Two Years Later: The Effect of Madey v. Duke on Infringement By University Researchers

In 2002, Duke University attempted to avoid liability for patent infringement by invoking the common law experimental research exception to patent infringement. In a landmark decision, the U.S. Court of Appeals for the Federal Circuit rejected Duke University's argument that its infringing research activities should be exempt from liability under this exception. Madey v. Duke Univ., 307 F.3d 1351 (Fed. Cir. 2002).

This decision led a number of commentators to proclaim that the experimental use doctrine has been eliminated, that patent holders will now aggressively pursue licensing with researchers and embolden their enforcement efforts, and that there will be a great chill on research efforts. University administrators complained that it would be impossible for them to monitor the activities of their research personnel for possible infringement.

Now that 2 years have passed, it is time to step back and see what effect this decision has had on enforcement efforts by patent holders. But first, it is useful to discuss the four major exceptions to patent infringement that might be relied upon by universities to avoid liability for infringement: the common law experimental use exception, the statutory clinical research exception under 35 U.S.C. '271(e)(1), and sovereign immunity protection for state schools and institutions. A fourth exemption under 28 U.S.C. '1498(a) provides that the patent owner must sue the government if the infringement occurred under a government contract.

The Experimental Use Exception to Patent Infringement

This exception was judicially created in the early 1800s as protection for those who use a patented invention merely to see how well it works or for idle curiosity. Courts based the defense on de minimis infringement in situations involving limited use of a patented device for no commercial purpose (eg, building a patented device for experimentation on the device) or with no intent to sell or profit from the invention.

In the only early application of the experimental use exception to an academic institution, a district court held that the sale of mining equipment by Stearns-Roger Manufacturing Company to the Colorado School of Mines for experimental purposes did not contribute to an infringing use, stating that “[t]he making or using of a patented invention merely for experimental purposes, without any intent to derive profits or practical advantage therefrom, is not infringement.” Ruth v. Stearns-Roger Mfg., 13 F. Supp. 697 (D. Colo. 1935).

The scope of the common law research exception was more recently evaluated in Roche Prods., Inc. v. Bolar Pharm. Co., Inc., 733 F.2d 858 (Fed. Cir. 1984). In this case, Roche held a patent on the sleeping pill Dalmane. Bolar, who was interested in selling a generic version of Dalmane, conducted research on the drug 6 months prior to the expiration of Roche's patent in order to get a head start on gathering the results needed for an application to the Food and Drug Administration (FDA) and to have the drug ready for sale on the day that the Roche patent expired. The district court held that Bolar's use of the patented compound for federally mandated testing was not infringement as the use was de minimis and experimental. The U.S. Court of the Appeals for the Federal Circuit reversed, stating that the experimental use exception is “truly narrow” and that it does not “allow a violation of the patent laws in the guise of 'scientific inquiry,' when that inquiry has definite, cognizable, and not insubstantial commercial purposes.” The court found that Bolar's intended “experimental” use was solely for business reasons and not for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry.

More recently in Madey v. Duke, the Federal Circuit held that the experimental research use exception did not apply to Duke University, as the school was engaged in research and development as part of its legitimate business. Madey, a former Duke University professor, had obtained two patents on some of the equipment used in a Duke laboratory. After several years, a dispute arose between Duke and Madey, resulting in Madey being removed as director of the lab in 1997. After Madey's resignation in 1998, Duke continued to use some of the equipment in the lab. Madey then sued Duke for infringement of his two patents.

The district court acknowledged the existence of the experimental use exception and held that the scope of the defense covered Duke's experimental, nonprofit purposes. On appeal, the Federal Circuit disagreed. While the court acknowledged the existence of the judicially created experimental use defense, it held that it existed in a very limited form. The court stated that a use is disqualified from the exemption if it has the “slightest commercial implication” or if it is in keeping with the legitimate business of the alleged infringer even when the research has no commercial application whatsoever. The court reasoned that the research carried out at Duke unmistakably furthered the institution's legitimate business objectives, such as enlightening students, increasing the status of the university and luring lucrative research grants, students and faculty.

Recently, and on remand from the Federal Circuit, the district court held that Duke failed to meet its burden of demonstrating that it is entitled to summary judgment of non-infringement based upon the experimental use defense. Madey v. Duke University, 2004 WL 2148935 (M.D.N.C. 2004). The district court noted that Duke admitted in its pleadings that it used Madey's patents to further its legitimate business objectives, including educating and enlightening students and faculty. Accordingly, it is difficult to imagine that Duke will win on this defense.

In view of the Federal Circuit decision, it would appear that the experimental use exception to patent infringement is extremely narrow and cannot be relied upon by a university or research institution to immunize it from liability for patent infringement.

The Clinical Use Exception to Patent Infringement

A second exemption to infringement available to universities and research institutes that carry out clinical trials is the so-called “safe harbor” or “clinical use exception” under 35 U.S.C. '271(e)(1). This law was passed in response to the Roche decision discussed above and to allow generic drug manufacturers to conduct experiments needed for regulatory approval in advance of the expiration of a patent covering the drug or its use. This law has been interpreted by the courts to immunize from liability a wide variety of activities, so long as they are reasonably related to the submission of data that may be required by the FDA. However, the 2003 Federal Circuit decision in Integra Lifesciences v. Merck has narrowed this exception. Integra Lifesciences, Ltd. v. Merck KGaA, 331 F.3d 860 (Fed. Cir. 2003). In this case, it was held that upstream drug discovery activities, such as screening candidate drugs for potential clinical use, are not exempt from infringement.

Accordingly, if university personnel use a patented invention in clinical trials, eg, they test a patented drug for safety and/or therapeutic efficacy and intend to submit the resulting data to the FDA, they may do so without fear of liability for patent infringement. However, upstream activities, such as drug screening assays, are an infringement.

The 11th Amendment Sovereign Immunity as Applied to Patent Infringement

A third important exemption to liability for patent infringement by state universities is provided by the 11th Amendment to the U.S. Constitution, which provides sovereign immunity for states against suits, including patent infringement claims. Sovereign immunity has been applied by the courts to state universities as instrumentalities of the states against charges of patent infringement.

However, a state can waive its immunity by state statute, state constitution or clear state conduct, including by creating a case or controversy that can be resolved only in federal courts. In addition, compulsory counterclaims filed in response to a patent infringement suit filed by a state university have been held to waive sovereign immunity for the university. Moreover, immunity can be waived based on the terms of a licensing agreement, particularly if the agreement states that any liability for damages will be paid by a non-state entity. Thus, while sovereign immunity is a valuable defense for state universities and institutions, that immunity must be protected or it can easily be waived.

While patent owners may not recover damages against a state university, under the so-called Ex Parte Young Doctrine, they may file an action against university administrators and other state officials asking a federal court to issue an injunction forcing the officials to comply with federal law. See Ex parte Young, 28 S.Ct. 441 (1908). Thus, even state universities cannot infringe patents with ultimate impunity.

Immunity from Suit When Infringement Carried Out by or for the United States

Finally, the law provides that if a contractor infringes a patent as a result of work carried out by or for the United States, the patent owner's remedy is against the United States in the U.S. Court of Federal Claims, and not against the contractor. Typically, such matters involve government contracts where the contractor infringes a patent by performance of acts specified under the contract. In Madey v. Duke, defendant asserted the novel position that, since the infringing activity took place in furtherance of a government grant, the only recourse for its infringement was against the government. Duke's position hinged on whether the grant provided authorization or consent of the government to be sued and designated Duke's activities in the grant as being “by or for” the United States.

The district court recently held that Duke was not entitled to summary judgment on this issue. Thus, Duke will have to develop more evidence in its favor in order to prevail with this defense.

In summary, unless the infringing activity is: 1) carried out to generate data for submission to the FDA, 2) carried out by a state university that has not waived its sovereign immunity, and/or 3) carried out under a government contract, it is likely that such activity will create patent infringement liability for the university or research institute.

Have Lawsuits Against Universities Increased Since Madey v. Duke?

Since Madey, one might wonder whether there has there been a landslide of new infringement suits against universities and research institutions. The answer is a resounding “no!” In fact, there have been no new such lawsuits filed since the Madey decision, and only five such lawsuits have been decided in the last 50 years. If the experimental use exception is so narrow and infringement so rampant, why haven't there been more lawsuits?

One can speculate that the paucity of lawsuits against universities is due to the fact that: 1) it can be difficult to identify infringing activities, 2) enforcing patents against universities will give a company a bad reputation and perhaps cut off future technology transfer to the company, 3) there may be incentives to allow the infringement to occur and perhaps lead to the discovery of additional commercial uses for the patented technology, and 4) there just isn't any money to be had from suing universities in the vast majority of situations.

An obvious target for a patent infringement action would be where the researchers: 1) are not employed by a state university, 2) have published their work (either in the scientific literature or via patent filings), and 3) have licensed their invention to an industrial partner. Another obvious target would be a university that has entered into a collaboration with an industrial partner, received income as a result, and publicized the deal. If a patent owner finds out that a university has infringed its patent and has received income as a result, it is much more likely that the owner will take action against the university.

If a university is held liable for infringement, it is likely that it will only be on the hook for a reasonable royalty. A reasonable royalty calculation envisions and ascertains the results of a hypothetical negotiation between the patentee and the infringer at a time before the infringing activity began. Before any research activities began, a university would certainly not agree to disgorge all income generated by use of the patented invention. Thus, if the damages are a reasonable royalty, the university should be allowed to keep at least some of its income.

While a court can increase the damages up to threefold for willful infringement, this requires that the university know about the patent and infringe it anyway. Thus, unless the university researcher is aware of the patent or the patent owner serves a copy of the patent on the university, it is unlikely that the university will have to pay any more than just a reasonable royalty.

On the other hand, a university or research institute could face substantial liability for unauthorized practice of a patented invention. In Integra v. Merck, a jury awarded the patent owner $15 million in damages against the defendants. The infringing activity was the use of patented RDG peptides by The Scripps Research Institute. Fortunately for Scripps, the Federal Circuit decided that the $15 million judgment did not represent a reasonable royalty because the lower court did not carry out an adequate hypothetical negotiation between the parties before the infringing activities began, but instead focused on later developments. The issue of damages was sent back to the lower court for further deliberation, which reduced them to $6.375 million. Considering that Integra (the patent owner) has probably paid millions of dollars to its attorneys, at the end of the day, it appears that Integra will have little to show for its efforts.

If there is not much to be gained by a company in suing a university for patent infringement and millions of dollars in attorneys' fees to be lost, it is likely that the standoff between university researchers and patent owners will continue unabated. Instead of a harbinger of the end of university research as we know it, perhaps Madey should be cast in the context of a resentful action by a former employee and the Integra decision just a business deal consummated in a courtroom. Absent these factors, it seems highly unlikely that a university will be sued for patent infringement by its research personnel.

Two years after the decision, it is not possible to tell whether Madey v. Duke has had a chilling effect on university research. But one thing is clear; it is likely that there will not be a landslide of new infringement lawsuits filed against universities.

In 2002, Duke University attempted to avoid liability for patent infringement by invoking the common law experimental research exception to patent infringement. In a landmark decision, the U.S. Court of Appeals for the Federal Circuit rejected Duke University's argument that its infringing research activities should be exempt from liability under this exception. Madey v. Duke Univ., 307 F.3d 1351 (Fed. Cir. 2002).

This decision led a number of commentators to proclaim that the experimental use doctrine has been eliminated, that patent holders will now aggressively pursue licensing with researchers and embolden their enforcement efforts, and that there will be a great chill on research efforts. University administrators complained that it would be impossible for them to monitor the activities of their research personnel for possible infringement.

Now that 2 years have passed, it is time to step back and see what effect this decision has had on enforcement efforts by patent holders. But first, it is useful to discuss the four major exceptions to patent infringement that might be relied upon by universities to avoid liability for infringement: the common law experimental use exception, the statutory clinical research exception under 35 U.S.C. '271(e)(1), and sovereign immunity protection for state schools and institutions. A fourth exemption under 28 U.S.C. '1498(a) provides that the patent owner must sue the government if the infringement occurred under a government contract.

The Experimental Use Exception to Patent Infringement

This exception was judicially created in the early 1800s as protection for those who use a patented invention merely to see how well it works or for idle curiosity. Courts based the defense on de minimis infringement in situations involving limited use of a patented device for no commercial purpose (eg, building a patented device for experimentation on the device) or with no intent to sell or profit from the invention.

In the only early application of the experimental use exception to an academic institution, a district court held that the sale of mining equipment by Stearns-Roger Manufacturing Company to the Colorado School of Mines for experimental purposes did not contribute to an infringing use, stating that “[t]he making or using of a patented invention merely for experimental purposes, without any intent to derive profits or practical advantage therefrom, is not infringement.” Ruth v. Stearns-Roger Mfg., 13 F. Supp. 697 (D. Colo. 1935).

The scope of the common law research exception was more recently evaluated in Roche Prods., Inc. v. Bolar Pharm. Co., Inc., 733 F.2d 858 (Fed. Cir. 1984). In this case, Roche held a patent on the sleeping pill Dalmane. Bolar, who was interested in selling a generic version of Dalmane, conducted research on the drug 6 months prior to the expiration of Roche's patent in order to get a head start on gathering the results needed for an application to the Food and Drug Administration (FDA) and to have the drug ready for sale on the day that the Roche patent expired. The district court held that Bolar's use of the patented compound for federally mandated testing was not infringement as the use was de minimis and experimental. The U.S. Court of the Appeals for the Federal Circuit reversed, stating that the experimental use exception is “truly narrow” and that it does not “allow a violation of the patent laws in the guise of 'scientific inquiry,' when that inquiry has definite, cognizable, and not insubstantial commercial purposes.” The court found that Bolar's intended “experimental” use was solely for business reasons and not for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry.

More recently in Madey v. Duke, the Federal Circuit held that the experimental research use exception did not apply to Duke University, as the school was engaged in research and development as part of its legitimate business. Madey, a former Duke University professor, had obtained two patents on some of the equipment used in a Duke laboratory. After several years, a dispute arose between Duke and Madey, resulting in Madey being removed as director of the lab in 1997. After Madey's resignation in 1998, Duke continued to use some of the equipment in the lab. Madey then sued Duke for infringement of his two patents.

The district court acknowledged the existence of the experimental use exception and held that the scope of the defense covered Duke's experimental, nonprofit purposes. On appeal, the Federal Circuit disagreed. While the court acknowledged the existence of the judicially created experimental use defense, it held that it existed in a very limited form. The court stated that a use is disqualified from the exemption if it has the “slightest commercial implication” or if it is in keeping with the legitimate business of the alleged infringer even when the research has no commercial application whatsoever. The court reasoned that the research carried out at Duke unmistakably furthered the institution's legitimate business objectives, such as enlightening students, increasing the status of the university and luring lucrative research grants, students and faculty.

Recently, and on remand from the Federal Circuit, the district court held that Duke failed to meet its burden of demonstrating that it is entitled to summary judgment of non-infringement based upon the experimental use defense. Madey v. Duke University, 2004 WL 2148935 (M.D.N.C. 2004). The district court noted that Duke admitted in its pleadings that it used Madey's patents to further its legitimate business objectives, including educating and enlightening students and faculty. Accordingly, it is difficult to imagine that Duke will win on this defense.

In view of the Federal Circuit decision, it would appear that the experimental use exception to patent infringement is extremely narrow and cannot be relied upon by a university or research institution to immunize it from liability for patent infringement.

The Clinical Use Exception to Patent Infringement

A second exemption to infringement available to universities and research institutes that carry out clinical trials is the so-called “safe harbor” or “clinical use exception” under 35 U.S.C. '271(e)(1). This law was passed in response to the Roche decision discussed above and to allow generic drug manufacturers to conduct experiments needed for regulatory approval in advance of the expiration of a patent covering the drug or its use. This law has been interpreted by the courts to immunize from liability a wide variety of activities, so long as they are reasonably related to the submission of data that may be required by the FDA. However, the 2003 Federal Circuit decision in Integra Lifesciences v. Merck has narrowed this exception. Integra Lifesciences, Ltd. v. Merck KGaA, 331 F.3d 860 (Fed. Cir. 2003). In this case, it was held that upstream drug discovery activities, such as screening candidate drugs for potential clinical use, are not exempt from infringement.

Accordingly, if university personnel use a patented invention in clinical trials, eg, they test a patented drug for safety and/or therapeutic efficacy and intend to submit the resulting data to the FDA, they may do so without fear of liability for patent infringement. However, upstream activities, such as drug screening assays, are an infringement.

The 11th Amendment Sovereign Immunity as Applied to Patent Infringement

A third important exemption to liability for patent infringement by state universities is provided by the 11th Amendment to the U.S. Constitution, which provides sovereign immunity for states against suits, including patent infringement claims. Sovereign immunity has been applied by the courts to state universities as instrumentalities of the states against charges of patent infringement.

However, a state can waive its immunity by state statute, state constitution or clear state conduct, including by creating a case or controversy that can be resolved only in federal courts. In addition, compulsory counterclaims filed in response to a patent infringement suit filed by a state university have been held to waive sovereign immunity for the university. Moreover, immunity can be waived based on the terms of a licensing agreement, particularly if the agreement states that any liability for damages will be paid by a non-state entity. Thus, while sovereign immunity is a valuable defense for state universities and institutions, that immunity must be protected or it can easily be waived.

While patent owners may not recover damages against a state university, under the so-called Ex Parte Young Doctrine, they may file an action against university administrators and other state officials asking a federal court to issue an injunction forcing the officials to comply with federal law. See Ex parte Young, 28 S.Ct. 441 (1908). Thus, even state universities cannot infringe patents with ultimate impunity.

Immunity from Suit When Infringement Carried Out by or for the United States

Finally, the law provides that if a contractor infringes a patent as a result of work carried out by or for the United States, the patent owner's remedy is against the United States in the U.S. Court of Federal Claims, and not against the contractor. Typically, such matters involve government contracts where the contractor infringes a patent by performance of acts specified under the contract. In Madey v. Duke, defendant asserted the novel position that, since the infringing activity took place in furtherance of a government grant, the only recourse for its infringement was against the government. Duke's position hinged on whether the grant provided authorization or consent of the government to be sued and designated Duke's activities in the grant as being “by or for” the United States.

The district court recently held that Duke was not entitled to summary judgment on this issue. Thus, Duke will have to develop more evidence in its favor in order to prevail with this defense.

In summary, unless the infringing activity is: 1) carried out to generate data for submission to the FDA, 2) carried out by a state university that has not waived its sovereign immunity, and/or 3) carried out under a government contract, it is likely that such activity will create patent infringement liability for the university or research institute.

Have Lawsuits Against Universities Increased Since Madey v. Duke?

Since Madey, one might wonder whether there has there been a landslide of new infringement suits against universities and research institutions. The answer is a resounding “no!” In fact, there have been no new such lawsuits filed since the Madey decision, and only five such lawsuits have been decided in the last 50 years. If the experimental use exception is so narrow and infringement so rampant, why haven't there been more lawsuits?

One can speculate that the paucity of lawsuits against universities is due to the fact that: 1) it can be difficult to identify infringing activities, 2) enforcing patents against universities will give a company a bad reputation and perhaps cut off future technology transfer to the company, 3) there may be incentives to allow the infringement to occur and perhaps lead to the discovery of additional commercial uses for the patented technology, and 4) there just isn't any money to be had from suing universities in the vast majority of situations.

An obvious target for a patent infringement action would be where the researchers: 1) are not employed by a state university, 2) have published their work (either in the scientific literature or via patent filings), and 3) have licensed their invention to an industrial partner. Another obvious target would be a university that has entered into a collaboration with an industrial partner, received income as a result, and publicized the deal. If a patent owner finds out that a university has infringed its patent and has received income as a result, it is much more likely that the owner will take action against the university.

If a university is held liable for infringement, it is likely that it will only be on the hook for a reasonable royalty. A reasonable royalty calculation envisions and ascertains the results of a hypothetical negotiation between the patentee and the infringer at a time before the infringing activity began. Before any research activities began, a university would certainly not agree to disgorge all income generated by use of the patented invention. Thus, if the damages are a reasonable royalty, the university should be allowed to keep at least some of its income.

While a court can increase the damages up to threefold for willful infringement, this requires that the university know about the patent and infringe it anyway. Thus, unless the university researcher is aware of the patent or the patent owner serves a copy of the patent on the university, it is unlikely that the university will have to pay any more than just a reasonable royalty.

On the other hand, a university or research institute could face substantial liability for unauthorized practice of a patented invention. In Integra v. Merck, a jury awarded the patent owner $15 million in damages against the defendants. The infringing activity was the use of patented RDG peptides by The Scripps Research Institute. Fortunately for Scripps, the Federal Circuit decided that the $15 million judgment did not represent a reasonable royalty because the lower court did not carry out an adequate hypothetical negotiation between the parties before the infringing activities began, but instead focused on later developments. The issue of damages was sent back to the lower court for further deliberation, which reduced them to $6.375 million. Considering that Integra (the patent owner) has probably paid millions of dollars to its attorneys, at the end of the day, it appears that Integra will have little to show for its efforts.

If there is not much to be gained by a company in suing a university for patent infringement and millions of dollars in attorneys' fees to be lost, it is likely that the standoff between university researchers and patent owners will continue unabated. Instead of a harbinger of the end of university research as we know it, perhaps Madey should be cast in the context of a resentful action by a former employee and the Integra decision just a business deal consummated in a courtroom. Absent these factors, it seems highly unlikely that a university will be sued for patent infringement by its research personnel.

Two years after the decision, it is not possible to tell whether Madey v. Duke has had a chilling effect on university research. But one thing is clear; it is likely that there will not be a landslide of new infringement lawsuits filed against universities.