What’s Sauce For the Private Goose…

Ilya Shapiro is a Senior Fellow at the libertarian Cato Institute in DC. He was also my classmate in both college and law school. In a recent op-ed for the Legal Times, Shapiro supported BPMC’s contention that the state of California should not be immune from charges of patent infringement.

What’s Sauce For the Private Goose…

by Ilya Shapiro (This article appeared in the Legal Times on June 2, 2008.)

… In Biomedical Patent Management Corp. v. California Department of Health Services, the biotechnology company known as BPMC is suing the state of California for patent infringement—specifically, of the company’s patent on a form of prenatal screening for fetal abnormalities. Ignoring the merits of the suit, the federal district court in San Francisco dismissed it on the ground of “sovereign immunity”: Under the Supreme Court’s reading of the 11th Amendment, a state cannot be sued in federal court without its consent. The U.S. Court of Appeals for the Federal Circuit—which handles all appeals in patent litigation—affirmed the lower court decision.

So BPMC has turned to the Supreme Court, which in recent years has been increasingly willing to reverse the Federal Circuit. The company wants the Court to strip California’s immunity in this case because the state’s Department of Health Services previously waived immunity when it joined a suit brought by a state contractor about the same patented procedure. That is, after California actively litigated the earlier suit (which sought and failed to obtain a declaratory judgment that the contractor was not infringing BPMC’s patent), the state should be precluded from turning around to claim immunity when it gets sued over the same issue.

Moreover, as BPMC notes, the University of California (among other state agencies) routinely submits to federal court jurisdiction when it pursues claims for violations of its own patent rights. Given that California uses the patent system (and courts’ enforcement thereof), it has relinquished whatever sovereign immunity the state enjoys—immunity that is legally suspect in any event when the sovereign engages in commercial activities.

And, boy, does California use the patent system. The state universities alone own more than 3,300 patents that generate $210 million in annual revenue. California has filed 21 patent infringement suits since 1990 and won more than $900 million in judgments since 2000.

And yet the state has also wielded sovereign immunity arguments to get suits dismissed at least six times since 1987 (including suits by Genentech and Eli Lilly & Co.).

While the worst peddler of this double standard, California is by no means alone. At least 32 states have filed at least 173 patent suits since the mid-1990s.

UNFAIR ADVANTAGE

Business groups hope that the Supreme Court will remove what they see as a competitive advantage enjoyed by state entities: Private patent holders can’t seek recompense for a state’s unlicensed use of software or medical devices, while states can turn to the courts to protect their patents. Medical innovators and technological entrepreneurs in the private sector suffer.

“It’s audacious for a state to use the federal courts to sue for patent infringement, but to block infringement suits against it as a sovereign that cannot be sued,” says Robin Conrad of the National Chamber Litigation Center in a press release. The center has filed an amicus brief on behalf of the U.S. Chamber of Commerce in the case—only the second time the Chamber has ever filed in a Supreme Court patent case.

This hypocrisy should not even be in play any more, not since Congress passed the Patent Remedy Act of 1992. That legislation was intended to “clarify that states .?.?. are subject to suit in federal court by any person for infringement of patents.”

That sounds clear enough. But in 1999 the Supreme Court ruled in a trademark case, College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, that Congress’ legislative powers under Article I of the Constitution were insufficient to trump states’ sovereign immunity. Except in 2006 the Court held the opposite in a federal bankruptcy case, Central Virginia Community College v. Katz. The votes in these seemingly contradictory decisions were 5-4.

In fact, neither case should have been close: When a state repeatedly and voluntarily invokes federal court jurisdiction in a series of similar cases—under patent or any other law—it generally has waived immunity against suits brought by private parties under those same laws. And the precedent is well established that a state waives sovereign immunity when it seeks to adjudicate its rights in federal court. For example, the Supreme Court unanimously held in the 2002 case of Lapides v. Board of Regents of the University System of Georgia that a state loses its 11th Amendment immunity when it removes a case from state to federal court.

EASY CALL

So, as the solicitor general’s office collects agency views and mulls the administration’s position, it should recognize that Biomedical Patent Management Corp.—an unwieldy name for an important case—not only represents the chance to right the balance between a state and its citizens with respect to intellectual property. It also provides the perfect opportunity for the Court to clarify its jurisprudence on the relationship between Congress’ Article I powers and states’ 11th Amendment immunity.

Sovereign immunity is properly a shield against lawsuits challenging a state’s governmental action, not a sword with which to carve out economic advantage over private competitors. If the Supreme Court declines to hear this case, thereby letting the Federal Circuit ruling stand, it would reinforce that unfair advantage—and strike a blow against private sector innovation.

Whoever it is that replaces the outgoing Paul Clement should not agonize over this one. The next solicitor general should advise the Supreme Court to grant this petition for review. And the justices should take his advice.

20 thoughts on “What’s Sauce For the Private Goose…

  1. Random thoughts:

    [1] “Sovereign immunity is properly a shield against lawsuits challenging a state’s governmental action, not a sword with which to carve out economic advantage over private competitors.”

    Does the use of the term “competitors” mean that California’s “competing” with patentees for something? If so, what? Is the California Dep’t of Health Services selling said prenatal screening?

    [2] Wonder what would happen if California filed an infringement suit, got hit with counterclaims of invalidity/noninfringement/unenforceability, etc., and withdrew without prejudice.

    Boy, wouldn’t sovereign immunity be sweet then.

  2. @mark

    I think the default needs to be that states have sovereign immunity until they waive it — e.g., by invoking the authority of a court to hold another liable for patent infringement. Imagine what a mess it would be if anybody could sue state gov’ts for patent infringement whenever they wanted. We’d have a taxpayer funded patent troll welfare state!

  3. A legislative fix might be sufficient to cure the unfair advantage to States.

    The Constitution authorizes but doesn’t require a patent system, and within the bounds of their Art. I, Sec. 8 authority, Congress is free to decide to whom and under what circumstances patents will be granted, the rights conferred by such patents, and how those rights are to be enforced. So, Congress could, if it wished, pass a law denying the grant or transfer of ownership of any patents and the rights thereto, or the enforcement of patent rights in any federal court, to any State, domestic or foreign, or any agency thereof to which sovereign immunity attaches, unless such State agrees first to waive its sovereign immunity in all patent cases. The States would have to waive their sovereign immunity in patent cases in order to qualify for a patent grant in the first place. No immunity, no patents. This is similar in some respects to the funding strings that the federal government imposes all the time to coerce the States to do voluntarily what they aren’t required (e.g., enact certain speed limits to obtain federal highway funds). It doesn’t directly impact a State’s sovereign immunity rights, since a State could still choose to keep its immunity and forego the ownership of patents.

    I’m not sure Congress would actually enact such a change, but the unfairness issue is a political question that the courts might be reluctant to intervene in.

  4. “How far can this immunity argument be stretched? It appears that CA state universities can start selling soda pop under the brand name COKE and have no fear of retribution”

    There’s probably a state court claim that could stop them from doing that.

  5. “Mr. Mooney, the only thing clear about the denial of cert is that the court has decided not to take the case.”

    Sometimes the dissent (if any) adds a few thoughts.

    Anyway, even if you don’t think that the message is clear, I think others would. And they would start lobbying Congress. They probably should have started already.

  6. It looks like you have put a lot of thought into this TJ. Of course neither your thoughts nor mine really matter at this point. We’ll see the decision on cert in the court’s October 6th orders list.

  7. 1. I think your “not so bold” prediction is actually less than solid. This is one of the few cases where the solicitor general’s opinion is somewhat less useful to the Court, because the Solicitor General has the duty to defend the constitutionality of a federal statute, that federal statute being 35 USC 271(h). So it is entirely possible that the Solicitor General will recommend granting cert. under a rationale that will gut Florida Prepaid as a practical matter. The justices may not be inclined to follow such a recommendation.

    2. I’d rather not get into the weeds about whether you need Flordia Prepaid or College Savings Bank to be overruled. Either would work in your favor. But unless the Court is going to overrule one of those cases (or creatively narrow them to such an extent that it might as well overrule them), then you don’t have the votes to prevail on the sovereign immunity issue.

    3. I don’t disagree that Cato is well respected. But the entire thesis of the article is that Florida Prepaid and College Savings Bank were wrongly decided and should be overruled. That is an argument that you appear still to be running away from (understandably so). There is such a thing as friends that hurt you, namely those that, when you are shouting “Court, you don’t need to overrule X case,” come in and says “well, actually, you really do need to overrule X case.”

  8. How far can this immunity argument be stretched? It appears that CA state universities can start selling soda pop under the brand name COKE and have no fear of retribution?!

  9. How far can this immunity argument be stretched? It appears that CA state universities can start selling soda pop under the brand name COKE and have no fear of retribution?!

  10. I thought trolls were patent holders that bought their patents just to litigate them and deny the inventions to the public, rather than employers of actual inventors who make revenue from licensing, like universities.
    If SCOTUS does away with the sovereign immunity double-standard, would states back out of the patent game so as to retain their immunity, rather than get dragged into the fray with the rest of you schmucks? What impact would this have on universities as research institutions? I mean, imagine if all the A&M schools stopped patenting anything… This immunity thing seems like it would have created a very safe harbor for advanced research that we wouldn’t have in the wake of a decision.

  11. Dear Malcolm,

    Re: “Maybe Congress can fix the 2nd Amendment, too, while they’re at it.”

    Not a chance. Just as the 5-4 split Supremes weighted in on it, so will the split-enough-to-preclude-such-an-Amendment Congress not begin to bother about the 2nd Amendment.

    Besides, revolvers are the “The Great Equalizer.” As Martha would say, “It’s a good thing.”

    ¿Wouldn’t you rather see Congress fix 35 USC 283 and legislate the Constitution’s Patent Clause back into practice (©¿®)?

  12. TJ, we are not seeking to overrule Fla. Prepaid, but are instead distinguishing College Savings Bank (these are twin decisions, the latter involving waiver of 11th Am. immunity).

    I respectfully disagree with you on the influence of Mr. Shapiro’s article. He and Cato have much credibility in the Office of the Solicitor General, and in the administration, generally. This is a helpful ideological compliment to the amicus support we have from the U.S. Chamber of Commerce and the Software and Information Industry Association.

    We’ll see the Acting Solicitor General’s brief sometime around the end of August. I’ll make this not-so-bold prediction: the court will follow the ASG’s recommendation on cert.

  13. Mr. Mooney, the only thing clear about the denial of cert is that the court has decided not to take the case. The justices repeatedly make this point in the press and sometimes in their decisions. As you demonstrate, not everyone has gotten the word.

  14. “An “opportunity to clarify its jurisprudence…”, Mr. Mooney? Wasn’t your previous prediction “cert denied”?”

    Still is. Wouldn’t the message be clear?

  15. pds, you point to the exact difference between a patent troll and state universities, that state universities actually do real research, and they publicize their patents before an entire industry adopts them (instead of the troll tactic of springing them later). That is why only a few outliers attempt to label universities as patent trolls.

    Mr. Dhuey, I still maintain my prediction that the result will be “cert. denied”. This article hardly helps you, since it is nothing more than an invitation to overrule Florida Prepaid, which as far as I understand BPMC is not advocating (or is it now advocating that route?).

  16. Come on … where are the cries that the state universities of California are the classic patent troll … i.e., a non-practicing entity who is “extorting” tribute, to the tune of $210M/year, from actual practicing entitites?

    Where is the outrage?

    It isn’t like the universities are doing any kind of basic research … they, like all trolls, are just trying to line their own pockets to the detriment of the public, who are the ones eventually footing the bill for these tributes.

  17. Completely agree that the 11th Amendment jurisprudence is a mess and that this is a good opportunity to fix it. If you look far enough back in history, you’ll find that the concept of sovereign immunity travels more in the orbit of personal jurisdiction — which we know a party can waive. The way the states would have it, it’s a subject matter jurisdiction issue. But how can it be in a federal court?

    On the other hand, I once wrote something along these lines on a Federal Courts exam and the professor hammered me for it. But her reasons were vague: “No judge would ever believe this!” No judge, fine. Five justices, maybe?

  18. An “opportunity to clarify its jurisprudence…”, Mr. Mooney? Wasn’t your previous prediction “cert denied”? Maybe we should wait for your next prediction.

  19. “It also provides the perfect opportunity for the Court to clarify its jurisprudence on the relationship between Congress’ Article I powers and states’ 11th Amendment immunity.”

    It seems so much more likely to me that the court will see this as an opportunity to clarify its jurisprudence with respect to its view, based on the Constitution, that Congress’ function is to amend the Constitution should Congress find that the Constitution is unfair in a way that must be corrected.

    Maybe Congress can fix the 2nd Amendment, too, while they’re at it.

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