The Supreme Court’s Ruling on Stanford vs. Roche Holding

I have been grading final exams and this has cut into my blogging time.  I apologize for my strange priorities.  The recent Supreme Court ruling against Stanford University in this IP case caught my eye after I read this NY Times editorial.    What do university research nerds owe their home institution?  Are we all free agents or does the home team receive a large percentage of what we build? 

“The case, Stanford University v. Roche Molecular Systems, involved a Stanford researcher who had transferred his rights to methods for testing AIDS treatments to a private company that was eventually acquired by Roche. Roche commercialized the procedure and incorporated it into H.I.V. test kits. Stanford sued Roche, arguing that the researcher’s assignment of rights was invalid under the Bayh-Dole Act. The court held that even though the researcher may have had an obligation to the university, he had legally assigned his rights to the private firm.”

The interesting economics here will concern how star scientists sign future contracts with their home institution.  Will a rising university such as Duke say to an Ivy League star; “you transfer to our team and we will only ask for x% of the revenue of any intellectual property you create.”   Now, that would generate some movement of academic stars across schools.   How would the Dean of Research at a university decide who to offer a low “tax rate” to?  The Laffer curve might finally be vindicated as low tax rates on faculty could yield very high revenue for a few universities!

Author: Matthew E. Kahn

Professor of Economics at UCLA.

5 thoughts on “The Supreme Court’s Ruling on Stanford vs. Roche Holding”

  1. I’m not sure that the percentage of fees is an issue in recruitment. Few inventions reap a profit, and there are ample opportunities for researchers to license their IP from the university in order to develop it in conjunction with private companies. They can even sub-license it and reap both a share of the sub-licensing fees and the royalties due them as creators. I think it is more likely that universities will differentiate themselves in recruiting star scientists by promising a higher level of attention to patenting and marketing, in the same way that publishers compete.

    I haven’t read this case, but I think it might come closer to addressing another issue. University professors (at least UC professors) often sign consulting contracts with “work-for-hire” clauses even though their university contracts require disclosure of ALL IP to the university. It’s a sticky potential conflict, and Stanford v. Roche might lead to a bright-line employment rule that nobody wants.

  2. That’s not the Laffer curve, it’s just plain old price competition. When discussing tax rates it’s typically called beggar-thy-neighbor. See Delaware, Ireland, and the Cayman Islands.

  3. Lots of universities already share IP licensing revenues back with the inventors. My previous institution, for instance, had a policy of putting 50% of the revenues to the University, 25% to the department, and 25% to the inventors. Now if they’d just go and get someone to license my patents, I’d be in gravy!

  4. I had read the NYT editorial previously and what I found of particular interest was their objection to the ruling. The NYT felt it was wrong for the 7 Justice majority to actually rule based on a “literal” reading of the contract. What they were saying was, if we feel society’s best interests are served by ignoring the actual words in a contract then that is the way the Justices should decide. In the argument it was asked what rights Stanford would have if the Federal government had only spent $1. From the NYT editorial that is what it would take for Standford to gain control.

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