State Universities Rejoice: PTAB Recognizes Sovereign Immunity Defense

By Sean Gloth
In Covidien LP v. University of Florida Research Foundation Inc., the Patent Trial and Appeal Board (the “Board”) upheld a defense of sovereign immunity asserted by the University of Florida Research Foundation (the “Foundation”) and dismissed three Petitions for Inter Partes Review (“IPR”) filed by Covidien LP (“Covidien”) against a patent owned by the Foundation. (See IPR2016-01274, IPR2016-01275, IPR2016-01276) The Board relied on the Supreme Court’s decision in Fed. Mar. Comm’n v. South Carolina State Ports Auth., 535 U.S. 743 (2002) (“FMC”) in its determination that the sovereign immunity defense applies to IPR proceedings, and it concluded that the Foundation was eligible to assert the defense as an “arm of the State” under Manders v. Lee, 338 F.3d 1304, *1309 (11th Cir. 2003) (en banc).

The Eleventh Amendment provides that the “judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another state, or by citizens or subjects for any foreign State.” The Supreme Court has interpreted the Eleventh Amendment as a grant of immunity to the States against certain adjudicative proceedings brought against them by private parties. In FMC, the Supreme Court held that the sovereign immunity defense applied to administrative adjudications before the Federal Maritime Commission, grounding its determination in the similarities between the Commission’s proceedings and civil litigation. The Board relied on the Supreme Court’s analysis in FMC in determining whether the sovereign immunity defense could similarly be implicated in IPR proceedings.

Covidien filed IPRs against the Foundation as a counter-action to a breach of license suit brought by the Foundation against it. The Foundation argued that the IPRs should be dismissed, asserting that it was an arm of the State of Florida, and as such entitled to sovereign immunity under the Eleventh Amendment. The Board’s decision was limited to the Foundation’s sovereign immunity defense. This decision appears to be the first extension of the sovereign immunity defense to an IPR proceeding.

Covidien argued that under FMC the sovereign immunity defense should not apply to IPR proceedings, distinguishing IPRs from civil litigation. Most notably, Covidien argued that IPRs are adjudications directed against the validity of a patent itself, unlike civil litigation which resolves disputes between two parties. Thus, Covidien argued, the subject of the IPRs were the Foundation’s patents, not the Foundation itself, and therefore the IPRs were not proceedings brought against the State. Covidien also warned that implicating the sovereign immunity defense in IPR proceedings would effectively insulate invalid patents from scrutiny just because they were owned by a State, an outcome that would thwart the purpose of creating IPRs. In addition, Covidien noted that if the Foundation’s defense was upheld, a private party could never counter a State’s infringement action by petitioning for IPR proceedings, giving States a stronger position in district court actions.

Relying on FMC, the Board rejected Covidien’s distinctions between IPRs and civil litigation. The Board noted that IPRs are adversarial proceedings between two parties decided by an impartial adjudicator, the Board. The Board also likened the discovery rules and procedures of IPRs with those in civil litigation, and noted that final decisions by the Board created issue estoppel. Additionally, the Board noted that the Federal Circuit had previously held that interference proceedings can be characterized as a lawsuit when determining whether sovereign immunity can be applied in Vas-Cath, Inc. v. Curators of University of Missouri, 473 F.3d 1376 (Fed. Cir. 2007). Thus, the Board held that the similarities between civil litigation and IPR proceedings were sufficient to implicate the sovereign immunity defense in IPR actions under FMC.

The Board also rejected Covidien’s argument that allowing the sovereign immunity defense to be asserted in an IPR thwarted their purpose, countering that no evidence was put forth to support the intent of the AIA to abrogate sovereign immunity. The Board was similarly unpersuaded by Covidien’s argument that a State’s insulation from IPRs would give it an unfair advantage in district court actions, explaining that a State’s insulation from an available proceeding against it was precisely the point of the Eleventh Amendment.

After determining that the sovereign immunity defense may be asserted in IPR proceedings, the Board went on to find that the Foundation was an “arm of the State” under Manders. The Board considered four factors from Manders, including (1) how state law defined the Foundation, (2) what degree of control the State of Florida maintained over the Foundation; (3) where the Foundation derived it funds; and (4) who is responsible for judgments against the Foundation.   Reviewing the factual record, the Board found that each of these factors was satisfied because the Foundation performed the function of licensing of patents and collecting patent license royalties on behalf of the University of Florida and under its control.

Thus, the Board upheld the Foundation’s sovereign immunity defense and dismissed the IPRs brought against it. Importantly, the Board held that the sovereign immunity defense was only available to a State that had not waived the defense. In a footnote the Board stated that it did not decide whether an infringement claim or declaratory judgment proceeding based on validity brought by a State in a related district court action would constitute a waiver of a State’s sovereign immunity defense. (No such waiver issues existed in Covidien, since the related district court action was based on a breach of license claim.) The Board’s footnote hints that a petitioner against a State might overcome the sovereign immunity defense by citing related infringement or validity actions brought by the State in district court as evidence of waiver. It remains to be seen whether the Federal Circuit will review the decision.

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