IP Law Daily, PATENT—Fed. Cl.: U.S. not liable for infringement of invention created under grant agreement, (Sep 15, 2022)

By Patricia K. Ruiz, J.D.

Paying researchers from an internal grant account was evidence of a “tacit understanding” that grant funds would be delivered.

The U.S. government held a “nonexclusive, nontransferrable, irrevocable, paid-up license” to practice a patent involving a method of preparing an animal model with enhanced, accelerated pathology for Alzheimer’s Disease and is not liable for infringement, the U.S. Court of Federal Claims held. The court reasoned that the invention described by the patent was first actually reduced to practice in April 1997, during the course of the performance of work under a grant from the U.S. government, and that the work was paid for under an implied contract for grant funding, rendering the patent a “subject invention” to which the U.S. held a license under the Bayh-Dole Act (University of South Florida, Board of Trustees v. U.S., September 14, 2022, Campbell-Smith, P.).

The ’094 patent. The University of South Florida (USF) holds the rights to U.S. Patent Number 5,898,094 (the ’094 patent), titled “Transgenic Mise Expressing APPK670N,M671L and a Mutant Presenilin Transgenes.” The ’094 patent was issued April 27, 1999, and involves a “method of preparing a transgenic animal model with enhanced, accelerated pathology for Alzheimer’s Disease.” The patent purported to demonstrate how to make a good, robust mouse model of Alzheimer’s disease by crossing mice with specific genetic mutations so that they would develop “enhanced” Alzheimer’s pathology at an “accelerated” pace. The mice produced by using the methods outlined in the patent are of utility in the research of Alzheimer’s Disease and other neurodegenerative disorders.

The co-inventers of the patent were professors at USF and worked together on research involved in the patent. They submitted an application to the National Institutes of Health (NIH) for grant funding in 1995, seeking funding for “five, mutually interlinking projects aimed at elucidating the role of the presenilins in Alzheimer’s disease.” The proposed initial budget period was July 1, 1996, through June 30, 1997, and the application requested an additional funding for four more years—five years in total. On September 30, 1996, the NIH issued a National Institute on Aging program project grant titled “Presenilins and Alzheimer’s Disease” to the Mayo Clinic, where the co-inventors had taken positions.

July 30, 1997, the co-inventors submitted their patent application with the patent dated April 27, 1999. The patent was assigned to USF at the time. In 1998, the co-inventors published an article in Nature Medicine documenting the invention. One of the co-inventors testified that the invention actually became the 1998 Nature Medicine paper but that she did not recall which batches of animals were in the patent versus the paper or whether they were the exact same mice. The article notes that the research documented within was “supported by the Mayo/USF Program Project on the presenilins.” When one of the co-inventors moved from USF to Mayo in December 1996, she delegated the immunohistochemistry work on the mice to the lab of two other scientists at USF (principal investigators). The resulting testing generated proof of accelerated Alzheimer’s pathology, which was included in a fax by the co-inventor as part of the patent application. The fax constituted the first documented evidence that the mice the inventors had been working on developed accelerated Alzheimer’s pathology.

U.S. license to invention under funding agreement. The Bayh-Doyla Act requires that a funding agreement between the U.S. and a nonprofit organization include a provision stating that, with respect to any invention in which the contractor elects rights, the federal agency “shall have a nonexclusive, nontransferrable, irrevocable, paid-up license” to any subject invention. The Act defines “funding agreement” as “any contract, grant, or cooperative agreement entered into between any Federal agency . . . and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the Federal Government.” This includes a subcontract of any type. The U.S. may raise the existence of a license as a defense when it is sued for patent infringement and must establish by a preponderance of the evidence that a conception or a first actual reduction to practice occurred in the performance of a government contract. If it does so, it is not liable for any royalties for any uses of the invention within the scope of the license.

The court found that the greater weight of the evidence demonstrates that the defendant has a license to the ’094 patent and has asserted an affirmative defense to USF’s claim—that evidence shows the subject invention was first reduced to practice while the inventors were working pursuant to a funding agreement. The invention described in the ’094 patent was first reduced to practice in April 1997, the parties agree and the evidence demonstrates. The evidence introduced at trial shows that on April 25, 1997, one of the co-inventors faxed to the U.S. department handling patent matters a letter detailing the process she and her colleagues had engaged in to create the mice that were eventually documented in the ’094 patent, as well as the results of their work. Trial testimony established this constituted the first documented evidence that the mice the inventors had been working on “did, indeed, develop pathology . . . at an age which was far accelerated.” This confirms that the invention detailed in the ’094 patent was first reduced to practice in April 1997.

USF argues that no grant funds were received until the formal subcontract between the Mayo Clinic and the U.S. government was signed in 1997. Evidence shows, however, that USF paid for the work done by one of the principal investigators at USF with the NIH grant funds. Further, the record demonstrates that the funds came from NIH to the Mayo Clinic and then to USF, and trial testimony established the investigator was paid with funds from the grant account as early as October 1996. The court further found that the greater weight of the trial testimony established USF was using NIH funds by December 1996 to pay for costs associated with conducting the research leading to the ’094 patent.

The trial record established that beginning in October 1996, USF operated pursuant to an implied contract with the Mayo Clinic for grant funds under the NIH grant. USF argued that because there was an express subcontract between it and the Mayo Clinic signed in November 1997, there could not have been an implied contract. The court found that an implied contract—one founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing their tacit understanding. The court pointed to the investigator’s payment out of an internal account for grant funds as evidence of USF’s “tacit understanding” with Mayo that the funds would eventually arrive. This conduct, in light of the surrounding circumstances, indicates such understanding on the part of USF and Mayo that the grant funds would flow from the NIH to Mayo and ultimately to USF.

Finally, the court held that the U.S. met its burden of demonstrating that the work done on the ’094 patent meets the terms of the Bayh-Dole Act such that the U.S. held a license to the invention. Further, the court held the ’094 patent constitutes a “subject invention” because it was first actually reduced to practice in April 1997, during the course of the performance of work under the grant. Thus, the court concluded that USF was intimately involved in all phases of performance and that the work performed was paid for in substantial part or entirely out of government funds, entitling the U.S. to a “nonexclusive, nontransferrable, irrevocable, paid-up license” to practice the ’094 patent and is not liable for infringement.

The Case is No. 1:15-cv-01549-PEC.

Attorneys: Steven Bruce Kelber (Kelber Law Group) for University of South Florida Board of Trustees. Walter W. Brown, U.S. Department of Justice, for the U.S.

Companies: University of South Florida Board of Trustees

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