The Bayh-Dole Assay: Amplification of Ownership In The Free Market?

PCR assays have been used now for almost three decades to detect and amplify the presence of viruses, genetic material, and cancerous mutations that had previously escaped diagnostic reach. Quite simply, PCR technology has been the iPhone® of medical diagnostics. It is thus not surprising that a grail of intellectual property has rooted itself in the history of its early development. The epic dispute between Stanford University and Roche Molecular Systems over PCR’s use in HIV diagnostics is just one of several gladiatorial spectacles witnessed over the history of the assay. And undoubtedly, Stanford’s attempt to use the Bayh-Dole Act to amplify its claims of patent ownership are both intellectually and politically appealing.

In the September 29, 2011 edition of the NEJM, Drs. Kesselheim and Rajkumar raise significant questions about the U.S. Supreme Court’s recent decision in Stanford University v. Roche Molecular Systems et al where a 7-2 majority ruled in favor of Roche, affirming the appellate finding that the Bayh-Dole Act does not create a presumption of institutional patent ownership on the basis of federal funding. Kesselheim et. al. highlight significant concerns and predict that the Roche decision will stifle innovation by: (i) increasing contractual jockeying between potential technology partners, (ii) increasing patent filing and prosecution by federal grantees, and (iii) ultimately threatening the ability of academic institutions to achieve reasonable returns while using federal dollars. Kesselheim et. al. conclude that an amendment to the Bayh-Dole Act is essential, and argue that “to make such an amendment more politically palatable, universities should reexamine and perhaps revamp their licensing practices to ensure that they are indeed acting as stewards of the public good, rather than simply seeking to maximize their own licensing revenues.”(1)

As a physician at an academic hospital, I salute the call for universities to be “stewards of the public good.” Having practiced corporate and intellectual property law in Silicon Valley since the late 1990’s, however, I am not sure that academic institutions should be treated differently as commercial entities. Universities and academic hospitals engage in commercial activities, as do their faculty. While such activities of course demand a necessary degree of regulation (e.g. monitoring conflicts to preserve academic integrity)(2) , the ability of these entities to participate in the marketplace relatively unfettered and relatively unaided might be critical to maintaining the most efficient and free marketplace.(3) It is at the very least a defensible position that neither universities (nor governments for that matter) should specially benefit from legislated presumptions of ownership that violate fundamental contract law, patent law, and/or freely negotiated agreements. The Supreme Court ruling in Stanford University v. Roche Molecular Systems et al might arguably be more likely to foster research and fruitful collaboration by protecting the ability of private entities including inventors, universities, and small companies to create and commercialize technology with the reasonable expectation that the benefits of novel inventorship will be preserved.(4)

Moreover, nothing in the Supreme Court’s ruling prevents academic institutions from revamping employment agreements, assignment agreements and employee policy manuals to ensure that academic and research institutions retain tighter control over employee activities and work product. Academic institutions will of course need to carefully weigh any such revamping against the need to attract faculty, researchers and staff who legitimately desire robust involvement in the private sector and in private commercial transactions. This kind of involvement has been the hallmark of innovative collaboration between the commercial sector and the academic sector.

Indeed, the Roche decision is not necessarily surprising given federal jurisprudence in analogous settings. Federal courts have shown repeated reluctance to insulate overtly noncommercial entities with special status when those entities engage in fundamentally commercial technology activities. In Farhang v. Indian Institute of Technology, a Silicon Valley technology company and California based entrepreneur filed claims in 2008 against an academic institution (that is also a governmental entity of the Republic of India) for alleged trade secret misappropriation, alleged breach of non-disclosure agreement, and alleged breach of joint venture. In 2010, the 9th Circuit declined to dismiss the defendant institution, noting that the academic and governmental entity had engaged in commercial activity and thereby fell under a well circumscribed sovereign immunity exception.(5)

For now it remains unclear whether the particular outcome in the Roche case was appropriate, noting that there were specific factual circumstances (and some admittedly counterintuitive legal principles on the technicalities of contractual assignment clauses) which make the Stanford position at least viscerally more appealing to this author. Regardless, from a transactional and litigation perspective, one critical lesson emerges from the Roche matter regardless of the nuts and bolts of the Supreme Court’s logic. Universities and private companies will need to do much more than tinker with language in existing boilerplate or freshly negotiated agreements, and the same is true for private companies entering joint ventures, engaging consultants, and the like. It is the often neglected step of actual investigation and diligence which plays out repeatedly with unexpected liabilities in litigation matters, acquisitions, and the private financing of technology companies. Contracting parties and potential joint venturers cannot merely rely on written representations but must roll up their sleeves and conduct actual diligence on the representations and/or reservations contained in typical intellectual property assignment agreements and outside consulting disclosures.

The language itself in an IP assignment clause or agreement, however iron clad it purports to be, is not enough. The third parties or employees executing such agreements may be private individuals or small entities with conflicting obligations and considerable unchecked intellectual property baggage. Such individuals or entities, bluntly speaking, often do not have the deep pockets or insurance to address any liability created by the third party technology that they often unknowingly bring to the table. Against this backdrop, it is essential to conduct diligence on any key consultant, potential joint venture partner, or recipient of confidential information, and to conduct far more rigorous diligence on third party engagements of faculty and staff.

The costs of such diligence will not be insignificant—but years of litigation and the costs of law and motion practice, pre-trial discovery, trial, and appeal are not either.

Disclosure: I am an attending physician in the Department of Medicine at Stanford University Hospital and Clinics. This article does not represent, embody or express the official views, perspectives, or opinion of Stanford University, its officers, or affiliates. As my readers know, I am principal and majority shareholder of SNS PLC (Sanjiv N. Singh, A Professional Law Corporation). SNS PLC is currently co-lead counsel in Farhang v. Indian Institute of Technology Kharagpur. This case is currently pending in U.S. District Court, Ninth Circuit. An order from the pending Farhang litigation is discussed above and cited below under Endnote 5.


[1] Kesselheim, AS and Rajkumar, R.  N Engl J Med 2011; 365:1167-1169, September 29, 2011.

[2] Bok, D. Universities in The Marketplace:  The Commercialization of Higher Education. (Princeton University Press, 2003). See p. 145.

[3] The Statement of The BioTechnology Industry Organization On The Bayh Dole Act:  The Next Twenty Five Years.  Presented to The House Science And Technology SubCommittee On Technology And Innovation.  August 27, 2007.

[4] Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc., 563 U.S. No. 09-1159 (June 6, 2011).

[5] Farhang v. Indian Institute of Technology Kharagpur et al. ORDER denying Motion to Dismiss for Lack of Subject Matter Jurisdiction.  No. C-08-02658 RMW (January 26, 2010)

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