Board of Trustees of the Leland Stanford Junior University v. Roche (CAFC 2008-1509, -1510 revised) precedential

PCR is a biochemical technique that enables measurement of relatively small quantities of nucleic acids by iteratively and exponentially "amplifying" a sample to detectable levels.

Roche answered and counterclaimed against Stanford, Merigan, and Holodniy [two of the name inventors], asserting, inter alia, that Stanford lacked standing to maintain the cause of action against Roche, that Roche possesses ownership, license, and/or shop rights to the patents through Roche's acquisition of Cetus's PCR assets, and that the asserted patent claims were invalid. Roche pleaded its ownership theory in three forms: as a declaratory judgment counterclaim, an affirmative defense, and a challenge to Stanford's standing to sue for infringement. Roche's First Am. Compl. 6-7, 13, 24.

Cross-moved summary judgment motions resulted in the district court construing "Roche's pleading as a counterclaim but not an affirmative defense, reasoning that "Roche's claims of ownership of the patents and that Stanford lacks standing as the non-exclusive owner of the patents seek to expand Roche's current rights, and are properly viewed as counterclaims subject to the applicable statute of limitations.""

The district court denied Roche's motion in full and granted Stanford's motion in part, finding that (1) Roche's ownership claims were barred by California statutes of limitation, laches, and the Bayh-Dole 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 to the patents. Id. at 1124. Roche petitioned this court for a writ of mandamus to vacate the district court's ruling. We denied Roche's petition. In re Roche Molecular Sys., Inc., 516 F.3d 1003 (Fed. Cir. 2008).

After briefing and a Markman hearing, the district court then construed several claim terms. Bd. of Trs. v. Roche Molecular Sys., Inc., 528 F. Supp. 2d 967 (N.D. Cal. 2007). Roche then moved for summary judgment that the asserted claims were invalid. The district court granted the motion, holding all asserted claims obvious. Invalidity Op. at 1049.

On to appeal.

Roche tried to grab an ownership interest via Holodniy's interest, but the district court said that was water under the bridge ("applicable California statutes of limitation and the doctrine of laches foreclosed Roche's counterclaim for a judgment of ownership"), with which the CAFC concurred. But, "we do not agree that such determination prevents Roche from asserting Stanford's lack of ownership of Holodniy's interest as a defense and a challenge to Stanford's standing to maintain its action against Roche."

The district court denying Roche's affirmative defense was ruled a mistake by the appeals court, as it should have at least heard the argument out. [Below gives the gist, but more case law can be found within the CAFC decision.]

Rule 8(c)(2) provides: "If a party mistakenly designates a defense as a counterclaim, or a counterclaim as a defense, the court must, if justice requires, treat the pleading as though it were correctly designated, and may impose terms for doing so." The Federal Circuit "defers to the law of the regional circuits on matters of procedural law that do not implicate issues of patent law." Duro-Last, Inc. v. Custom Seal, Inc., 321 F.3d 1098, 1106 (Fed. Cir. 2003).

We conclude that the district court abused its discretion by striking Roche's affirmative defense and refusing to adjudicate it on the merits. Rule 8(c)(2) generally applies if a party "mistakenly designates" its arguments. There is no indication that Roche erred when it pleaded ownership as both a declaratory judgment counterclaim We conclude that the district court abused its discretion by striking Roche's affirmative defense and refusing to adjudicate it on the merits. Rule 8(c)(2) generally applies if a party "mistakenly designates" its arguments. There is no indication that Roche erred when it pleaded ownership as both a declaratory judgment counterclaim and an affirmative defense, nor any reason why Roche could not have pleaded both to preserve its arguments.

Under California law, "a defense may be raised at any time, even if the matter alleged would be barred by a statute of limitations if asserted as the basis for affirmative relief." Styne v. Stevens, 26 Cal. 4th 42, 51 (2001). The Supreme Court has repeatedly followed this distinction.

The issue of standing has no statute of limitations.

Finally, and critically here, Roche asserted its ownership interest as a bar to Stanford's standing. 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. See Pandrol USA, LP v. Airboss Ry. Prods., 320 F.3d 1354, 1367 (Fed. Cir. 2003) (noting that "defendants' waiver of the defense of lack of patent ownership did not waive the defendants' ability to challenge the plaintiffs' standing to sue . . . at any stage of the litigation").

Stanford wasn't careful enough in its agreements with regard to ownership rights. "[T]he chain of title to Holodniy's rights leads to Roche, leaving Stanford with defective title to the rights of all the inventors."

Stanford tried to cure its defective title by arguing that money changes everything.

To overcome its defective chain of title, Stanford argues that it was a bona fide purchaser under 35 U.S.C § 261 (2006). Section 261 provides: "An assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage." "Generally, a bona fide purchaser is one who purchases legal title to property in good faith for valuable consideration, without notice of any other claim of interest in the property." Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323, 1329 (Fed. Cir. 2002) (collecting cases).

While "the bona fide purchaser defense to patent infringement is a matter of federal law," the doctrine draws upon common law principles. Rhone-Poulenc, 284 F.3d at 1328-30. "Notice" under § 261 can include constructive or inquiry notice, in addition to actual notice. See FilmTec, 939 F.2d at 1574 (noting that either actual or inquiry notice might defeat a bona fide purchaser defense).

But Holodniy was "a consultant to Cetus, not Stanford," so Standard missed owning a slice of the pie, and the pie must be complete to push it into someone's face for patent infringement.

Standard argued that because the government had funded part of the research leading to the patent, and it held that interest, the Bayh-Dole Act gave it title by assignment. The courts didn't buy it.

Stanford identifies no authorities or reasons why its election of title under Bayh-Dole had the power to void any prior, otherwise valid assignments of patent rights. Stanford was entitled to claim whatever rights were still available after the Government declined to exercise its option, including the rights of co-inventors Merigan, Katzenstein, and Kozal. However, Holodniy transferred his rights to Cetus more than six years before Stanford formally notified the Government of its election of title.

Notwithstanding the running of the statutes of limitation against Roche's claim for a judgment of ownership, Stanford's inability to establish that it possessed Holodniy's interest in the patents-in-suit defeats its right to assert its cause of action against Roche.

Affirmed-in-part, vacated-in-part, and remanded.

Professor Dennis Crouch states the Painfully Obvious: "Best practices in patent law dictate that patent ownership (and right to sue) be always maintained in a single entity."