Patent Leakage at the UniversityPresentation for Technology Transfer Tactics

October 27, 2010

Jim Heitner, CEO, RogueIP, jheitner@rogueip.comKannan Grant, OTC Director, UAHuntsville, kannan.grant@uah.edu

David Huizenga, Ph.D., Partner, Arnall Golden Gregory, LLP, dh@agg.com

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Outline• What is IP Leakage?• Why Does it Matter?– Prevalence– Significance

• Legal Implications– Does Stanford v. Roche Change the

War Stories• Risk Management• UAHuntsville v. Nektar

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• Knowledge and intangible capital assets that are created in whole or in part with employer capital that transfer without granting ownership rights to the employer

• Includes nefarious and accidental instances

• Includes patents, trademarks, copyrights

• Not Unique to Universities: Occurs in any knowledge creation setting

What is IP leakage?

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• This session emphasizes:• Patentable discoveries

(patents and patent applications)

• University/Research Institution setting

• Pre- and Post- Exploitation• Patent Assignments –

synonymous with ownership

What is IP leakage?

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Examples of IP leakage?

• Employee Initiated (University/TLO Bypass)

• University/TLO Initiated (Policy and Procedures)

• Third Party Initiated

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Employee Initiated• Bypasses University TLO and Patent Management

Process

• Arrogance (full knowledge of system)– Assigns rights to start-up – Assigns rights to corporate partner

• Ignorance (lacks knowledge of system or how a situation should be handled)– Assigns rights to sponsoring partner without

understanding contract terms– Unsure how to manage dual appointment – Graduate students and visiting faculty never introduced

to patent policy

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University/TLO Initiated• Policy and Assignment Procedures do not solidify

ownership – Language in IP assignment documents do not clarify

when an assignment takes place (Stanford v. Roche)– Signatures on assignments never captured– Typos in patent records

• Procedures for new employees, visiting faculty, and graduate students – On-boarding, pinch points, and exits

• Enforcement practices fail to identify, correct, and enable rights – Failure to act within statue of limitations after identifying

potentially bypassed IP (Pitt v Townsend, 2008)

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Third Party Initiated• Another party files, prosecutes, and/or

exploits patentable inventions. – Faculty as consultants – tends to occur without

patent protection*– Visiting faculty– Graduate students continue work in new

positions– Inventions identified in sponsored research

• Not only a Corporate-University dynamic– Corporations, other Universities, government

agencies– Dual faculty appointments increase risk*Martinelli, A.,Meyer,M.,von Tunzelmann,N.,2008. Becoming an entrepreneurial university? A

case study of knowledge exchange relationships and faculty attitudes in a medium-sized,research-oriented university. The Journal of Technology Transfer 33,259–283.

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Is IP Leakage Prevalent? • Many published studies on university

technology commercialization. Examples here:– Markman, etal “Full-Time Faculty or Part-

Time Entrepreneurs” (2008)– Audretsch, et al, “Does Policy Influence the

commercialization route? Evidence from National Institutes of Health funded scientists” (2010)

• RogueIP™ Rates

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Markman Study• Random sample of 54 U.S. universities and 23 394 faculty

members, 3200 listed as inventors on patents, and 7650 total patents from 1989-2003 (TLO interviews and AUTM Data)

• 33% of issued patents were transferred via bypass of university TLO (Activity)

• 42% of faculty who were awarded patents bypassed their university at least once (Selectivity)

• IP Policy and “Inventor Share” effect bypass frequency

G.D. Markman, P. T. Gianiodis, and P. H. Phan “Full-Time Faculty or Part-Time Entrepreneurs.” IEEE Transactions on Engineering Management (2008) 55; 1.

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Audretsch Study• Interviewed 398 distinct patenting scientists from the top

20% NCI funded research programs (1998-2002) •

• 29.8% of Scientists bypassed TLO at least once

• “Scientists at Ivy League universities appear to be less likely to commercialize their intellectual property through the technology transfer office.”

• “intellectual property that is licensed and lower in potential value tends to be commercialized through the office of technology transfer.”

• A call for more detailed data collection (at the inventor level)

T. Aldridge, D.B. Audretsch. “Does Policy Influence the commercialization route? Evidence from National Institutes of Health funded scientists” Research Policy 39 (2010) 583–588

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RogueIP™ Rates• Direct Searches (US only)

• UAHuntsville – 2700 employees searched; 25 employees found

• Three Unversity Samples -- 75 employees total; 19 employees found

• Indirect Searches (10 institutions and 1000+ inventors searched)• University Inventors identified through public

databases • Searched as Inventors with narrowing criteria (to

reduce error such as unlikely employment dates)• 10 – 40% RogueIP™ Rates (Inventors searched /

rogue inventors found )

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Is IP Leakage Significant? • Popular Examples:

• UAHuntsville and Nektar(2006) – $25M Settlement

• UAB/Emory and Idenix (2008) – $11M Settlement• Yale and Fenn (Faculty) (2005)-- $1M Decision• Pitt and Townsend (Faculty)(2008)– Lost

Royalties from $4-8B sales• U of Missouri and Suppes (2008) – Ongoing• Stanford and Roche (2009) – Lost Royalties (and

more)• Auburn vs. IBM (2009) – Ongoing

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Significance Greater than $$$

• Largely Unaddressed– “Not in my house” and “not my problem”– Rogue inventors are not always discussed– Difficult to know how others are handling– Many times even if a university ”handles” a

situation it is done in confidence– A reputation of being “anti-professor” is not

good

• Stanford v. Roche may be forcing attention

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War Stories of IP leakage and How Stanford v. Roche

Changes Things for Universities

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Fact Pattern for Illustration• All of the facts come from real cases I have been

involved with

• Not all facts happened in the same case

• All cases settled with positive results for university

• The facts and presentation are designed to highlight overlap between cases

• Not illustrative of all leakage, but illustrative of cases worth pursuing

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War Stories: In the Beginning . . .

• High Profile Professor (HPP)– Many patents with university– Licensed to many different companies– Prolific, connected, and powerful

• HPP begins consulting with one of the licensees– May or may not have permission– At beginning seems innocent– Consults relating to technology of

licenses

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War Stories: The Leak• The company performs R&D

related to technology

• The company files patent applications related to license– Inventor may or may not be named as

inventor

• Inventor has maintained relationship with company

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War Stories: The Situation • Product success

– Usually only pursue when stakes are high

• Often relationship with company is still “good”

• There is a “feeling”– Not all is right

• There is an “event”– Slight, statement, news article

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War Stories: The Issues• How much? How public?• Relationships: Professor , Academic community, In and out, Licensee, Industry• Mission(s) (University, Technology Commercialization Office, Department,

General Counsel)– Benefit the public– Academic freedom/integrity– All Bayh-Dole issues– Financial

• The Facts– The license– The professor, the relationship, the leak (cannot overstate how important)

• Substantial effort (in complex cases could be more than $400K– The “situation”

• Product old, product just getting ready to be launched, company public, going public, collaborations in the works

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War Stories: The Resolution• Gather Facts

• Assess Goals• Develop Game Plan

– Get buy in, align all stake holders– Be committed

• My Preference (always need to customize for situation)– Don’t “hold up”

• Pick reasonable, defendable number stick to it– Find “right” solution– Be open and communicative, don’t posture– Be creative– Be value adding

• What can you expect– Money, contracts, amended licenses– Maintain relationships

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Does Stanford v. Roche Change the War Story?

• Stanford v. Roche, 583 F.3d 832 (Fed.Cir 2009)

• Case deals with Ownership of patents and when that ownership can be transferred

• Facts– Researchers at Stanford collaborated with

Cetus Inc. on development of methods for using PCR for HIV quantitation

– Stanford eventually obtains patents– Cetus purchased by Roche

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District Court Holding• Stanford approached Roche to take a license to the

patents covering the developed method

• Roche denied

• Suit was filed in Northern District of California and Roche defended by asserting amongst other things, Stanford lacked standing because they lacked ownership

• Court Denied Roche’s ownership arguments

• Both Appealed

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Federal Circuit - 1• Roche could not assert ownership because of the

CA statute of limitations

• Roche provided Affirmative Defense of lack of standing because lack of ownership by Stanford

• The Federal Circuit looked at – “the question of whether contractual language effects

a present assignment of patent rights, or an agreement to assign rights in the future.”

• “Agree to assign” needs future transfer and “do hereby assign” is a present assignment (at time of invention), needing no future document

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Federal Circuit - 2• When competing agreements, hold

that once the invention is “complete” the assignment has occurred (if hereby assign language is used)

• Subsequent assignments fall under standard contract/ownership law

• Federal Circuit dismissed– Bona fide purchaser under 35 USC § 261– Bayh-Dole negates

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Where are you Bayh-Dole? • Does Bayh-Dole allow assignment before title obtained from Government?

• Federal Circuit (holding or by inference)– Stanford v. Roche

• assignment ok without obtaining

– Campbell Plastics Eng’g & Mfg., Inc. v. Brownlee 389 F.3rd 1243 (Fed.Cir. 2004)• Government’s decision to demand tiitle is discretionary

– Cent. Admixture Pharmacy Servs., Inc. v. Cardiac Solutions, P.C. 482, F.3rd 1347 (Fed.Cir. 2007)• “When a violation occurs, 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 inventors or their assignees. Nothing in the statute, or our caselaw indicates that title is automatically forfeited. The government must take an affirmative action to establish its titled and invoke forfeiture.”

• Fenner Investments Inc. v. Hewlett Packard Co., WL 3275758, (April 14, 2010 E.D.Texas)

• Patents in suit, defended against by asserting the plaintiff had defective chain of title because title was never obtained from government as required by Bayh-Dole

• Court found that title was the inventors’ in light of Stanford

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What should IP owners do?

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Address Practices and Policies

1. Get present assignments from all employees– “I do hereby assign all know how, trade secrets, inventions,

patent applications, patents, and all rights therein in work performed in the scope of my employment at . . . “

– “I agree to execute any documents related to said assignment . . . “

2. Get assignments at pinch points in process– Grants– Invention disclosures– Patent applications

3. Request to see all consulting agreements, MTAs etc4. Require all inventors to provide University IP policy

to 3rd parties– Could do this automatically through email tags, for example

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Address Practices and Policies

5. Require 3rd parties to interact with/provide agreements to University if interacting with inventors (have as a clause in all licenses, and get on website, etc.

6. Always have know how and trade secrets be part of your licenses

– Both university wide and inventor specific

7. Get to Uniform agreements where can

8. Get resolutions into employment agreements

– If you do X, then Y

9. Educate inventors

10. Create a carrot vs. stick culture

– Make them want to disclose

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Proactively Search Patent Assignment Records are Public Possible Search Methods

Manual Search of Current and Past Personnel Patent-based Publication-based

Engage professional or legal counsel Audit Past and Current Sponsors Industry or Geographical specific

screening RogueIP™ as a rapid, proactive service

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UAHuntsville vs.

Nektar Therapeutics

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History - Timeline1990 – Professor discloses invention that involves a

process called PEGylation

1990- UAHuntsville a patent

1992 – Professor forms a company (Shearwater Polymers) and licenses the technology from UAHuntsville

1993-PEGylation patent was issued

2001- Nektar Therapeutics acquires Shearwater

2004 – Royalties to UAHuntsville cease

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The Discovery• Nektar notifies UAHuntsville that products

sold did not make use of claims covered in the PEGylation patent owned by UAHuntsville

• After further investigation 28 additional patents relating to the PEGylation, where UAHuntsville professor was an inventor, discovered

• Patents were assigned to Shearwater Polymers while the professor was an employee of UAHuntsville

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The Response• UAHuntsville files a complaint and enters

into litigation with Nektar Therapeutic and the professor (no longer with UAHuntsville)

• Grounds for filling the complaint: – patent infringement– breach of contract royalty obligations– violation of Alabama Trade Secret Act– unjust enrichment

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The Argument

• UAHuntsville claimed that the professor, without UAHuntsville's knowledge, made a number of other discoveries related to the PEG technology while still an employee

• The professor was required to notify UAH of any discovery related to the original PEG patent as per the employment contract

• Patents are "obvious derivatives" of and "equivalent" to the original PEG patent.

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The Settlement

WIN – WIN • 2006 to avoid a lengthy court battle

UAHuntsville, Nektar, and professor enter into a settlement awarding: – UAHuntsville :

• $25M– Nektar Therapeutics:

• ownership and clear title of all PEGylation patents

• A paid up, royalty-free exclusive license

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The After-Math• Board of Trustees (BOT) mandate

audit of all employees within the University of Alabama System for IP Leakage

• Audit on a yearly basis

• Report findings of such audit to BOT

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UAHuntsville Takes Proactive Steps

• Educate faculty, staff, and students

• Educate companies that conduct research at universites

• Closer scrutiny of consulting agreements

• Requirement to assign IP once the invention disclosure is made

• Explores more efficient search methods (RogueIP™)

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Summary• Patent Leakage is prevalent and significant to

University technology transfer

• Changes in legal environment is a call for proactivity

• There are best practices and tools available

• Inadvertant discovery or Rogue inventors, $25M settlements, and Board of Trustee Mandates can be effective incentives!!!

• Feel Free to follow up with Jim, Kannan, or David.

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Patent Leakage at the UniversityPresentation for Technology Transfer Tactics

October 27, 2010

Jim Heitner, CEO, RogueIP, jheitner@rogueip.comKannan Grant, OTC Director, UAHuntsville, kannan.grant@uah.edu

David Huizenga, Ph.D., Partner, Arnall Golden Gregory, LLP, dh@agg.com

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