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6 April 2021AmericasSimon Roberts, Nitya Anand and Eric Wang

Sovereign immunity: a venue-dependent protection

At first glance, sovereign immunity—a constitutionally and judicially-created doctrine that protects sovereign entities such as countries, states, or indigenous tribes from suit unless the entity has waived its immunity or consented to suit—may seem like a get-out-of-jail-free card for a sovereign patent owner involved in a patent dispute.

But, as the case between the University of Texas (UT), its licensee Gensetix, and Baylor College of Medicine illustrates, the immunities afforded to sovereign patent owners differ greatly depending on the venue of the dispute. Understanding those differences is central to developing a patent trial strategy across parallel venues.

Sovereign immunity in patent law

Sovereign immunity is a longstanding legal concept. It dates back to medieval monarchs and is often attributed to the phase “the King can do no wrong.” Although the founding of the US was premised on a rejection of monarchy, sovereign immunity nevertheless survived, instead imputed to the political state.

Textually, sovereign immunity is often ascribed to the Eleventh Amendment which restricts courts from considering any suit against a state by citizens of another state. But as the Supreme Court itself has recognised: “The sovereign immunity reflected in (rather than created by) the Eleventh Amendment transcends the narrow text of the Amendment itself” (Coll Sav Bank v Fla Prepaid Postsecondary Ed Expense Bd [1999]).

Rather, the “concern that states not be unduly burdened by litigation” is a result of “ensuring that the states’ dignitary interests can be fully vindicated” as part of the federalist system (PR Aqueduct & Sewer Auth v Metcalf & Eddy [1993]).

Sovereign immunity intersects with patent law primarily through entities that are considered arms of the state, frequently state universities. When a public university owns a patent, it is the state that owns the patent through the university, such that cases involving that patent raise questions of sovereign immunity.

Because the doctrine shields the state from any liability for patent infringement, enterprising parties often seek new ways to introduce sovereign immunity into a dispute. Some patent owners have attempted to take advantage of sovereign immunity to shield their patents from invalidity challenges, even going as far as assigning their patents to sovereign indigenous tribes in return for an exclusive licence.

Parallel proceedings and differing outcomes

The dispute between UT, Gensetix, and Baylor College of Medicine perfectly illustrates the differing role sovereign immunity plays in the Patent Trial and Appeal Board (PTAB) and district court proceedings.

Gensetix exclusively licensed from UT two patents directed to methods of modifying a patient’s immune system to kill cancer cells. The licence required Gensetix to enforce the patents. In April 2017, Gensetix sued Baylor for infringement of the licensed patents in federal district court and sought to join UT as an involuntary co-plaintiff under Federal Rules of Civil Procedure (FRCP) rule 19(a). In response to this suit, Baylor filed two inter partes review (IPR) proceedings challenging those patents at the PTAB.

UT asserted sovereign immunity in both sets of proceedings, and both eventually made their way to the Federal Circuit in 2020.

In the appeal from the district court proceeding, the Federal Circuit stated that UT could not be involuntarily joined as a plaintiff due to its sovereign immunity. The court then remanded for further consideration, explaining that the district court had not properly weighed the relevant factors of FRCP rule 19(b) to determine whether the case could proceed without UT (Gensetix v Bd of Regents of the Univ of Tex Sys [Fed Cir, 2020]).

That decision, however, was not without controversy: Judge Newman concurred with the remand but argued that states waive their sovereign immunity when they participate in commercial transactions.

Judge Taranto dissented with the remand, arguing that sovereign immunity alone obviates the need to consider other factors for whether the case may proceed.

The parallel IPR appeal reached a more straightforward but contradictory result. In that appeal, the Federal Circuit issued a nonprecedential per curiam opinion affirming that UT was not entitled to immunity in the IPR proceedings, essentially adopting in full a prior 2019 opinion: Regents of the University of Minnesota v LSI Corp (Fed Cir, 2019).

Sovereign immunity availability moving forward

As reflected by the UT dispute, the inapplicability of sovereign immunity within the IPR context is largely settled. The seminal case on this issue is Saint Regis Mohawk Tribe v Mylan Pharmaceuticals. In that case, Allergan attempted to invoke sovereign immunity to dismiss IPRs by transferring ownership of its patents to the Saint Regis Mohawk Tribe while retaining an exclusive licence (896 F.3d 1322 [Fed Cir, 2018], cert denied 139 S Ct 1547 [2019]).

In rejecting this attempt, the Federal Circuit explained that the heart of any inquiry for whether sovereign immunity applies is how closely the proceeding in question resembles administrative action as opposed to a lawsuit in court, stating: “Generally, immunity does not apply where the federal government acting through an agency engages in an investigative action or pursues an adjudicatory agency action.”

Emphasising that IPRs are initiated at the discretion of a politically accountable executive officer and may continue without involvement of the patent owner, the court held that IPRs are more administrative than judicial, such that sovereign immunity did not apply.

“Although sovereign immunity might apply to protect a sovereign actor in a district court litigation, it does not shield sovereign patent owners from IPR proceedings challenging the validity of their patents.”

This reasoning was further elaborated in Regents, the case referenced by the Federal Circuit in the UT appeal. In Regents, the Federal Circuit pointed out that “sovereign immunity does not apply to suits brought by the US, including agency proceedings commenced by the US” such as IPR proceedings (Regents of the Univ of Minn v LSI Corp [Fed, Cir, 2019]).

To justify the inapplicability of immunity, the court recounted the history of IPR proceedings as an administrative tool as well as the history of patent protections as a public right. It also expressed a general distaste for taking advantage of immunity to protect patents, once again rebuking such attempts in IPRs.

The district court context presents an equally settled but contrasting picture: sovereign immunity can apply in court proceedings to shield the state actor and dismiss the case. But complexities arise when there are other non-immune parties involved.

For patent litigations involving immune and non-immune parties, the dismissal analysis centres around FRCP rule 19 governing joinder. Rule 19(a) asks whether the immune sovereign is a necessary party; if not, then the patent may be litigated without that party. The question of whether a sovereign is necessary frequently depends on the exclusivity of the patent licence. If a party is only nominally the owner of the patent and holds no substantial rights, then the sovereign will likely not be deemed a necessary party.

If an immune party is also a necessary party, however, the analysis then turns to rule 19(b) which lists four factors that should be considered in determining whether the action may continue after the immune party is dismissed.

1) The extent to which a judgment rendered in the immune party’s absence might prejudice that party or the existing parties;

2) The extent to which any prejudice could be lessened or avoided;

3) Whether a judgment rendered in the party’s absence would be adequate; and

4) Whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.

According to the Supreme Court, the point of this inquiry is to determine whether “there is a potential for injury to the interests of the absent sovereign” (Republic of Philippines v Pimentel [2008]).

But courts have differed in answering that inquiry, as reflected by the differing opinions within the Gensetix decision itself. Some, including Judge Taranto’s Gensetix dissent, have said that, by definition, proceeding in an action against a necessary but immune party creates potential for injury, while others, such as the majority opinion in Gensetix, require an analysis of all four rule 19(b) factors regardless.

Ultimately this much is clear: although sovereign immunity might apply to protect a sovereign actor in a district court litigation, it does not shield sovereign patent owners from IPR proceedings challenging the validity of their patents.

For patent owners, exclusive licensors that assign all substantial rights can likely escape involvement in a district court litigation under federal joinder rules, irrespective of immunity. Non-exclusive licensors on the other hand will have to conduct a rule 19(b) analysis to determine the necessity of their involvement. There may also be strategic advantages to waiving immunity outright, thus obviating any need for a rule 19 analysis.

As for patent challengers, IPR proceedings provide a way to invalidate a patent without facing issues of dismissal based on sovereign immunity. Following the logic of the Regents decision, it is likely that sovereign immunity is also inapplicable to post-grant review (PGR) proceedings, an additional avenue for challenging patents at PTAB available only for post-America Invents Act patents. But since the grounds for such challenges are limited to prior art (and §112-based grounds for PGRs), parties wishing to challenge a patent on other grounds (such as improper inventorship, inequitable conduct, §101, or §112 for pre-AIA patents) should be prepared for a district court sovereign immunity battle and a rule 19 analysis.

Simon Roberts is a partner at Hogan Lovells. He can be contacted at:  simon.roberts@hoganlovells.com

Nitya Anand is a senior associate at Hogan Lovells. She can be contacted at:  nitya.anand@hoganlovells.com

Eric Wang is a law clerk at Hogan Lovells. He can be contacted at:  eric.wang@hoganlovells.com


More on this story

Americas
19 September 2017   Earlier this month, in a bid to obtain immunity against an inter partes review (IPR), Allergan transferred its patent rights for a dry eye treatment to a Native American tribe.
Americas
26 February 2018   The Patent Trial and Appeal Board rejected the Saint Regis Mohawk Tribe’s attempt to dismiss inter partes reviews related to dry-eye treatment Restasis late last week.

More on this story

Americas
19 September 2017   Earlier this month, in a bid to obtain immunity against an inter partes review (IPR), Allergan transferred its patent rights for a dry eye treatment to a Native American tribe.
Americas
26 February 2018   The Patent Trial and Appeal Board rejected the Saint Regis Mohawk Tribe’s attempt to dismiss inter partes reviews related to dry-eye treatment Restasis late last week.