Sword or Shield? The Threat of Sovereign Immunity in Inter Partes Review.

• Author: Weidner, Alex

1. INTRODUCTION

   Subject to few exceptions, Eleventh Amendment sovereign immunity prevents states from being hailed into federal court. (1) Within the context of patent law, where all suits must be brought in federal court, states, including state entities, entitled to sovereign immunity cannot ordinarily be sued for infringement. (2) In the instant case, Covidien LP ("Covidien") attempted to circumvent the immunity by filing an administrative challenge to Florida's patents rather than an in-court challenge. (3) However, rather than hearing the challenge, the Patent Trial and Appeal Board Panel (the "panel") dismissed the petition after holding that sovereign immunity also applies to immunize state actors from inter partes review challenges before the Patent Trial and Appeal Board (the "Board"). (4) This Note argues the panel's decision was in error because sovereign immunity weakens the patent system by preventing patents that fail to meet the statutory standards from being struck down, thus creating a system in which bad patents can hold entire areas of innovation hostage.

   Part II summarizes the facts and holding of Covidien LP v. University of Florida Research Foundation Inc. Part III provides a short summary of inter partes reviews and sovereign immunity and examines the interplay between sovereign immunity and administrative proceedings. Part IV provides an indepth analysis of the reasoning behind the panel's holding. Part V argues the panel erred in holding that sovereign immunity applies to inter partes review and that sovereign immunity is problematic for the patent system. It then suggests sovereign immunity should be deemed waived by sovereign entities in exchange for the granting of a patent to said entities.

2. FACTS AND HOLDING

   The University of Florida Research Foundation ("UFRF") was founded to assist with the research activities of the University of Florida. (5) Part of its purpose is to transfer the work product of the University of Florida staff "from the laboratory to the public," frequently through licensing contracts. (6)

   UFRF exclusively licensed one of its patents to ICU AcquisitionCo Inc. ("ICU"). (7) The licensed patent covered technology for integrating bedside physiologic sensor data and transforming it to a "machine independent format." (8) Covidien, a manufacturer and seller of global health care products, became the successor in interest to ICU. (9) Covidien began paying royalties on the sales of its Vital Sync Bedside product, previously known as iCuro. (10) However, Covidien did not pay royalties on its ZephyrLIFE Hospital, ZephyrLIFE Home, or Vital Sync VPMP products, arguing those were not covered by the license agreement. (11) Following an unsuccessful mediation, (12) UFRF sued Covidien for breach of the license in Florida state court. (13) In its counterclaim, Covidien sought a declaratory judgment of noninfringement. (14) Covidien then removed the suit to the U.S. District Court for the Northern District of Florida based on the patent counterclaim, (15) where UFRF successfully argued that it was entitled to Eleventh Amendment immunity from Covidien's counter-claim. (16) Because the patent counterclaim was dismissed due to sovereign immunity, the suit was remanded to state court. (17)

   Separate from the counterclaim for noninfringement, Covidien filed three petitions with the United States Patent and Trademark Office (the "USPTO") seeking inter partes review of the claims of the licensed patent on June 28, 2016. (18) The petitions were consolidated into a single hearing where UFRF sought, and received, permission from the Board to file a motion to dismiss the petition based on sovereign immunity. (19) In its motion, UFRF argued its status as a state entity entitled it a sovereign immunity defense to the institution of an inter partes review. (20) The panel concluded sovereign immunity applied to such proceedings because they were sufficiently similar to Article III proceedings. (21) As a result, the petition to institute an inter partes review was dismissed. (22)

3. LEGAL BACKGROUND

   This Part provides an overview of the legal doctrines pertinent to the instant case. Section A discusses patent law and the inter partes review process, and Section B examines sovereign immunity and its impact on administrative proceedings.

   1. Overview of Patent Law and the Inter Partes Review Process

      All patent law is built upon the foundation of Article I, Section 8 of the Constitution, which provides that the purpose of the patent system is "[t]o promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." (23) The core patentability doctrines of patent eligibility, (24) novelty, (25) nonobviousness, (26) and enablement (27) were built upon this foundation. (28)

      These four patentability doctrines function as a series of gates that a patent application must pass through to be deemed worthy of patent protection. (29) Should an application fail to satisfy one of the doctrines' requirements, a patent will not be granted. (30) In fact, even issued patents may be invalidated if it is shown they fail to meet the requirements of any of the four doctrines. (31) However, for the purpose of this Note and for inter partes review, only novelty and nonobviousness play a significant role. (32) To be novel, an invention must not be anticipated by prior art. (33) An invention is anticipated "only if each and every element" of a patent's claims can be found "in a single prior art reference." (34) The invention must also be nonobvious. (35) A determination of obviousness is made "if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains." (36)

      Inter partes review, which was implemented as part of the Leahy-Smith America Invents Act, is a means of challenging the validity of a patent at the USPTO rather than in court. (37) The inter partes review process begins when "a person who is not the owner of a patent... file[s] with [the USPTO] a petition to institute an inter partes review of the patent." (38) The "petitioner... may request to cancel as unpatentable [one] or more claims of a patent only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications." (39)

      However, the proceeding "shall not be instituted for a ground of unpatentability unless the [Board] decides that the petition supporting the ground would demonstrate that there is a reasonable likelihood that at least one of the claims challenged in the petition is unpatentable." (40) If the petition is dismissed, the decision cannot be appealed unless it would "implicate constitutional questions . . . or... present other questions of interpretation that reach, in terms of scope and impact, well beyond [the USPTO's decision to initiate inter partes review.]" (41)

      If an inter partes review is instituted, the process allows a response to the petition to be filed, discovery, the filing of motions, and amendment or cancellation of patent claims, provided the patent owner does not seek to broaden them. (42) Next, "the... Board shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner and any new claim added under section 316(d)." (43) Once the decision has been issued, the matter can be appealed. (44) If no appeal is taken, or once the appeal is terminated, the director issues and publishes a certificate, which has the effect of "canceling any claim of the patent finally determined to be unpatentable, confirming any claim of the patent determined to be patentable, and incorporating in the patent by operation of the certificate any new or amended claim determined to be patentable." (45)

   2. Sovereign Immunity and its Impact on Administrative Proceedings

      The Eleventh Amendment states, "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 of any Foreign State." (46) This has long been construed to mean that "[t]he Eleventh Amendment limits the judicial authority of the federal courts and bars unconsented suit against a state." (47) While the impact of sovereign immunity on Article III proceedings is well-established, its impact on administrative proceedings has been frequently contested. The United States Supreme Court has indicated that immunity applies in administrative proceedings that are court-like--i.e., any proceeding substantially similar to an Article III proceeding. (48)

      The leading United States Supreme Court precedent comes from the 2002 decision of Federal Maritime Commission v. South Carolina State Ports Authority. (49) In Federal Maritime, a cruise ship company filed a complaint with the Federal Maritime Commission ("FMC") after repeatedly being denied permission to dock a cruise ship at the South Carolina State Ports Authority's ("SCSPA's") facilities. (50) An administrative law judge initially determined that "as an arm of the State of South Carolina, [SCSPA] was 'entitled to sovereign immunity.'" (51) However, the FMC reversed sua sponte after determining that "[t]he doctrine of state sovereign immunity... is meant to cover proceedings before judicial tribunals, whether Federal or state, not executive branch administrative agencies like the [FMC]." (52) The U.S. Court of Appeals for the Fourth

      Circuit then reversed the FMC, reestablishing immunity. (53) The United States Supreme Court granted certiorari to determine whether sovereign immunity applies to adjudications conducted by the FMC. (54)

      The Court...