The Wall Street Journal's Problem with the U.S. Constitution

    By Kevin E. Noonan --

Continuing its obliquely negative coverage of U.S. Patent law, Peter Lattman of The Wall Street Journal is shocked (shocked!) to find that the University of California is immune from patent infringement suits, despite being an avid participant in obtaining patents on technology developed by its faculty researchers.  In an article entitled "Critics Take Aim at California's Patent Shield" published yesterday, Mr. Lattman accurately reports that the University receives more patents than any other American university:  it has made $521 million in royalty and fee income over the past five years, and received almost 29,000 "foreign and domestic" patents over that period.  (Of course, the foreign patents are irrelevant to the point of the article, but they certainly inflate the numbers.  According to the U.S. Patent and Trademark Office website, the number of U.S. patents granted to the Board of Regents of the University of California over this 5-year period is actually 2,567 patents.)

California has benefited from patent protection because it can (and does) sue infringers in federal court.  The article specifically mentions major settlements from suits against Genentech ($200 million), Monsanto ($185 million) and Microsoft ($30 million).  Conversely, and what has roused Mr. Lattman's ire, is that California cannot be sued for its own infringement, terming the University, and the State of California "Teflon."  (Curiously, without using the ® symbol.)  Prompting the article is a recent decision by the Court of Appeals for the Federal Circuit affirming a decision from the District Court for the Northern District of California, Judge Marilyn Hall Patel presiding, that California was immune from a lawsuit by Biomedical Patent Management Corp. over a patent on a method for screening fetuses for birth defects.  Judge Patel, Mr. Lattman reports, was unhappy with this immunity, noting that private universities "enjoy no such advantage."

And, Mr. Lattman reminds us, the problem is not limited to California (citing Texas and Massachusetts as other examples of state universities invoking the immunity) because all state universities have been held to fall within the scope of the immunity.  This is relevant because, since passage of the Bayh-Dole Act in 1980 permitting (actually, encouraging) universities to patent the technological results of their faculty's research, state universities "have become major players in the patent world," with "vast amounts of intellectual property."  This has resulted in "billions of dollars in revenue" garnered from patent licensing to private enterprise.

But Mr. Lattman's problem is not with the U.S. patent system, it is with the Constitution.  As the article acknowledges, the source of the immunity is the 11th Amendment to the Constitution, which reads:

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 concept of sovereign immunity stems from British common law, banning lawsuits against the king.  Although not explicitly stated in the Amendment, the Supreme Court has interpreted 11th Amendment immunity to extend to actions of a citizen against the state in which she resides.  Hans v. Louisiana, 134 U.S. 1 (1890).  The rationale behind the immunity conferred by the Amendment is that the "States entered the federal system with their sovereignty intact," Blatchford v. Native Village of Noatak, 501 U.S. 775 (1991), and that "the sovereign immunity of the States neither derives from nor is limited by the terms of the Eleventh Amendment.  Rather, . . . the States' immunity from suit is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today," Alden v. Maine, 527 U.S. 706 (1999).  Although Alden sets out this rationale for the scope of the immunity, it is important to recognize that Alden was a 5-4 decision, with the dissenting justices believing that the States had surrendered sovereign immunity when they ratified the Constitution.  The immunity is also limited to state action, and is not shared by "lesser" jurisdictional entities like municipalities or counties.

Moreover, the immunity is not absolute.  It can be waived, and many states (as well as the federal government) have waived sovereign immunity in suits for tort and contract.  Certain U.S. Constitutional provisions trump the immunity, such as the Bankruptcy Clause and the 14th Amendment.  However, patent law does not fall within any federal law exemption, and the Supreme Court has recently decided expressly that States enjoy sovereign immunity against suits for patent infringement.  Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999).

But sovereign immunity is not limited to patent infringment lawsuits, and indeed there are even more "outrageous" consequences of applying the doctrine.  For example, sovereign immunity is expected to shield Virginia Tech (a state school) from liability resulting from the shooting rampage that killed several students in April.  Pursuant to Virginia's limited waiver of sovereign liability for torts, suits will be limited to proof of state negligence and are capped at a maximum recovery of $100,000.

Thus, the issue is the Constitution, not patent law.  The Supreme Court has not seen fit to include patent law within the power of Congress or the federal judiciary to abrogate; indeed, Justice Kennedy, writing for the Court in the Alden case, expressed the belief that Congress lacked the power to force States to waive sovereign immunity in patent cases.  Although bills have been introduced to force States to waive sovereign immunity in order to be eligible for patent protection, Congress has never passed one.  The only sure remedy would be to amend the Constitution, something there appears to be little political impetus or will to do.

ADDENDUM:

As Mark Rosen properly notes, there are instances where Congress can impose waiver of sovereign immunity on a state, but it isn't as simple as legislation that would require waiver in order for states to be entitled to patent protection.

If there was a pattern or record of states violating the 14th (due process) or 5th (takings/eminent domain) Amendments with regard to property rights, then the Court in Florida Prepaid could consider the action constitutional.  The quotation from the case reads as follows (emphasis added):

Thus, under the plain terms of the Clause and the clear import of our precedent, a State's infringement of a patent, though interfering with a patent owner's right to exclude others, does not by itself violate the Constitution.  Instead, only where the State provides no remedy, or only inadequate remedies, to injured patent owners for its infringement of their patent could a deprivation of property without due process result.

                                      * * *

Congress, however, barely considered the availability of state remedies for patent infringement and hence whether the States' conduct might have amounted to a constitutional violation under the Fourteenth Amendment.  It did hear a limited amount of testimony to the effect that the remedies available in some States were uncertain.

It isn't clear whether the law could be selective (along the lines of "if a state is found to provide no or inadequate remedies for patent infringement") or whether it would require a finding that state were generally providing no or inadequate patent infringement remedies.  It does point to a relatively clear path for Congress to address the question without having to amend the Constitution.

Comments

[EG]

Kevin,

Thanks for putting some perspective into this state "sovereign immunity" issue. Unfortunately, Lattman is the "stereotypical" media writer who is clueless how our constitution (and legal system) work and what the court cases say. The judges are very conscious about the apparent unfairness of 11th Amendment immunity for state institutions. Witness the district court judge's comments on this in the Biomedical Patent Management case recently. But the Supreme Court's decision in Florida Prepaid is clear that the states enjoy this immunity, whether or not they use the patent system (or any other portion of the legal system). Moreover, Florida Prepaid has made it almost impossible to negate this immunity, other than by Constitutional amendment (Congress must show that there is a "pattern" by the states to infringe patents. Also, as you correctly point out, the states can "waive" this immunity (maybe Lattman should have also read the Univ. of New Mexico v. Knight and the Vas-Cath v. Univ. of Missouri cases). In fact, the states (or at least their officials) have no immunity against being enjoined from patent infringement under the ex parte Young doctrine (as the Pennington Seed case says, if you can find the state official having the right "causal connnection" to sue to get the injunction).

[EG]

Kevin,

Thanks for putting some perspective into this state "sovereign immunity" issue. Unfortunately, Lattman is the "stereotypical" media writer who is clueless how our constitution (and legal system) work and what the court cases say. The judges are very conscious about the apparent unfairness of 11th Amendment immunity for state institutions. Witness the district court judge's comments on this in the Biomedical Patent Management case recently. But the Supreme Court's decision in Florida Prepaid is clear that the states enjoy this immunity, whether or not they use the patent system (or any other portion of the legal system). Moreover, Florida Prepaid has made it almost impossible to negate this immunity, other than by Constitutional amendment (Congress must show that there is a "pattern" by the states to infringe patents. Also, as you correctly point out, the states can "waive" this immunity (maybe Lattman should have also read the Univ. of New Mexico v. Knight and the Vas-Cath v. Univ. of Missouri cases). In fact, the states (or at least their officials) have no immunity against being enjoined from patent infringement under the ex parte Young doctrine (as the Pennington Seed case says, if you can find the state official having the right "causal connnection" to sue to get the injunction).

[Mark J. Rosen]

Notwithstanding the article's misunderstanding of the interaction between the Constitution and patent law, perhaps this will serve as an impetus for Congress to do something about it. It's unlikely, unnecessary, and undesirable to amend the Constitution, but certainly Congress can legislate that in order to avail itself of the sword of the patent law, states must surrender the shield of immunity therefrom. Perhaps standing to sue under the patent law could be made to rest on a waiver of immunity.

just my two cents.

Mark

[EG]

Mark,

Thanks for you 2 cents. I know Constitutional amendments are tough to get through, but that may be the only way to deal with this situation that is guaranteed to work.

What you suggest (and what Congress has already considered) is what I call the "carrot and stick" approach and is similar to what happens when you accept federal money, namely all other "strings attached" to that money. Unfortunately, I (and others) have doubts as to whether the "carrot and stick" approach" will pass consitutional muster in view of Florida Prepaid because the "waiver" by the states wouldn't be voluntary and may instead be viewed as an "involuntary" and unconsitutional effort by Congress to get the states to drop their 11th Amendment immunity. Again, the system may not be fair, but that's the way it is if what the majority in Florida Prepaid held is to be believed.

[Mark J. Rosen]

It's been a while since I read Florida Prepaid, so I went back for a quick look and found that the majority might have allowed Congress's action if it were founded properly on a record showing the States pattern of violations of 14th or 5th amendment property rights. Or, even better, where the State provides no remedy for its infringement, it may be permissible (i.e. constitutional) to require a waiver, but there was little or nothing in the record about this. As the majority wrote:

"Thus, under the plain terms of the Clause and the clear import of our precedent, a State's infringement of a patent, though interfering with a patent owner's right to exclude others, does not by itself violate the Constitution. Instead, only where the State provides no remedy, or only inadequate remedies, to injured patent owners for its infringement of their patent could a deprivation of property without due process result....

"Congress, however, barely considered the availability of state remedies for patent infringement and hence whether the States' conduct might have amounted to a constitutional violation under the Fourteenth Amendment. It did hear a limited amount of testimony to the effect that the remedies available in some States were uncertain."

My point is only that Congress could, with the proper findings, try again.

Of course, I admit to having reviewed this issue only briefly, so I could be totally wrong!

[EG]

Mark,

You're not wrong by any stretch. And you're right that Florida Prepaid said that if the states didn't provide remedies under state law, Congress might be able to remove the immunity via the 14th Amendment. The problem I see is a practical one: Congress documenting a pattern of patent infringement by the states that isn't remedied under state law (such a through an eminent domain or taking clause provision). It's also unclear from Florida Prepaid how well Congress must document these vital facts. Given how lazy Congress generally is on things like this, I've got no confidence that Congress will do it in a way that the Supreme Court will accept.

[Oskar]

A correction to the WSJ article: not every state university is protected.

To be protected under the Eleventh Amendment the state university must be considered an “instrumentality” of the state. There are a few factors that are used in making the instrumentality determination most importantly whether damages will come out of the state treasury or not. Most but not all “state” universities are state instrumentalities and therefore immune under the Eleventh Amendment. But for example, Rutgers, The State University of New Jersey was not immune. See Kovats v. Rutgers, State University, 822 F.2d 1303 (3rd 1987).
Furthermore from a patent law perspective, important state university related entities like the Wisconsin Alumni Research Foundation (WARF) do not appear to be immune either.

[Don S]

It's understandable that Mr. Lattman is shocked by this case because it is a shocking outcome, particularly to a layman. It strikes one as stupefyingly unfair that a behemoth government university could participate in the patent system, make $500 million in profits, sue third parties for infringing its patents, and then sit back and claim immunity when it is sued for infringing a third party patent.

Clearly, our forefathers never anticipated a state using its 11th Amendment immunity to shield itself in a situation like this, because they would never have imagined the kind of enormous government we "enjoy" today, and that it would insert itself into commerce and act as a business as universities now do. The 11th Amendment was designed to protect the state treasury from liability related to typical government functions, not commercial business activity.

I think media accounts like this do us all a favor, because they shed light on a problem that should be addressed. To generate interest in an effort as massive as a Constitutional amendment will require public outrage. Of course, I would like to see a more precise explanation of the basis for the Court's ruling (which, incidentally, I think was correctly decided under current law), and a roadmap for how to change the law to correct the result. It is up to attorneys to educate the reporter on these issues, assuming the reporter is interested in being educated.

[Joe Mullin]

The undercurrent in both the post and EG’s comments is that no one other than lawyers should comment on the fairness of the system, or even call it into question with others’ comments. Noonan and EG suggest that Lattman is unqualified to write about something that many people see as unfair; more generously, Don S. suggests the patent bar could begin a re-education campaign.

First, Lattman has a law degree and practiced as a litigator before becoming a journalist; I can only imagine the scorn folks here would heap upon a “stereotypical” media writer like myself who writes about such issues armed with only two degrees. Who exactly would be allowed to write about patents under the new regime suggested here?

The idea that sovereign immunity is widely recognized as “stupefyingly unfair,” but should only be written about by people who have a patent lawyer’s understanding of the law, is radically anti-democratic.

How does Noonan or anyone else know whether Lattman has a “problem with the U.S. Constitution”? It’s Prof. Mark Lemley, after all, who is quoted as saying the 11th amendment is an “antiquated doctrine.”

Many people-—including most lawyers, in my experience-—are interested in whether or not a situation, or a system, is fair. That’s a different question than whether or not something is legal, or constitutional. But in a democracy, it’s just as important.

Joe Mullin

[Don S]

Joe, I agree with your comments. All I was saying is that part of the story is "what can we do about it?" Though this reporter, since he has a law degree, should be knowledgeable enough to report the remedy probably requires a Constitutional amendment, other non-legally trained reporters may need a lawyer's help in understanding some of the nuances of the court's holding. It's no different than consulting an expert in aerospace when one wishes to understand the ramifications of a space incident, for example.

[EG]

Joe,

Thanks for offering you point of view. Let me make clear I didn't suggest that only "lawyers" are qualified to comment about issues of law or court cases. What I did say is that Kevin put some "perspective" on the issue of 11th Amendment sovereign immunity. Unfortunately, I read too many media folks who, when they talk about our Constitution, our legal system and what our court cases hold often don't get it right. (Thank you for informing us that Lattman has a law degree and once practiced as a litigator, but we still need "perspective" here, as Kevin has provided, as to how our Constitution and the 11th Amendment work.)

I also made clear that even the judges are aware of the "unfairness" of the 11th Amendment as it is sometimes employed by the states. When Florida Prepaid came out, I didn't like it either. (I'm definitely not a fan of sovereign immunity in any form, be it local, state or federal government.) Sometimes we don't like what the case holds, but we should still remain a country of laws, and that sometimes leads to an "unfair" result, at least in our view.

As I also pointed out, the states aren't able to completely hide behind 11th Amendment immunity, as the Vas-Cath and Knight cases showed. In fact, the Pennington Seed case says that the "right" state official may be enjoined from patent infringement, so the states are not completely immune under the 11th Amendment (only from damages which may be collectible from the states under eminent domain or a taking clause).

Remember also that the 11th Amendment was enacted in response to the request of the states; like Prohibition, we can "unamend" the 11th Amendment (or otherwise modify it) through the vehicle provided in our Constitution to deal with this "unfairness". That amending our Constitution may be difficult doesn't mean it isn't the right way to deal with this "unfairness".

Anyway, I do appreciate your comments which were very well said and presented, even if we may have to agree to disagree.

[Joe Mullin]

There's no doubt the story cannot be reported properly without speaking to a variety of lawyers, which Lattman did.

I don't recall the story really addressing the idea of proposed remedies. It was more an exploration of the problem. That would have been a good addition, certainly. Daily newspaper journalism is part of a larger and ongoing conversation, though. (this blog is part of that, too).

I also agree that lawyers are properly involved in the debate and the search for a solution to problems like this. But the debate should be for everyone. My comment was more directed to Noonan's article and EG's comments than your own. They seemed to denigrate the media's role, and in my opinion, the value of democratic debate generally.

There may be solutions outside the legal realm, too. The UC Regents, who are essentially politicians, must sign off on lawsuits. If there was public push-back, and the lawsuits were seen as bullying or improper or unfair, they would stop.

I don't know if that's appropriate, desirable, or realistic. I'm just pointing out that there are often remedies that lie outside the legal system. Here it's possible to imagine, at least, change coming through the political realm.

[Joe Mullin]

I wrote that last comment before reading EG's response to my first comment, though I don't think I'd change anything. But your points are duly noted.

My main point was, I just felt that Lattman was treated a bit rough after writing an article that I thought did a good job of exploring a complicated issue in a way that would be understandable to regular people.

I say this as a reporter who's been writing about IP for all of four months. If Lattman's too dumb to write about this stuff, then we all are.

[Kevin E. Noonan]

Joe:

The point wasn't that Mr. Lattman was too dumb. Indeed, you're right, he's a lawyer, and I knew that because he runs the WSJ's Law Blog.

The reason he was treated roughly (if he was; lawyers have a different definition I guess), was because his slant was that there was something wrong with patent law, not something wrong with Constitutional law. That's why I used the Virginia Tech anecdote - if the point of the piece was to decry unfairness in the application of the 11th Amendment, it seems to me much more unfair that the parents of all those dead kids don't have the right to recover the types of damages they would have if the same thing had happened at Duke, for example.

Although you are correct, the general level of reporting on patent law is dismal. It's a complicated subject not easily amenable to the type of journalism most practiced today, and so those of us who are immersed in the area notice. The good news for reporters is that most people don't; this blog isn't mySpace, after all, so the readership may have a more jaundiced view of patent reporting than the general public.

(And, by the way, the worst people to quote on patent law are academics. Lots of theoretical ability, little practical experience. Fine for talking about free speech, but patent law is nothing of not practical. Mark Lemley is a pretty clever person, but we can have a long discussion about some of his more fanciful ideas with regard to patent law.)

If Mr. Lattman had slanted his article a different way (or maybe not slanted it at all) the post would have been different.

Thanks for the comment,

[Kevin E. Noonan]

Don:

So which do you think is the bigger outrage, that the University of California makes a lot of money but is immune from infringement liability, or that Virginia Tech can limit its liability for negligence over the shooting rampage?

Historically, the magnitude or nature of the action was irrelevant - it didn't matter to the Court in Chisolm v. Georgia what the nature of the civil action was. The question is one of the relationship between the government and its citizens for private actions in law or equity. Democracy has little to do with it - the government (representing all its citizens) has immunity from being sued by any one of them. The aggrieved party can lobby (by private bill) or run for office or agitate against the government - all political and thus protected activities - but cannot use the judicial power of the state against the state itself unless the state consents.

I'm sure the framers thought chaos would descend if the populace could replace political action with lawsuits, and that was the "reason" for the amendment. The specifics and whether you think the specific outcome is outrageous isn't the point - the relationship between the state (representing all its citizens) with any one of them is the point.

And if that had been the point of Mr. Lattman's article, my post would have been different, in tone if not in substance.

Thanks for the comment.

[Don S]

Kevin:

I do agree with you that the Virginia Tech. immunity seems the greater injustice, because of the underlying tragic circumstances. But that is another example that supports my point -- our forefathers never anticipated the scope and size of government we have today, or that it would have intruded itself so greatly into our stream of commerce. I don't think, for example, that they would have anticipated large public universities like Virginia Tech.

But, consider this -- one voluntarily chooses to attend a public university over a private one, often because of the substantial cost savings due to government subsidy. The 11th Amendment immunity problem is, essentially, a risk arising from that choice. And one could argue that the state needs that immunity in order to be able to offer such a heavily subsidized education. This really was the reason why 11th Amendment immunity was established in the first place.

On the other hand, a patent holder victimized by a large university infringer made no such choice and received no subsidy in exchange for the risk of loss due to the university infringer's employment of the immunity shield.

Thank you for a great blog.

[EG]

Kevin,

Sorry if I've gotten this thread "off track" on the 11th Amendment immunity issue in the patent area, which I've studied quite a bit and have even written on. 11th Amendment immunity is a controversial subject, and the "fairness" issue is certainly an appropriate topic for others, including Congress, to consider in trying to "level the playing" field. The trouble is that the Supreme Court in Florida Prepaid, while sort of setting out how to appropriately abrogate this immunity, didn't provide the "best road map" on how to do it (a notorious problem with Supreme Court decisions). In fact, Congress doesn't appear to even pursue the approach suggested in Florida Prepaid, but is, instead, pursuing the "carrot and stick" approach I mentioned to Mark Rosen which I (and others) feel won't past Supreme Court muster under Florida Prepaid.

Also, my antennae are particularly sensitive when it comes to media commenting on various aspects of the law, especially patent law, which seem to me so show a "surface" understanding of the issue, so Lattman has probably taken undo heat from me. I'm defintely a believer in free speech, and anyone is free to comment (as they have) on what I say, and I take no offense at it. In fact, these blogs, like yours, are great for airing our thoughts and sharpening them.

BTW, your comment about "the worst people to quote on patent law are academics" is often apt. I read Lemley's comment about the current application of the 11th Amendment as being "antiquated" with some amusement. I've never thought of a provision of our Constitution as being "antiquated". In fact, you could label the whole concept of sovereign immunity as "antiquated" since it primarily derives from the principle that "the king can do no wrong" (didn't we have a revolution once to get ourselves from under a "king"?).