U.S. COURT OF APPEALS FOR THE FEDERAL CIRCUIT HAS HELD THAT NEITHER STATE AGENCIES NOR INDIAN TRIBES ENJOY SOVEREIGN IMMUNITY, WHICH WOULD PROTECT THEIR PATENTS FROM CHALLENGE IN THE PATENT TRIAL AND APPEAL BOARD OF THE UNITED STATES PATENT AND TRADEMARK OFFICE
On July 20, 2018 in Saint Regis Mohawk Tribe, Allergan, Inc. v. Mylan Pharmaceuticals Inc., a panel of the U.S. Court of Appeals for the Federal Circuit (Dyk, Moore and Reyna JJ) held that Native American (“Indian”) Tribes do not enjoy Sovereign Immunity which would protect their patents from challenge in inter partes review (IPR) proceedings before the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO). On April 15, 2019, the Supreme Court rejected a petition for certiorari.
On June 14, 2019 in Regents of the University of Minnesota v. LSI Corporation, the Federal Circuit in the form of a panel of Dyk, Wallach and Hughes JJ, reached the same conclusion with respect to claims for sovereign immunity by state agencies.
The saga began when the PTAB in Reactive Surfaces LLP v. Toyota Motor Corporation and other cases held that the sovereign immunity that the United States Constitution affords to the individual states protected patents owned by the states and state entities from challenge in inter partes review before the PTAB. 1 These decisions were not reviewed by the Federal Circuit. Following the PTAB decisions on state sovereign immunity, and noting that case law had held that Native American tribes also possessed a degree of sovereign immunity, the pharmaceutical company Allergan transferred patents relating to its Restasis® drug to the Saint Regis Mohawk Tribe and sought to withdraw from IPR proceedings that had been brought by Mylan and others seeking to have claims of the patents declared invalid. The tribe sought dismissal of the proceedings based on its sovereign immunity.
As noted above, the case relating to Indian tribes was the first to reach the Federal Circuit.
The court characterized such tribes as “domestic dependent nations” that possess an “inherent sovereign immunity,” and suits against them are generally barred “absent a clear waiver by the tribe or congressional abrogation.” However, this immunity does not extend to actions brought by the federal government. 2 After consideration of the recent Supreme Court decisions in Oil States Energy Services v. Greene’s Energy Group, LLC3 and SAS Institute Inc. v. Iancu4, the Federal Circuit held that IPR proceedings are more like an agency enforcement action than a civil suit brought by a private party, and concluded that tribal immunity is not implicated.
The logic of this conclusion was also held to be applicable to state sovereign immunity in the University of Minnesota case.
The Nature of Sovereign Immunity
Sovereign immunity is a judicial doctrine that prevents the government or its political subdivisions, departments and agencies from being sued without its consent. The doctrine stems from the ancient English principle that the monarch can do no wrong. After citing a number of earlier cases, Brewer J in Price v. United States5 stated:
It is an axiom of our jurisprudence. The government is not liable to suit unless it consents thereto, and its liability in suit cannot be extended beyond the plain language of the statute authorizing it.
28 USC 1498 provides for suits for compensation against the federal government if it uses a patented invention without permission as follows:
(a) Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.
The Constitution of the United States (1789) sets out the powers which the states transferred to the federal government when it was adopted. These include the power to legislate for the grant of patents. The 10th Amendment to the Constitution (1791) specifically reserves to the states or the people any powers not delegated to the United States by the Constitution. The 11th Amendment (1795) provides that 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. The 14th Amendment (1868) provides that “No state shall… deprive any person of … property without due process of law” and gives Congress the power to enforce this by “appropriate” legislation.
In 1992, Congress enacted legislation to make the States as well as instrumentalities of states and officers and employees of states acting in a governmental capacity liable for patent infringement in the same way as nongovernmental entities6. However, the Supreme Court held this legislation to be unconstitutional in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank7 on the ground of usurpation of a state’s right to sovereign immunity. Under the 14th Amendment, Congress’ power to enact such a law to protect the property rights of patent owners was subject to it being “appropriate”. The Supreme Court found that there was insufficient evidence that state use of patented inventions was sufficiently large a problem for the remedy enacted by Congress to be “appropriate.”
It was against this background that the PTAB had held that patents owned by state entities were protected from challenge unless the state had waived its sovereign immunity, for example by seeking to enforce the patent8. In reaching its conclusion on the application of state sovereign immunity to PTAB proceedings, the PTAB noted that in Fed. Marine Commission v. South Carolina State Ports Auth.9, the Supreme Court had interpreted the 11th Amendment to encompass a broad principle of sovereign immunity, not only limiting the judicial authority of the federal courts to subject a state to an unconsented suit, but also precluding certain administrative proceedings, depending on the nature of those proceedings, from adjudicating complaints filed by a private party against a nonconsenting State.
PTAB Proceedings in St. Regis Mohawk Tribe v. Mylan
When confronted with the St. Regis Tribe’s claim for sovereign immunity and Allergan’s attempt to withdraw from the proceedings, the PTAB first held that the Federal Marine Commission decision noted above did not necessarily apply to the sovereign immunity of tribes because this had a different basis than the sovereign immunity of the states10. Inter partes review proceedings were created by a federal statute of general applicability. Case law has held that such statutes normally apply to tribes unless they would affect intramural matters of the tribe, they would abrogate rights guaranteed by Indian treaties or the legislative history indicates that the law was not intended to apply to the tribes. None of these applied here.
Proceedings in the Federal Circuit
As noted above, the Federal Circuit addressed the issue on a rather different basis from the PTAB. In its view, IPR proceedings were “like cases where an agency chooses whether to institute a proceeding on information brought by a private party.” The Federal Marine Commission case had recognized that immunity would not exist in such a situation. In the Federal Marine Commission case where it had been held that immunity did apply, at least for states, the commission lacked any discretion to refuse to adjudicate complaints brought by private parties. In IPR proceedings, the Director of the USPTO was much more involved. Finally, IPR proceedings were significantly different from those in federal court.
Part of the reasoning in the Federal Marine Commission case had been that sovereign immunity should not be circumvented simply by transferring a proceeding from an Article Ill court of law to an equivalent agency tribunal. This was not the case with IPR proceedings.
In concluding, the Court noted:
In this case we are only deciding whether tribal immunity applies in IPR. While we recognize there are many parallels, we leave for another day the question of whether there is any reason to treat state sovereign immunity differently.
However, as noted above, the Supreme Court declined certiorari.
The University of Minnesota Case
Following the reasoning in the St. Regis case, it was not surprising that the question would arise as to whether state sovereign immunity protected challenges against patents owned by a state or one of its agencies in the PTAB. As noted above, the Federal Circuit has now held that it does not.
In reaching this conclusion, the court noted that the University had argued that because States typically enjoy immunity from lawsuits brought by private parties as a “fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today” and challenges before the PTAB had the characteristics of a lawsuit brought by a private party.
The Federal Circuit disagreed.
As discussed in the tribal immunity case, the Supreme Court recognized in the Federal Marine Commission case that sovereign immunity does not bar an agency from bringing an enforcement action against the state “upon its own initiative or upon information supplied by a private party.”
The University argued that sovereign immunity applies to IPR proceedings where the state is the patent owner because they are not like suits brought by the United States but are entirely a dispute between a private party and the state.
The Federal Circuit disagreed, noting that one of the objectives of the America Invents Act (AIA) was to make it easier for the public to assist in addressing the problems of patent invalidity resulting from examiners often having to spend too little time on examination and that in Cuozzo v. Lee11 the Supreme Court had concluded that IPR proceedings are essentially agency reconsideration of a prior patent grant.
“The purpose of the proceeding is not quite the same as the purpose of district court litigation…Instead; the proceeding offers a second look at an earlier administrative grant of a patent.” Consequently, the Federal Circuit found that although
The USPTO’s enlistment of third parties in IPR has made the process less of an “agency-led, inquisitorial process for reconsidering patents,” and more of a “party-directed, adversarial process,” SAS, 138 S. Ct. at 1355, i.e., “an adversarial, adjudicatory proceeding between the ‘person’ who petitioned for review and the patent owner,” …but that does not disturb the basic purpose of the proceeding, “namely, to reexamine an earlier agency decision,”
In the St Regis case,
Ultimately several factors convinced us that IPR is more like an agency enforcement action than a civil suit brought by a private party, and we conclude[d] that tribal immunity is not implicated.” These factors are equally applicable to state sovereign immunity.
It is, however, somewhat ironic that within a week of the Supreme Court holding in Return Mail, Inc. v. United States Postal Service et al. that IPRs are sufficiently similar to court proceedings that it would be unfair to allow the federal government the procedural advantages of utilizing them, the Federal Circuit held that they are sufficiently different from court proceedings that sovereign immunity does not apply.
What about other claims to Sovereign Immunity?
Traditionally, sovereign immunity applied to foreign sovereigns as well as domestic ones as an application of comity. However, as countries and their agencies have become more involved in commercial activities, this approach has been modified by statute in many countries. In the United States, the Foreign Sovereign Immunities Act12 removes sovereign immunity in cases in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States. 13
In Intel Corp. v. CSIRO14 CSIRO had offered licenses under some of its US patents on wireless technology to equipment manufacturers. CSIRO indicated that if licenses were not taken it would “consider litigation”. The manufacturers brought declaratory judgment actions on the basis that they were apprehensive of being sued. CSIRO sought to have the actions dismissed on the ground of sovereign immunity, arguing that merely seeking licensees was not a commercial activity. The Federal Circuit disagreed, holding that sovereign immunity did not apply because the actions were “based on CSIRO’s commercial acts of obtaining and asserting a U.S. Patent.”
It therefore seems that foreign sovereigns and their agents are not immune from PTAB proceedings in which the validity of their patents may be challenged.
The creative idea that assignment of a patent to an entity possessing sovereign immunity might insulate it from challenge in inter partes review or post grant review seems to have run its course.
- Reactive Surfaces LLP v. Toyota Motor Corp; NeoChord Inc. v University of Mayrland; C0vidien LP v. University of Florida Research Fund ↩
- E.E.O.C. V. Karuk Tribe Hous. Auth., 260 F.3d 1071, 1075 (9th Cir. 201); United States v. Red Lake Band of Chippewa Indians, 827 F.2d 380, 383 (8th Cir. 1987) ↩
- 138 S. Ct. 1365 (2018) ↩
- 138 S. Ct. 1348 (2018) ↩
- 174 US 373 (1899) ↩
- Patent and Plant Variety Protection Remedy Clarification Act ↩
- 527 US. 666 (1999) ↩
- As had been the case in Ericsson Inc. v. University of Minnesota ↩
- 535 US 743 ↩
- As noted above, sovereign immunity of the states derives from the fact that when the Constitution was adopted, the states retained all rights that were not expressly transferred to the federal government. Sovereign immunity for tribes has a different basis. The pre-independence practice of governing relations with Native American tribes by treaties continued after independence (see Marshall J. in Worcester v. Georgia, 31 USC 515 (1832) ↩
- Cuozzo Speed Techs., LLC v. Lee, 579 U.S. ___ (2016), 136 S. Ct. 2131, 195 L. Ed. 2d 423 (2016) ↩
- 28 USC 1602 et seq. ↩
- 28 USC 1605 (a)(2), Similar provisions are found in the UK State Immunity Act 1978, which in Section 7 also has specific provisions relating to intellectual property rights, and in the European Convention on State Immunity, which in Article 8 also has specific provisions relating to intellectual property ↩
- 455 F. 3d 1364 79 USPQ2d 1508 (Fed. Cir. 2016) ↩