Psst! Wanna Buy a Bridge? Ip Transfers of Non-existent Property

• Jurisdiction: United States,Federal
• Publication year: 2015
• Citation: Vol. 31 No. 3

Psst! Wanna Buy a Bridge? IP Transfers of Non-Existent Property

Stephen T. Black

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PSST! WANNA BUY A BRIDGE? IP TRANSFERS OF NON-EXISTENT PROPERTY

Stephen T. Black^*

ABSTRACT

It is common practice when hiring a researcher at a university or a laboratory to require the new employee to sign a patent transfer agreement—essentially to agree to give to the employer any inventions that the employee may conceive of during his employment. However, the nature of that pre-invention agreement—which until 1991 was universally thought of as imposing an equitable duty but not as an actual transfer of legal title to an imaginary asset—has been changed by the Federal Circuit and the U.S. Supreme Court.

This Article reviews more than 170 years of legal history dealing with transfers of non-existent assets, and argues that the concept of an "automatic" assignment in patent law rests on shaky ground. Instead, our system of IP law is much better served by a return to common law principles—both "first in time, first in right" and "you may not give what you do not own."

Q: Are you sure it's for sale?
A: Why else would it have a for sale sticker on it?¹

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INTRODUCTION

Let's start with a story about the Eiffel Tower and Victor Lustig:

In May of 1925, Lustig traveled to Paris with Dapper Dan Collins, another confidence man. While reading the newspaper one afternoon, Lustig noticed a small article in the paper that claimed that the Eiffel Tower was in great need of repair. The cost of the repair job was very prohibitive and there was a brief comment that the government was actually exploring the idea that it might be cheaper to rip it down than to repair it.
Ding!
A bell went off in Lustig's head. He decided that he would be the one to sell the rights to tear down the tower. First, he had a counterfeiter create official government stationary and personally "appointed" himself to the official position of Deputy Director General of the Ministère de Postes et Télégraphes. Then, letters were sent on the official letterhead to five different scrap iron dealers. The letters were purposefully vague and simply invited them to his hotel suite to discuss a possible government contract.
After entertaining these men for a bit at the hotel, Lustig made the surprise announcement that the government was indeed scrapping the Eiffel Tower. He noted that the tower had been built in 1889 and was never intended to be a permanent structure. He was careful to stress that this was a very controversial decision on the government's part, so the men had to keep quiet regarding the tower's demise or risk public outcry.
Four days later, all of the dealers submitted their bids. But, Lustig really didn't care who offered the highest bid, only who was the best mark. The Count had already chosen a man named André Poisson as the lucky victim. Lustig informed Poisson that he was the winner, but hinted that there was still a bit of a problem. He described the life of a public servant, one in which they were expected to dress and entertain on a lavish scale, yet

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were paid a small pittance. Poisson quickly realized that Lustig was asking for a bribe and reached in his pocket and peeled off a few large bills from his pocket to secure the deal. Lustig took the bribe and gladly accepted Poisson's rather handsome offer for the tower.
After the scheme was complete, Lustig and Dapper Dan quickly drove off to the haven of Austria. They made no attempt to hide themselves and lived the life of luxury at Poisson's expense. Each day, Lustig checked the Paris newspapers for news of the rip-off. But it was to never happen. Lustig concluded that Poisson was too embarrassed for falling into Lustig's trap and had decided to eat his loss. Lustig knew he was in the clear and headed back to Paris and pulled the same exact scam with five different scrap iron dealers.²

In discussing property, or at least the type of property that is tangible, we sometimes confront the situation where the seller does not actually own the property that he is trying to sell. This may be due to fraud, a mistake (either on the part of the parties or on the part of the recording system), or subsequent legal action. In any event, the doctrine of after acquired title serves to protect the grantee of the property and the recording system.

The so-called "doctrine of after-acquired title" deals with the rights of a grantee (and his successors) who accepts a deed or other conveyance from a grantor then without title, but who thereafter acquires it. The problem asserts itself in many areas of the law: mortgages and other voluntary liens on real property, conveyances and voluntary liens by a married woman of her separate property, conveyances and liens on the homestead community property by the husband, rights of adverse possessors claiming through deeds, rights of creditors of the grantor, and the interrelation of rights of a purchaser as affected by the recording

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acts.³

The doctrine is frequently cited as estoppel—the grantor is not allowed to claim that she did not transfer the property on the grounds that she did not own it at the time.⁴ However, the doctrine has not been really applied in the context of intangible property. For example, it is frequently the case that a public university will have its employees—professors and other researchers—sign an agreement to transfer future inventions to the university.⁵

Such was the case with Dr. Holodniy and Stanford University:

In 1985, a small California research company called Cetus began to develop methods for quantifying blood-borne levels of human immunodeficiency virus (HIV), the virus that causes AIDS. A Nobel Prize winning technique developed at Cetus—polymerase chain reaction, or PCR—was an integral part of these efforts. . . . .
In 1988, Cetus began to collaborate with scientists at Stanford University's Department of Infectious Diseases to test the efficacy of new AIDS drugs. Dr. Holodniy joined Stanford as a research fellow in the department around that time. When he did so, he signed a Copyright and Patent Agreement (CPA) stating that he "agree[d] to assign" to Stanford his "right, title and interest in" inventions resulting from his employment at the University.
. . . .
. . . .Holodniy's supervisor arranged for him to conduct research at Cetus to learn about PCR. As a condition of gaining

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access to Cetus, Holodniy was required to sign an agreement stating that he "will assign and do[es] hereby assign" to Cetus his "right, title and interest in . . . the ideas, inventions, and improvements" made "as a consequence of [his] access" to Cetus. Working with Cetus employees, Holodniy devised a PCR-based procedure for measuring the amount of HIV in a patient's blood. Upon returning to Stanford, he and other Stanford employees tested the procedure.
. . . .
Over the next few years, Stanford obtained written assignments of rights from the Stanford employees involved in refinement of the technique, including Holodniy, and filed several patent applications related to the procedure. Stanford secured three patents to the HIV measurement process.
In 1991, Roche Molecular Systems, a company that specializes in diagnostic blood screening, acquired Cetus's PCR-related assets, including all rights Cetus had obtained through agreements like the VCA signed by Holodniy. After conducting clinical trials on the HIV quantification method developed at Cetus, Roche commercialized the procedure. Today, Roche's HIV test "kits are used in hospitals and AIDS clinics worldwide."
. . . .
In accordance with the Act's requirements, Stanford notified NIH that it was electing to retain title to the invention and conferred on the Government a license to use the patented procedure.
Petitioner, the Board of Trustees of Stanford University, filed suit against respondents (Roche), claiming that their HIV test kits infringed Stanford's patents. Roche responded that Holodniy's agreement with Cetus gave it co-ownership of the procedure, and thus Stanford lacked standing to sue it for patent infringement. Stanford countered that Holodniy had no rights to assign because the University had superior rights under the Bayh-Dole Act. The District Court agreed with Stanford and

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held that under the Bayh-Dole Act, Holodniy had no rights to assign to Cetus. The Court of Appeals for the Federal Circuit disagreed, concluding that Holodniy's agreement with Cetus assigned his rights to Cetus, and thus to Roche. It also found that the Bayh-Dole Act did not automatically void an inventor's rights in federally funded inventions. Thus, the Act did not extinguish Roche's ownership interest in the invention, and Stanford was deprived of standing.⁶

This is all well and good. The Stanford case highlighted a problem: what happens to competing IP transfer agreements? But there was a bigger problem that the court decided to gloss over.

The District Court held that the "VCA effectively assigned any rights that Holodniy had in the patented invention to Cetus," and thus to Roche. But because of the operation of the Bayh-Dole Act, "Holodniy had no interest to assign." The court concluded that the Bayh-Dole Act "provides that the individual inventor may obtain title" to a federally funded invention "only after the government and the contracting party have declined to do so."
The Court of Appeals for the Federal Circuit disagreed. First, the court concluded that Holodniy's initial agreement with Stanford in the Copyright and Patent Agreement constituted a mere promise to assign rights in the future, unlike Holodniy's agreement with Cetus in the Visitor's Confidentiality Agreement, which itself assigned Holodniy's rights in the invention to Cetus. Therefore, as a matter of contract law, Cetus obtained Holodniy's rights in the HIV quantification technique through the VCA. Next, the court explained that the Bayh-Dole Act "does not automatically void ab initio the

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