Supreme Court Rules for Drug Firm in a Patent Dispute

WASHINGTON — The Supreme Court on Monday sided with a drug company over Stanford University in a patent dispute concerning a test to measure the amount of H.I.V. in a patient’s blood.

In a second decision, the court ruled that plaintiffs in a securities fraud class action against Halliburton did not have to prove that false statements from the company caused them to lose money in order to band together in a class action.

In the patent case, Stanford v. Roche Molecular Systems, No. 09-1159, the court considered how a 1980 federal law, the Bayh-Dole Act, affected rights to the H.I.V. test. It was invented by Dr. Mark Holodniy, a fellow at Stanford’s department of infectious diseases who had been assigned by the university to conduct research at the Cetus Corporation, a private firm.

Dr. Holodniy had signed a contract saying that “I agree to assign” inventions arising from his employment at Stanford to the university. He later signed a contract saying that “I will assign and do hereby assign” to Cetus inventions arising from his time there.

Roche Molecular Systems bought Cetus’s rights in the H.I.V. test and created a kit that became widely used in hospitals and clinics. Stanford sued for patent infringement; Roche said it was entitled to sell the kits in light of the agreement between Dr. Holodniy and Cetus; and Stanford responded that the doctor had no rights to assign given the Bayh-Dole Act, which specifies how rights in patents are allocated when federal money is involved.

The “general rule,” Chief Justice John G. Roberts Jr. wrote for the majority in a 7-to-2 decision, is that “rights in an invention belong to the inventor,” even if created on an employer’s watch. (Outside the patent context, Chief Justice Roberts said, the basic rule often goes the other way. “No one would claim,” he wrote, “that an autoworker who builds a car while working in a factory owns that car.”)

A lower court ruled that Dr. Holodniy’s agreement with Stanford had been only a promise to assign his rights in the future while the one with Cetus had been an authentic assignment. That interpretation of the two agreements, which was not at issue in the Supreme Court, meant, the chief justice said, that Roche would win unless the Bayh-Dole Act had altered the basic rule that inventors controlled their patent rights.

The act allocates rights between the federal government and federal contractors like Stanford, Chief Justice Roberts wrote. But, he continued, “nowhere in the act are inventors deprived of their interest in federally funded inventions.”

The act, the chief justice wrote, “simply assures contractors that they may keep title to whatever it is they already have.” But, he wrote, “you cannot retain something unless you already have it.”

The decision may not be particularly consequential. With more carefully drafted assignment agreements, Chief Justice Roberts wrote, “the statute as a practical matter works pretty much the way Stanford says it should.”

In a dissent, Justice Stephen G. Breyer said he would have returned the case to the lower courts for further consideration of two questions: the proper interpretation of the interaction of the two assignment agreements and whether the Bayh-Dole Act should be assumed to require assignment of patent rights by employees of government contractors to their employers.

Justice Ruth Bader Ginsburg joined the dissent.

In the securities fraud case, Erica P. John Fund v. Halliburton, No. 09-1403, the court considered what plaintiffs must prove in order to join together in a class action.

The plaintiffs, who bought Halliburton stock from 1999 to 2001, said the company had made false statements designed to inflate its stock price on three topics: its financial exposure to asbestos claims, how much it stood to make from its engineering and construction business, and the expected benefits of a merger with Dresser Industries.

The lower courts ruled that the plaintiffs had met most but not all of the requirements to proceed as a class. The missing element, the federal appeals court in New Orleans said, was that they had failed to prove “loss causation,” that is, “that the corrected truth of the former falsehoods actually caused the stock price to fall and resulted in the losses.”

In a unanimous decision written by Chief Justice Roberts, the court ruled that such proof was not required at the class certification stage.

It was true, Chief Justice Roberts wrote, that finding proof that the investors had relied on the misstatements was part of the class certification basis. But loss causation is a logically different issue, he wrote. It requires proof, he said, that “a misrepresentation that affected the integrity of the market price also caused a subsequent economic loss.”

In presenting its case to the Supreme Court, Halliburton essentially conceded that proof of loss causation was not required at the class certification stage. What the appeals court actually meant in using the phrase, Halliburton contended, was “price impact,” that is, that the false statements affected the stock price in the first place.

“We do not accept Halliburton’s wishful interpretation of the court of appeals’ opinion,” Chief Justice Roberts wrote. “Whatever Halliburton thinks the court of appeals meant to say, what it said was loss causation.”

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