State Rights; Sovereign Immunity; and the Patent System

Regents of the University of Minnesota v. LSI Corporation (Supreme Court 2019) (petition stage)

Question presented in this new petition:

Whether the inter partes review proceedings brought by private respondents against the University of Minnesota in this case are barred by sovereign immunity.

UMN Petition.

UMN sued LSI and Ericsson for infringing several of its semiconductor related patents. U.S. Patents 5,859,601, 7,251,768, RE45,230, 8,588,317, 8,718,185, and 8,774,309. Those two companies then petitioned the USPTO for inter partes review (IPR) of the asserted claims.  The PTAB then dismissed the proceedings – holding that 11th Amendment sovereign immunity applied to IPR proceedings.  On appeal, however, the Federal Circuit reversed – holding that sovereign immunity does not protect state-owned patents from being cancelled by the PTAB.

A key Supreme Court precedent on-point is Fed. Mar. Comm’n v. S.C. State Ports Auth., 535 U.S. 743  (2002) (FMC) (presumptive state immunity even in administrative adjudications).  Here a major difference is that we have property-rights at stake that create special in rem jurisdiction potential and that UMN has already attacked the IPR petitioners by suing them for infringement, creating potential waiver.

This case is parallel to the Indian Tribe immunity case of Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc., 896 F.3d 1332 (Fed. Cir. 2018).  The Supreme Court denied certiorari in that case earlier this year.  A major difference here is that Indian Tribe immunity stems from common law and statutory law (and sometimes treaty) while State immunity is grounded in the U.S. Constitution.

 

59 thoughts on “State Rights; Sovereign Immunity; and the Patent System

  1. 8

    For the important distinction Dennis notes, I had difficulty seeing the parallelism for cert of Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc., 896 F.3d 1332 (Fed. Cir. 2018). But then I remembered the other issue in that case that the Fed. Cir. said it did not have to decide – namely the PTAB fact-finding decision below that that drug company’s patent “assignment” to the tribe was no real assignment. If this cert petition were successful would it encourage other pharma companies to make similar phony assignments to state agencies to try to avoid IPRs?

    1. 8.1

      If this cert petition were successful would it encourage other pharma companies to make similar phony assignments to state agencies to try to avoid IPRs?

      Probably not. The incentives faced by state agencies are so different from the incentives faced by tribal governments. It was plausibly rational for the S.R. Mohawks to agree to the arrangement that Allergan proposed. I am skeptical that there are any state agencies out there for whom it would be plausibly rational to enter into a similar arrangement (maybe Puerto Rico, but P.R. cannot offer the XI amendment immunity that a patentee wants to purchase).

      1. 8.1.1

        Greg, how much did it cost parents to buy their kids into state colleges recently until they got caught at it?

        1. 8.1.1.1

          The analogy does not seem supportable to me. Those deals were not being cut with the institutions themselves. It was a bribe to this administrator or that coach, and any would be bribe-payor had dozens of plausible targets to approach. Moreover, the individuals taking those bribes had good reason to expect that no one would ever notice. A given university admits thousands of students each year (who has time to scrutinize each one, looking for something suspicious?). Finally, both sides of those bribes (the payor and the payee) have every incentive to keep the transaction quiet.

          None of this is true for an S.R. Mohawk-style “assignment-&-license” deal. Firstly, unlike with coaches or deans or whatnot (of which there are hundreds in any given university, each of whom has the power to get this or that individual admitted each year), there is usually only one or two persons in a given university empowered to make license agreements.

          Similarly, there just are not thousands of entities looking to license in the same way that there are thousands of parents looking to get their kids admitted. Any given new admit is just one among thousands, and therefore hard to spot. License deals are much more rare, and therefore easier to spot and scrutinize.

          Finally, if a given transaction were really a sham, the university might have an incentive to keep it quiet, but not the patentee. At least for a publicly traded company, they need the market to know “this patent cannot be IPRed!” in order for the deal to have a positive effect on their stock price.

          I just do not think that the college admissions scandal is analogous enough to what you are describing to offer much insight into how the scheme might actually work.

    2. 8.2

      The legal (and not just colloquial) definition of “sham” controls — and as Greg’s comment indicates, that legal definition would most assuredly NOT have been reached.

      This may cause consternation to all those that wanted to rely on the colloquial meaning, but really does not come into play when one remembers that the HOLDING below is not dependent on the different types of immunity (which as you may recall led me to predict the State case reliance on the Tribe case).

  2. 7

    The reason this is okay is because the PTAB decision is not retroactive in District Court. UMinn should pursue its claim for past damages for the period in which they held the patent.

    Oil States established that that under the new public franchise doctrine the government can change the terms and early terminate the grant. But it does not resolve the infringement question or validity under §282.

    1. 7.1

      Oh, I believe Fresenius was wrongly decided and in any event no longer applies given the Oil States and Saint Regis Mohawk “reconsideration of the original grant” holdings. Now we understand several distinctions not addressed in Fresenius, i.e., the Agency is just giving and revoking monopolies using their own rules, standards, procedures, and claim construction. They often reach a different conclusion than the Article III courts.

      We now see that they are deciding a fundamentally different issue – termination of the franchise.

      In many cases that will not suffice to determine a patent to be invalid under §282.

    2. 7.2

      [U]nder the new public franchise doctrine…

      What “new” doctrine. When Oil States used the phrase “public franchise,” it was quoting Seymour v. Osborne, 78 U.S. 526 (1870). This is not a new doctrine. This is the U.S. patent law of longstanding.

      1. 7.2.1

        Leave Balloon Boy alone, Greg. Like all these Rep u k k k es, if you give enough rope he’ll hang himself eventually.

        In the meanwhile, there’s the laughs.

      2. 7.2.2

        No Greg, that is how it worked in England. Our Founders set up a different system. From 1790 to 2006 U.S. patents were private property rights. By 2018 they had reverted back to privileges for the wealthy elite. If you pay millions of dollars and have influence in the government you can have a patent/franchise.

        1. 7.2.2.1

          How, then, do you account for the 1870 quote from the United States reporter?

          1. 7.2.2.1.1

            Do you really think the word ‘franchise’ means the same today as it did in 1870?

            1. 7.2.2.1.1.1

              I think that when the Supreme Court used “franchise” in Oil States, the Court meant exactly the same thing that the Court meant by the word back in 1870, yes.

              Most of the outrage over Oil States comes from not understanding that point. There was nothing new in Oil States and nothing changed by the decision. The law is exactly the same after Oil States as it was before.

              1. 7.2.2.1.1.1.1

                Complete bunk. Where or if did you even go to law school? To think that Oil States was not a sea change in Constitutional law concerning privy courts – mind blowing.

                1. The invalidation of a granted patent claim effected by a patentee’s loss in an interference is no less than the invalidation effected by a loss in an IPR. There has never been a jury right in an interference. How is this a “sea change”?

                  Really, all that the Congress did in the AIA is to say “the same thing that the PTO can do to you in an interference (haul your patent into a validity contest in front of an administrative tribunal, without a jury), it can also do to you when the ground of invalidity is anticipation or obviousness over printed documents instead of prior invention.” In other words, it is just a substitution of one sort of invalidity grounds for another.

                  The substance of the process is scarcely changed at all. If you do not believe that interferences posed a constitutional infirmity, it is hard to see how IPRs do. In any event, the idea that the change from “prior invention” to “printed documents” is a “sea change” is fanciful exaggeration.

                2. Greg, they are different in many ways. Interferences often did not involve issued patents. Also, if an inventor lost the inteference they would have the right to a new trial in a district court. I believe that included a jury to decide factual disputes – right? In such case, the USPTO determination was effectively only advisory. AIA substantially expanded the reach of the Executive Branch as final arbiter into areas traditionally reserved for our Judicial Branch (Federal Circuit review does not allow evidence, testimony, or jury). Until 2012 inventors had the right to a de novo trial in an Article III court on validity. Not any longer. The inventor frog has been slow boiled.

                3. I believe that included a jury to decide factual disputes – right?

                  I do not believe so, but I would welcome input from anyone who actually knows this from personal experience. I cannot find a single reported case concerning a §146 appeal to a district court from an interference that was tried to a jury. I believe that such appeals were only to bench trials. Anyone know the answer for real to this question?

      3. 7.2.3

        BS. We fought a revolution to abolish privy courts. It’s right in the Declaration.

        1. 7.2.3.1

          Someone evidently forgot to tell the Supreme Court in 1870.

          1. 7.2.3.1.1

            So we had a PTAB in 1870? Hello? Of Course not. SCOTUS used to call patents a “monopoly” too. You buying that dicta too?

            1. 7.2.3.1.1.1

              Certainly, whenever dicta suits Greg “High Road I Use My Real Name” DeLassus, he is “all in” on using legal terms in that manner.

              Note as well that he is quick to jump on the “patents are a franchise” type of property, but refuses to engage on the necessary ramification of that type of property in view of what it means for the FranchisOR—FranchisEE legal relationship.

              That’s just inconvenient for him.

            2. 7.2.3.1.1.2

              So we had a PTAB in 1870?

              No, I concede that we did not have a PTAB in 1870. If you point is that this exact circumstance did not exist before 2012, then I concede your point. By that same token, I dare say that you will also concede that “privy courts” are nowhere mentioned in the Declaration of Independence.

              If one cares to be pedantic about vocabulary, then neither of us has made a point worthy of response. If one cares to address the substance of our exchange rather than the trivial superficialities, however, then it follows that you are complaining that our Declaration of Independence takes issue with the idea of trials without juries.

              I am pointing out in response that even at the time of the Declaration, it was agreed on all sides that some issues can be resolved without juries (viz., matters of public rights). Meanwhile, the Supreme Court has a long history of speaking of the issue of patent validity as if it were a matter of public rights. In other words, there really is nothing that shockingly new here. Just because Congress had not previously chosen to create an organ of the PTO to review claim validity does not mean that the creation of such an organ constitutes some radical break with tradition. We have traditionally regarded this question as one of public rights.

              SCOTUS used to call patents a “monopoly” too. You buying that dicta too?

              Er, yes. Patents are monopolies in the legal sense of the term. Admittedly, there is also a perfectly sound sense in which patents are not monopolies (Seymour v. Osborne, 78 U.S. 516, 533 (1870), “Letters patent are not to be regarded as monopolies”), but when the Court speaks of patents as “monopolies” (Blonder-Tongue Labs v. Univ. of Ill., 402 U.S. 313, 343 (1971), “A patent by its very nature is affected with a public interest. It is an exception to the general rule against monopolies and to the right to access to a free and open market,” quoting Precision Instrument Mfg. v. Automotive Maintenance Mach., 324 U.S. 806, 816 (1945)), the Court is not wrong to do so.

              As Black’s Law Dictionary explains, a monopoly is “[a] privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right (or power) to… manufacture a particular article… .” That description accurately describes at least part of a patent’s power.

              1. 7.2.3.1.1.2.1

                No, Greg, it does not.

                A patent is a negative right and is not a positive one (to DO or MAKE something).

                This is both loose AND incorrect in the “substance of the exchange” (as is the legal notion of monopoly and the Court’s “loose” use thereof.

                I also have to wonder with your version of patents as public rights, what happened to the differentiation that you yourself have in the past stressed between actual “public rights” and the “public FRANCHISE rights” (the latter STILL being a form of personal and NOT public rights…

    3. 7.3

      UMinn should pursue its claim for past damages for the period in which they held the patent.

      That’s not how it works.

      1. 7.3.1

        It will work if the right plaintiff tries it. Blonder-Tongue, not Fresenius, is the law of the land.

        1. 7.3.1.1

          There is no case that supports the proposition that you are suggesting, Josh.

          1. 7.3.1.1.1

            Blonder-Tongue supports it. That is the closest case and it is overwhelmingly favorable to my position.

            1. 7.3.1.1.1.1

              No Josh, Blonder-Tongue does not support your view.

      2. 7.3.2

        Right, an adverse IPR [or reexamination] final decision completely removes the claims from the patent, not just for future infringement claims. That is why D.C. infringement suits are stayed for IPR decisions and dismissed if the petitioner is successful.

    4. 7.4

      > The reason this is okay is because the PTAB decision is not
      > retroactive in District Court. UMinn should pursue its claim
      > for past damages for the period in which they held the patent

      Umm, no, I feel compelled to respond so people who read this blog don’t actually believe this. A PTAB decision invalidating a patent renders the patent void ab initio. You cannot pursue any claim for past damages; it is treated as though the patent never existed.

      The narrow exception is if you actually got a court JUDGMENT in district court awarding damages for infringement before the PTAB invalidated the claims; if there’s a final judgment, that judgment is not automatically vacated by the invalidation of the underlying patent, either in district court or the PTAB.

      But the federal court rules allow you to bring a motion in district court to vacate a “final” court judgment if the underlying patent rights have been extinguished. This is 100% guaranteed to be granted in the case of a going-forward injunction, and with respect to damages, courts will often vacate the judgment if only a modest amount of time has passed between the judgment and the patent invalidation. That’s why you saw all of the shenanigans in the Apple/Samsung case where Samsung was trying to delay the finality of the court damages judgment, through somewhat baseless motions for rehearing, en banc petitions, etc., because the PTAB had invalidated the patents while the district court damages judgment was on appeal, and they wanted to set up the best argument they could to have the court judgment vacated once it was remanded to district court.

      1. 7.4.1

        You have stated the current law according to Fresenius (Fed. Cir. 2013) which is contrary to Blonder-Tongue (U.S. Supreme Court 1971).

        The nullification doctrine of the Fresenius Court mistakenly relied on case law concerning reissue applications whereby the inventor voluntarily surrendered a patent ab initio to obtain a corrected one. The reason is simple, it would be inequitable to allow an inventor to have a patent that changes in scope over time. He could have the old one, or surrender the old one in exchange for a new corrected one. He could not keep both.

        This is the entire basis for the theory that the agency can retroactively nullify a patent. It will not hold up when it goes to the Supreme Court.

        The agency can terminate a patent under the public rights doctrine. It cannot make it as if it never existed. This silly race to final judgment in the fake court nonsense will not stand.

          1. 7.4.1.1.1

            It seems several of the Blonder-Tongue collateral estoppel factors are lacking from most PTAB proceedings. Indeed I can think of cases where a colorable argument could be made that each and every one of the 8 factors weighs against estoppel.

            [1] the requirement of determining whether the party against whom an estoppel is asserted had a full and fair opportunity to litigate is a most significant safeguard.

            [2] we should keep firmly in mind that we are considering the situation where the patentee was plaintiff in the prior suit and chose to litigate at that time and place.

            [3] the patentee-plaintiff must be permitted to demonstrate, if he can, that he did not have; a fair opportunity procedurally, substantively and evidentially to pursue his claim the first time.

            [4] certain other factors immediately emerge. For example, if the issue is nonobviousness, appropriate inquiries would be whether the first validity determination purported to employ the standards announced in Graham v. John Deere Co.

            [5] whether…the prior case was one of those relatively rare instances where the courts wholly failed to grasp the technical subject matter and issues in suit

            [6] whether without fault of his own the patentee was deprived of crucial evidence or witnesses in the first litigation.

            [7] as so often is the case, no one set of facts, no one collection of words or phrases, will provide an automatic formula for proper rulings on estoppel pleas. In the end, decision will necessarily rest on the trial courts; sense of justice and equity.

            [8] Res judicata and collateral estoppel are affirmative defenses that must be pleaded. Fed.Rules Civ.Proc. 8(c)

            1. 7.4.1.1.1.1

              The factors — being what they are — simply do not align with the overall thrust that you want.

              Quite in fact, Josh, the case holds directly against your view in the preclusion effect of a patent being found invalid (a decision necessarily against the patentee) holds for all future instances in which the patentee may seek to enforce that patent (or more precisely, enforce claims of the patent). And certainly in this context, enforcement includes the seeking of past damages for time periods prior to the finding of the claims invalid.

              As someone else posted: the finding of “invalid” has the effect of “valid ab initio.”

              For the non-Latin folks:

              In law, void means of no legal effect. … The term void ab initio, which means “to be treated as invalid from the outset,” comes from adding the Latin phrase ab initio (from the beginning) as a qualifier.

              1. 7.4.1.1.1.1.1

                Well, we would have found out had the Federal Circuit not reversed the PTAB in my case. I would have gone to the EDTX court and opposed the motion to dismiss. The infringer would have argued that my cause of action was extinguished under Fresenius. The EDTX court would have granted their motion. The Federal Circuit would have affirmed. And we would be awaiting a petition for certiori on the question of whether PTAB cancellation is effective ab initio under Blonder-Tongue.

                I hope that several strong cases that have prevailed in the real courts will put this issue to the Supreme Court in the coming months. I know of a few that are ripe.

                1. Respectfully Josh, your answer here confirms my point in so far as you would need subsequent court cases to change the status quo ante that exists today – a condition that just is not aligned with your asserted position.

        1. 7.4.1.2

          Respectfully Josh, Oil States is Sui Generis (new law and paradigm) it’s a fundamental break from 200 years of property law – and directly confronts the issue in the land patent SCOTUS cases – and flips the Constitution on its head. Gorsuch is right. Congress needs to flip the case – again.

      2. 7.4.2

        Correct Lode-runner. And why affirming the PTAB (Oil States) is such an abomination to the separation of powers.

  3. 6

    If someone sues you, you should be allowed to defend yourself, even if the person suing you is the State.

    Is it more complicated than this? Sorry, non-lawyer here.

    1. 6.1

      It’s even less “complicated” than that because the patents are inherently revokable Federal government granted “rights” infected with the public interest. The idea that States who invest in the patent game should be “immune” from having their patents challenged is utter nonsense. Always was. Always will be.

    2. 6.2

      This is not about “defending yourself BECAUSE you are being sued.”

      Multiple layers, so no biggie on the misperception.

    3. 6.3

      Yeah, it is more complicated than that. It concerns the Ratification debates, Federalism, the Bill of Rights and the 11th Amendment. In a nut shell, the Bill of Rights and the 11th – are like a restraining order on the Federal Government – what it CANNOT DO. More simply the 11th Amendment – amended the Constitution – so it is higher law.

  4. 5

    This was a poorly drafted certiorari petition. UNM made some pretty gigantic strategic missteps that really reduced the chances of certiorari being granted.

    The biggest one was that they didn’t seize on the breathtaking scope of the Federal Circuit decision. Critically, the Federal Circuit panel decision did NOT rely on waiver or the fact that UNM had filed suit on these patents. The panel decision flat out says they weren’t even reaching the waiver question in light of their categorical holding that states are simply not immune from IPR challenges because of the nature of those administrative proceedings.

    From a Supreme Court review standpoint, that was a huge gift that UNM could have highlighted in its cert petition. They could have made clear that the Federal Circuit’s holding allows any state-owned patent to be challenged in IPR regardless of whether the patent was ever been asserted against anyone. That raises a bigger, and far more cert-worthy, question.

    But UNM blew that gift by repeatedly stating in its petition that it stands “ready, willing and able” to defend the validity of its patents in the court action it brought, and even concedes on page two (and elsewhere) that UNM “waive[d] its sovereign immunity to any invalidity defense the defendant asserts in that action.” With that approach, they basically rendered the broader scope of the CAFC panel decision irrelevant.

    Their argument then reduces to the far less interesting, and less cert-worthy, question of whether UNM has a right to choose the forum in which defendants can challenge the validity of patents after they’ve been sued. In other words, according to UNM, it’s perfectly okay to invalidate our patents in district court, but not the PTAB. The rest of the Petition basically does nothing more than make the form-over-substance and largely formalist argument that an IPR proceeding is essentially a separate and independent adversarial action that should be treated separately for Eleventh Amendment purposes from the underlying infringement action, even though it involves the same parties, the same patents, and the IPR is obviously part-and-parcel with the broader infringement dispute.

    By making clear that the case doesn’t implicate the broader and more important sovereign immunity question, and focusing instead on whether UNM has a right to “choose the forum” where the defendants can bring invalidity challenges, UNM significantly reduced the chances of cert being granted.

    1. 5.3

      If States don’t like having their patents invalidated in an IPR proceeding, they shouldn’t procure them in the first place.

      Those are the rules. The idea that the Constitution (lol) “immunizes” a State from having its improvidently granted patents invalidated (double lol) is absurd on its face.

      1. 5.3.1

        they shouldn’t procure them in the first place

        Wow, the level of ig nor ance (and/or cognitive dissonance) in that statement is tremendous. Your feelings against patents reigns ‘supreme.’

        Those are the rules” – quite absolutely misses the point that Sovereign Immunity (in and if itself) MEANS that the States do NOT paly by the same sets of rules of others.

        1. 5.3.1.1

          Nothing in the Constitution even remotely suggests that a State can’t have its improvidently granted patent taken away by the same Federal agency that granted it.

          Pound the table all you want, you miserable patent huffing cl0wn but the facts don’t change.

          1. 5.3.1.1.1

            You are barking up the wrong tree here Malcolm.

            This is NOT so much about “Nothing in the Constitution even remotely suggests that a State can’t have its improvidently granted patent taken away by the same Federal agency that granted it.” as it is about the limits of Sovereign Immunity.

            (and I am certainly not the one pounding the table)

  5. 4

    Prediction: Cert denied.

    CAFC got this one right, for the right reasons, as alluded to by Dennis.

  6. 3

    Interesting choice of a license plate design that hasn’t been used in 67 years. Despite being a Minnesota native I had to google that design because I thought you had gotten the state wrong.

  7. 2

    Isn’t this sovereign immunity issue where the state is suing private parties for patent infringement [rather than the opposite] the same such issue as in University of Texas v. Boston Scientific Corp. (Fed. Cir. 2019) discussed in the prior blog this week? The only difference is as to which patent statute is being attempted to be circumvented on that same basis. The AIA statute versus the patent suit venue statute.

    1. 2.1

      Isn’t this sovereign immunity issue where the state is suing private parties for patent infringement…?

      In practice, I am sure that the answer is “yes.” At least in theory, however, a sovereign could be haled before the PTAB even without first asserting the patent. This case does not present that issue, but it does sort-of lurk in the background.

      1. 2.1.1

        Even more to the point (especially in view of the holding of the S. R. Mohawk case), the courts have stated that there is NO protection of immunity for being hailed before the PTAB for IPR proceedings.

        The case simply lays out a Rule of Law that does not require a condition precedent that the patent holder need to have waived anything.

      2. 2.1.2

        Greg, I think there is a good argument for a very important difference between IPRs filed against patents by parties being sued by a state and IPRs that are not. Besides, as you know, relatively few IPRs are filed against patents not being sued on or at least threatening suits. Furthermore, those IPRs may well not even be appealable to the Fed. Cir. if the petitioner was not sued or threatened with suit on that patent.

        1. 2.1.2.1

          Paul,

          While I see that you may attempt to make a distinction here as you do, the bottom line aspect is that the Congress expressly chose to set up a system that makes your distinction a difference that just does not matter.

          By purposefully NOT requiring an Article III type of standing, and openly inviting the Phase I part of the IPR process to any and all, the legal context of being hauled in front of the PTAB simply has no bearing on the point of difference that you speak of.

          It is a distinction that makes no difference in the particular legal context.

        2. 2.1.2.2

          Agreed, Paul, but in order for that distinction to matter, the Court would actually have to grant cert. and clarify that point. The rule on the basis of which the CAFC has decided both the Sovereign Tribes and Sovereign States questions does not depend at all on the question of whether the patentee has or has not asserted the patent against the IPR petitioner. In order for the question to have any legal significance, either the CAFC en banc or the SCotUS would need to cabin the existing CAFC precedents.

          1. 2.1.2.2.1

            … and on what basis would they do so?

            The statute as written by Congress has no such “hook.” Any such “writing” by the Supreme Court would be Law writing in the first instance, and entirely outside of any remote hint of “interpretation.”

            That is far more than merely “cabin” the lower court decisions.

  8. 1

    I expected that Minnesota would seek cert. for this one. Here’s hoping that this petition ends the same way as the S.R. Mohawks’.

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