All Patents Are Not Created Equal: Sovereign Immunity
| Author | Vern Norviel - Charles Andres - Xiaozhen 'Shawn' Yu |
| Position | Vern Norviel is a partner at Wilson Sonsini Goodrich & Rosati PC in San Francisco, California. He specializes in IP/life sciences patent counseling. Vern can be reached at vnorviel@wsgr.com. Charles Andres is an associate at Wilson Sonsini Goodrich & Rosati in Washington, DC. He specializes in IP counseling and FDA/life sciences practices. He... |
| Pages | 17-64 |
Published in Landslide® magazine, Volume 10, Number 3, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
All Patents Are Not
Created Equal
Sovereign Immunity
By Vern Norviel, Charles Andres, and Xiaozhen “Shawn” Yu
T he America Invents Act (AIA) created new US post-grant
patent challenge proceedings—including inter partes
review (IPR). Conducted in the United States Patent and
Trademark Ofce (USPTO), post-grant challenges are adjudicated
by administrative patent judges (APJs) of the Patent Trial and
Appeal Board (PTAB). Post-grant challenges have proved popu-
lar with patent challengers because: they are faster and cheaper
than traditional district court litigation;1 the standard to invalidate a
patent is lower than that employed by district courts;2 claim inter-
pretation is broader—potentially opening up claims to a wider
prior art pool;3 the ability to amend claims is practically nonexis-
tent;4 and APJs are perceived as being more technologically savvy
than judges and juries sitting in federal district courts.5
Patent quality is a perennial topic for the USPTO and the
patent bar. Some stakeholders do not believe the way the
USTPO conducts IPRs balances this imperative with the goal
of having a strong patent system. Patents have been and are
routinely invalidated in IPRs, leading some commentators to
describe the PTAB panels as patent “death squads.”6 Many
patent owners, if given the choice, would prefer to insulate
their patents from USPTO IPR proceedings.
Eleventh Amendment Sovereign Immunity
Recently, several PTAB panels determined that state entities,
such as public universities that are arms of a state, enjoy sov-
ereign immunity to IPRs under the Eleventh Amendment of
the US Constitution.7 This is an important development for at
least the following reasons.
First, public universities hold signicant amounts of valu-
able intellectual property since the Bayh-Dole Act, which
Image: iStockPhoto
Published in Landslide® magazine, Volume 10, Number 3 , a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Vern Norviel is a partner at Wilson Sonsini Goodrich & Rosati PC in San Francisco, California. He specializes in IP/life sciences patent
counseling. Vern can be reached at vnorviel@wsgr.com. Charles Andres is an associate at Wilson Sonsini Goodrich & Rosati in Washington,
DC. He specializes in IP counseling and FDA/life sciences practices. He can be reached at candres@wsgr.com. Xiaozhen “Shawn” Yu is an
associate at Wilson Sonsini Goodrich & Rosati in Washington, DC. He specializes in IP/life sciences patent counseling. He can be reached at
syu@wsgr.com. The opinions expressed are those of the authors and do not necessarily reect the views of the rm or its clients. This article is
intended solely for general information purposes and should not be taken as legal advice.
allows patenting and licensing of inventions made with fed-
eral funds.8 And, in the face of declining federal funding,9
universities can create viable alternative revenue streams by
licensing their intellectual property (e.g., patents and patent
applications) to start-up companies.
Second, the Eleventh Amendment,10 as interpreted by pan-
els of the PTAB, de facto creates two groups of patents: one
protected from IPR challenges and one that is unprotected.
All other things being equal, a protected patent is more valu-
able than an unprotected patent.
Sovereign Immunity as Applied to the State Entity:
Covidien
In January 2017, the PTAB dismissed a trio of IPRs based on the
University of Florida’s claim of sovereign immunity in Covidien
LP v. University of Florida Research Foundation Inc.11 Covidien
had led three IPRs against patents owned by the University of
Florida, and the PTAB concluded that state sovereign immunity
applies to IPR proceedings and thus terminated them.12
First, the PTAB cited the Supreme Court decision Federal
Maritime Commission v. South Carolina State Ports Author-
ity and held that a state’s sovereign immunity could bar
certain administrative agencies from adjudicating a private
party’s complaint against a nonconsenting state.13 The PTAB
concluded that IPR proceedings “implicate the immunity
afforded to the States by the Eleventh Amendment.”14
The PTAB further noted that in Vas-Cath, Inc. v. Curators
of the University of Missouri, the Federal Circuit held that the
interference proceedings in the USPTO bear “strong similari-
ties” to civil litigation.15 Relying on the observation that the IPR
proceeding “largely mirrors that involved in an interference
proceeding,” the PTAB concluded that “Eleventh Amendment
immunity bars the institution of an inter partes review against an
unconsenting state that has not waived sovereign immunity.”16
Non-State Licensee: NeoChord
After Covidien, another PTAB panel determined that sovereign
immunity applies to the University of Maryland as a state
entity and thus dismissed it from the IPR proceeding.17 The key
question, however, was whether to terminate the IPR against
the remaining non-state entity party, an exclusive licensee.
In NeoChord, Inc. v. University of Maryland, Baltimore,
the PTAB noted that the university retained certain rights
under the licensing agreement, such as the right to sue a third
party for infringement if the licensee fails to do so, and there-
fore transferred less than “substantially all” rights to the
licensee. Accordingly, the panel concluded that the university
remained a “necessary and indispensable party” and thus ter-
minated the proceeding.18 Under NeoChord, the dismissal of
the state entity licensor can practically extend sovereign pro-
tection to the non-state licensee, as discussed in detail below.
Non-State Co-Owner: Reactive Surfaces
In Reactive Surfaces Ltd., LLP v. Toyota Motor Corp., the
PTAB maintained an IPR even after dismissing the Regents
of the University of Minnesota on sovereign immunity
grounds.19 The panel stressed that, unlike the licensor-licensee
relationship in NeoChord, the absent sovereign party and the
remaining nonsovereign party are co-owners holding identical
interests in the patent.20 It thus concluded that the IPR may
continue because the remaining party would adequately rep-
resent the sovereign party’s interest in the patent.
If the distinction between NeoChord and Reactive Surfaces
survives, it may be a logical approach for a co-owner to give
up its ownership stake to a sovereign co-owner in exchange
for an exclusive license on the patent.
Judicial Review of the PTAB Decisions
The Supreme Court held in Cuozzo Speed Technologies,
LLC v. Lee that §314(d) of the AIA bars judicial review of
the USPTO’s preliminary decision to institute IPR.21 The
Court, however, did leave the door open by stating that
§314(d) “may not bar consideration of a constitutional ques-
tion.”22 A question of sovereign immunity under the Eleventh
Facing declining federal funding,
universities can create viable
alternative revenue streams by
licensing intellectual property.
Published in Landslide® magazine, Volume 10, Number 3, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Amendment may be precisely what the Supreme Court
envisioned.
Waive Sovereign Immunity in the USPTO by Filing
Patent Infringement Suit?
Where sovereign immunity is present, a prospective pat-
ent challenger might consider waiting until the state entity
les a patent infringement suit in a federal court, potentially
waiving sovereign immunity. Indeed, the Covidien panel
expressly declined to decide “whether the existence of such
a case would effect a waiver of sovereign immunity.”23 How-
ever, in this regard, the Federal Circuit has shown reluctance
to extend waiver of sovereign immunity from one suit to a
separate suit, let alone one in a completely different forum.24
Accordingly, it is possible that sovereign immunity at the
PTAB would remain intact even if a state entity led an
infringement suit in a federal court.
Tribal Sovereign Immunity: Allergan IPR
The question of the metes and bounds of sovereign immunity,
in this case tribal sovereign immunity, is currently being tested
by a global pharmaceutical company, Allergan, which owns
six Orange Book–listed patents relating to the blockbuster
drug Restasis. Competitors, looking to remove these barriers
to entry, led IPR challenges against all six patents.25 Aim-
ing to protect its patents, Allergan transferred ownership of the
patents to the Saint Regis Mohawk Tribe.26 In turn, the Tribe
granted Allergan exclusive licenses.27 Under the agreement, the
Tribe will receive $13.75 million and will be eligible to receive
$15 million in annual royalties.28 As the owner of the patents,
the Tribe announced plans to rely on the Covidien and Neo-
Chord decisions in motions to dismiss the IPRs.29
Allergan is not alone. SRC Labs LLC, for example, has also
transferred patent rights to the Tribe.30 Still, it is not clear whether
tribal sovereign immunity will ultimately provide the same protec-
tion as state sovereign immunity, as the Supreme Court has held
that state sovereign immunity is rooted in the Constitution, while
tribal sovereign immunity is a creation of federal law.31
Patent owners are closely watching developments in this
area.32 If Allergan’s approach succeeds, some may argue
that the failure to counsel a client with valuable intellectual
property to implement this or a similar approach could even
constitute malpractice. This may be especially true if courts
determine that tribal immunity prohibits attacking patents in
district court on invalidity and inequitable conduct grounds,
leaving noninfringement as the sole dispute at issue.
Practical Implications for PTAB Practice
First, many patent owners will likely make deals to insulate their
patents against IPRs. Sovereign entities, such as public univer-
sities, Indian tribes, or entities owned by a foreign country, may
also approach patent owners to propose similar arrangements.
Lawyers will also increasingly counsel their patent owning cli-
ents to consider entering into these arrangements.
In particular, transaction counsel will look to include, in
licenses to university and tribal patents, provisions specically
enumerating that there is no waiver, or only limited waiver under
certain conditions, of sovereign immunity. In fact, based on the
distinction between NeoChord and Reactive Surfaces, licensing
agreements could become preferred to joint research agree-
ments—provided the license is appropriately crafted and fully
accounts for patent statutory provisions and considerations.
Second, licensing fees and running royalties paid to sover-
eign entities may result in product price increases that could
be passed on to consumers.
Third, Congressional and USPTO oversight of the PTAB
may become more hands-on, as some have opined that any
unintended consequences of PTAB sovereign immunity deci-
sions might lie not with the PTAB, but with its oversight.33
Finally, district court litigation would take on an increas-
ing importance in adjudicating patent proceedings—perhaps
with an emphasis on refereeing noninfringement arguments.
Conclusion
Many questions remain as authority on state and tribal sover-
eign immunity evolves. And the issues raised by state and tribal
sovereign immunity might be an opportunity for a reset. For
example, the USPTO might wish to consider (1)increasing
director oversight of the PTAB, and (2)implementing the routine
ability to amend claims during IPRs, as in European oppositions.
In any event, these cases surely will not be the nal word
on sovereign immunity for patent holders, as they argu-
ably abrogate congressional intent expressed in the AIA. Of
course, sovereign immunity from IPRs would be moot if the
Supreme Court holds that IPRs are not constitutional.34 But
one thing is certain: interested parties should keep abreast
of the latest developments, regularly consult counsel, and be
prepared to take appropriate legal action. n
Endnotes
1. A. I P. L A’ (AIPLA), R
E S 37, 43 (2015).
2. See 35 U.S.C. §§282(a), 316(e).
3. Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2134 (2016).
4. Patent Trial and Appeal Board Motion to Amend Study,
USPTO (Apr.30, 2016), https://www.uspto.gov/sites/default/les/
documents/2016-04-30%20PTAB%20MTA%20study.pdf.
5. JenniferR. Bush, Administrative Patent Judges: Not Your Typi-
cal Federal Judge, F & W LLP (July10, 2014), https://
www.fenwick.com/publications/pages/administrative-patent-judges-
not-your-typical-federal-judge.aspx.
6. Rob Sterne & Gene Quinn, PTAB Death Squads: Are All Commer-
cially Viable Patents Invalid?, IPW (Mar.24, 2014),
http://www.ipwatchdog.com/2014/03/24/ptab-death-squads-are-all-
commercially-viable-patents-invalid/id=48642/.
7. Sovereign Immunity: A Post-Grant Tool for Patent Owners?,
PTAB R. (Wilson Sonsini Goodrich & Rosati, Palo Alto, Cal.),
June 2017, at 4, https://www.wsgr.com/email/PTAB-Review/2017/
June/PTAB-Review-June-2017.pdf.
8. 35 U.S.C. §§200–212.
9. Ronda Britt, Universities Report Continuing Decline in Fed-
eral R&D Funding in FY 2014, N’ S. F. (Nov.17, 2015),
https://www.nsf.gov/statistics/2016/nsf16302/.
10. U.S. C. amend. XI (“The Judicial power of the United
States shall not be construed to extend to any suit in law or equity,
Continued on page 62
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