wait until a patent issued to challenge ownership. Consequently, the Court found Stark inapplicable in this case.

The Court also rejected Roche’s argument that its holding in DDB Technologies, L.L.C. v. MLB Advanced Media, L.P., 517 F.3d 1284 (Fed. Cir. 2008), precludes application of state statutes of limitation to patent ownership claims. The Court distinguished DDB on grounds that its holding applied in the limited instance where applicable state law prevents an assignor from urging estoppel or waiver against an assignee. Finding no such California law, the Court upheld the district court’s decision that the California statutes of limitation apply to Roche’s claims, and that the statutes bar Roche’s claims of ownership in the patents-in-suit.

Finally, the Court held that Stanford’s inability to establish that it possessed Holodniy’s interest in the patents-in-suit still undermined Stanford’s right to assert its cause of action against Roche, despite the running of the statute of limitations against Roche’s claim of ownership. The Court reasoned that Stanford could not establish that it perfected ownership and, consequently, joinder of all plaintiffs in the suit, regardless of whether Roche could demonstrate its ownership. According to the Court, Stanford therefore lacked standing to sue Roche, the district court lacked jurisdiction over Stanford’s infringement claim, and the district court should not have addressed the validity of the patents. Accordingly, the Court vacated the district court’s finding of invalidity and remanded the case for dismissal due to lack of standing.

Summary authored by Sean A. O'Donnell, Ph.D., Esq.