The U.S. Supreme Court recently issued three opinions involving intellectual property law. One deals with the extent to which the Bayh-Dole Act controls patent ownership, while the other two address the evidentiary standards needed to prove patent invalidity and inducement of infringement.

Although these cases tackle disparate subjects, there is a common thread: the rights of inventors have been consistently upheld and enforced.

What the Bayh-Dole Act doesn’t do

In Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems Inc., (June 2011), the Supreme Court ruled that the Bayh-Dole Act governs only the rights of a third party receiving federal funds (a university, small business or contractor) vis-à vis the government. It does not, however, deprive the inventor of his or her rights to the invention.

That case involved Stanford University researcher Mark Holodniy who “agree[d] to assign” to Stanford all rights in any invention that he may “conceive or first actually reduce to practice” while working for Stanford.

Just months later, Cetus Corporation, which was collaborating with Dr. Holodniy’s research team, also asked him to sign a document that said: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of [my] ideas, inventions and improvements.” (Emphasis added.) Cetus was later acquired by Roche.

Stanford obtained three patents on the technology in question. Stanford sued Roche for infringement of these patents. Roche argued that Stanford had no standing to bring the lawsuit because it had not acquired Dr. Holodniy’s rights. The trial court agreed with Stanford, relying in part on the Bayh-Dole Act’s provisions concerning ownership of patents that result from federally-supported research.

On appeal, the Federal Circuit Court of Appeals disagreed, relying instead upon the contracts that the inventor had signed. It concluded that Dr. Holodniy’s initial agreement with Stanford (“I agree to assign”) was a mere promise to assign rights in the future, whereas his agreement with Cetus (“I hereby assign”) actually acted to assign rights to Cetus. Thus, the Federal Circuit instructed the trial court judge to dismiss Stanford’s claim. In its 7-2 decision, the Supreme Court surprised many anxious university law departments by upholding the ruling of the Federal Circuit.

The chief take-away from this case is that to be assured of title to an invention, a government grantee or contractor, often a university, must obtain a written assignment of rights from an inventing employee, not merely a promise to assign in the future; and should record the assignment upon filing the patent application.

Especially where parties in both the corporate and educational sectors collaborate in research, it is imperative that documents recorded at the time of filing reflect the intended allocation of rights.

Presumption of patent validity remains strong

Microsoft v. i4i Limited Partnership, 564 US at ___ (US June 9, 2011), involves a patent infringement case brought by a small Canadian software company against Microsoft Corporation. Although aware of the i4i patent, Microsoft included in Word 2003 a “Custom XML” feature that allowed users to create documents that infringed it.

I4i had sold a software product called S4 more than one year before the patent application was filed. S4 was not mentioned in the prosecution of the i4i patent. Thus, no patent examiner had reviewed the question of whether it constituted invalidating prior art.

Microsoft alleged that S4 constituted prior art that should invalidate the patent.

The trial court judge instructed the jury that, to invalidate the i4i patent, Microsoft would have to prove its case by “clear and convincing evidence.” The trial court found that Microsoft had not met this burden and awarded i4i damages of $290 million.

Microsoft appealed the case to the Federal Circuit and lost. Not satisfied, Microsoft appealed to the Supreme Court, arguing that the “clear and convincing” standard of proof was not the correct standard to apply, and that it should only have had to prove invalidity by a preponderance of the evidence.

If Microsoft had succeeded in its argument, issued patents would have been much easier to challenge than they had been to date. Many parties filed amicus briefs. Taking Microsoft’s side were Apple, the Business Software Alliance, CTIA (the Wireless Organization), EMC and Google, among others. Supporting i4i were six former USPTO commissioners, 10 universities, 19 venture capital firms, 3M, Eli Lilly, Proctor and Gamble and the Boston Patent Law Association, among others.

In considering Microsoft’s arguments, the Supreme Court reviewed more than 100 years of prior case and concluded that Congress had effectively codified the “clear and convincing” standard in 1952 when it enacted §282 of the Patent Act. The Court concluded that there was no basis for overriding that standard.

The court acknowledged that the rationale for the ‘clear and convincing’ standard was not as powerful where the patent examiner had not had the opportunity to consider the prior art that was the basis of the challenge. Nonetheless, the court suggested that the benefit of that standard was part of the bargain with the inventor, an inducement to motivate him or her to disclose the invention in the patent application process. The court saw no reason to withdraw that inducement.

As a result, those enforcing their patents will continue to enjoy a strong presumption of validity when challenged in court.

Can’t turn a blind eye

Appliance maker Sunbeam asked Pentalpha, a Hong Kong company, to design and manufactured a deep fryer that Sunbeam could sell in the United States. Pentalpha responded by knocking off an overseas model of a top-selling fryer made by SEB, a French company, but changing its cosmetic features.

The overseas model did not bear U.S. patent markings. Pentalpha hired a U.S. patent attorney to issue a clearance letter, but failed to inform him that its product was a knockoff.

Pentalpha sold the fryers to Sunbeam from Hong Kong. Sunbeam imported them into the United States and sold them here. SEB sued Sunbeam for patent infringement and Pentalpha for inducement of patent infringement. In response to the claim of inducement, Pentalpha pointed out that it had no actual knowledge of the SEB patent.

Prior decisions of the Federal Circuit had said that one must know of a patent in order to induce infringement of it. But in this case, the Federal Circuit concluded that one can be found liable for inducement by acting with “deliberate indifference” as to the existence of the patent, even if one does not have actual knowledge of the patent.

The Supreme Court has affirmed that ruling in SEB v. Montgomery Ward & Co., 563 US ___ (2011), but determined that a “willful blindness” standard should apply instead. Oddly, the court derived its willful blindness standard from criminal law, not patent law. As the test applies in the patent context, the inducement defendant must (1) subjectively believe that there is a high probability that a relevant patent exists, and (2) take deliberate action to avoid learning of that fact.

The Supreme Court found that the evidence in SEB was sufficient to support a finding of inducement. In reaching this conclusion, the Court pointed out that:

•        SEB’s fryer had growing sales, apparently because it was an innovative product;
•       The CEO of Pentalpha was himself the named inventor on a number of US patents;
•       Pentalpha chose to copy an overseas version of the fryer, one less likely to bear US patent markings;
•        Pentalpha did not inform its US patent attorney that it had knocked off an SEB product when it asked for a clearance opinion.

As a result of this opinion, attorneys who work for manufacturing companies are well-advised to consult candidly with patent counsel to evaluate downstream uses of their products that could potentially give rise to infringement claims.

Closing one’s eyes to such activity could be risky business because one can be liable for inducing infringement even with no actual knowledge of the infringed patent.

Thomas C. Carey is a partner and chairman of the business practice at Sunstein, Kann, Murphy & Timbers in Boston.