More Instances of Tribal Sovereign Immunity Shielding Patents from PTAB Invalidation

By Kevin E. Noonan --

Late this summer, Allergan entered into an agreement with the St. Regis Mohawk Nation to assign its rights in several Orange Book-listed patents involved in inter partes review proceedings, with the aim of having those proceedings dismissed based on the tribe's invoking sovereign immunity (see "Allergan Avails Itself of Sovereign Immunity").

To recap, the 11th amendment to the Constitution 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).  However, 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 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).

This type of immunity has been determined to be available to the various tribes of Native Americans, which have also been held to enjoy sovereign immunity, albeit with certain limitations that do not apply to the States.  The immunity stems from common law rather than by statute or Act of Congress, Turner v. United States, 28 U.S. 354 (1919), and has been applied both to state action and private suit.  United States v. United States Fidelity & Guaranty Co., 309 U.S. 506 (1940); Puyallup Tribe, Inc. v. Department of Game of State of Washington, 433 U.S. 165 (1977); and Kiowa Tribe of Oklahoma v. Mfg. Technologies, Inc., 523 U.S. 751, 755 (1998).

Allergan has not been alone in entering into such arrangements; on August 1st, SRC (Cray) Labs LLC transferred patent rights to the tribe, and on October 18th the tribe (with SRC named a co-plaintiff as exclusive licensee of the asserted patents) filed a patent infringement lawsuit in the Eastern District of Virginia against Amazon.com, Inc., Amazon Web Services, and VADATA, claiming infringement of the following patents:

U.S. Patent No. 6,434,687 (System and method for accelerating web site access and processing utilizing a computer system incorporating reconfigurable processors operating under a single operating system image);

U.S. Patent No. 7,149,867 (System and method of enhancing efficiency and utilization of memory bandwidth in reconfigurable hardware);

U.S. Patent No. 7,225,324 (Multi-adaptive processing systems and techniques for enhancing parallelism and performance of computational functions);

U.S. Patent No. 7,620,800 (Multi-adaptive processing systems and techniques for enhancing parallelism and performance of computational functions); and

U.S. Patent No. 9,153,311 (System and method for retaining DRAM data when reprogramming reconfigurable devices with DRAM memory controllers)

The subject matter claimed in these patents(as disclosed to defendants) is shown in the following illustrations, included in the complaint:

According to the complaint, the Tribe granted SRC an exclusive license with the right to sue third parties for infringement.  Paragraph 31 of the complaint includes an important cavet relevant to the question of sovereign immunity;

Para. 31. By filing this lawsuit, the Tribe has not expressly or impliedly waived its sovereign immunity to any inter partes review proceeding involving the patents asserted in this case or any other patent assigned to the Tribe.

The complaint also provides justifications, based on lack of taxing power and "disproportionately high levels of unemployment and poverty, not to mention a severe lack of employment opportunities" for the assignment and licensing arrangement, consistent with the arguments made to the PTAB and the District Court in the Allergan case (see "Mohawk Nation Exercises Sovereign Immunity in Inter Partes Review").

Defendants' accused infringing devices include SCR's Field Programmable Gate Arrays ("FPGAs").  The complaint alleges three meetings between SRC and Amazon without the parties coming to an agreement.

Published reports inform that "dozens and dozens of tribes" are pursuing such arrangements, according to David Pridham, chief executive of Dominion Harbor Group as quoted by Reuters (see "Tech entity has tribal patent deal similar to Allergan's").  One example of tribes other than the St. Regis Mohawk Nation is the Mandan, Hidatsa and Arikara Nation, that sued Apple on patents licensed to Prowire and MEC Resources.  The patent-in-suit is U.S. Patent No. 6,137,390 ("Inductors with Minimized EMI Effect and the Method of Manufacturing the Same"); Claims 1 and 11 are representative:

1.  An inductor with enhanced inductance comprising:
    (a) a magnetic core;
    (b) an electrically conducting coil wound about said magnetic core;
    (c) a magnetic resin layer compression-molded to embed at least a portion of an outer periphery of said electrically conducting coil;
    (d) wherein said magnetic resin layer contains a magnetic powder dispersed in a polymer resin.

11.  A method for making inductors with enhanced inductance comprising the steps of:
    (a) winding an electrically conducting coil about a magnetic core;
    (b) forming a magnetic resin layer by compression molding to embed at least a portion of an outer periphery of said electrically conducting coil;
    (c) wherein said magnetic resin matrix contains a magnetic powder dispersed in a polymer resin.

Prowire owns the '390 patent by assignment from Fuco Technology Co., Ltd., which obtained the patent from Industrial Technology and Research Institute of Taiwan, and itself assigned to MEC Resources, which is owned by the tribe.  Prowire alleged in its complaint (filed before transfer of patent ownership to the tribe) that Apple products, including its iPad line, infringed claims 1 and 11 of the '390 patent.  The procedural posture of this case is slightly different than the Mohawk cases; litigation was on-going between Apple and Prowire, with the District Court granting Prowire's unopposed motion to substitute parties to name MEC Resources, on August 29th.  Two weeks later, on September 15th, the Delaware court transferred the case to the Northern District of California, saying:

Parsing through sworn facts, we carefully consider whether another venue is more appropriate to timely resolve a dispute over property created in California or Taiwan between citizens from states other than Delaware.  While this Court welcomes the chance to resolve complex patent disputes with proper venue, when a Californian asks to transfer venue in a case brought by a Texan, we carefully evaluate the facts and apply our court of appeals' guidance.  Having applied this guidance and rejecting the claim the California citizen waived the convenience of venue argument by waiting until after we ruled on dispositive motions, we enter the accompanying Order granting the California citizen's motion to transfer to the far more convenient district court in the Northern District of California.

The basis for transfer was the District Court's application of Third Circuit law, specifically Jumara v. State Farm Ins. Co., 55 F.3d 873, 879 (3d Cir. 1995), and its balance of private and public factors regarding venue:

Private interests are "the plaintiffs choice of forum; the defendant's preference; whether the claim arose elsewhere; the convenience of the parties; the convenience of the expected witnesses; and the location of the books and records.  The relevant public interests are: 'the enforceability of the judgment; practical considerations that could make the trial easy, expeditious, or inexpensive; the relative administrative difficulty in the two fora resulting from court congestion; the local interest in deciding local controversies at home; [and] the public policies of the fora.'"  Applying these factors to the sworn facts, we are compelled to transfer venue.

These cases are on-going, and to date none of the patents in either lawsuit have been challenged before the PTAB by inter partes review or otherwise.

Comments

[Paul F. Morgan]

This tactic assumes that a patent can be affirmatively sued on in a District Court and not be a waiver of sovereign immunity in a related validity challenge of the same patent by the same defendant in another forum. Is there not already authority on waiver of sovereign immunity by patent assertions even by state university patents? There is no authority for this argument for tribal [not state] sovereign immunity from patent validity challenges AND for only a partial waiver of it.

[Dozens]

The St. Regis Mohawks (SRMs) are playing a dangerous game here. What they are doing endangers the whole system of sovereign immunity for native tribes.

U.S. courts have long recognized that native tribes are pre-Constitutional sovereigns that enjoy limited sovereign immunity, but this immunity (unlike the immunity enjoyed by the states) has *always* been within the plenary control of Congress. Congress can abrogate the immunity of tribes by a simple act of law (unlike the constitutional amendment that would be necessary to constrain states’ immunity).

So long as native tribes use their immunity simply to vindicate their own rights as sovereigns, nobody will much object to their exercise of sovereign immunity. The SRMs, however, are—in effect—renting their sovereign immunity to private entities that are *clearly* not themselves sovereigns. The SRMs are like pitchmen on the boardwalk shouting “get your sovereign immunity here! You want to do something legally skeevy, but are worried about getting sued? For just $10 thousand, we can sell you a ‘get out of court free’ card! Step right up…”

If the SRMs are allowed to get away with this, essentially all private tort causes of action will become null. Anyone who wants to commit a tort need only figure out the amount of money that the tort is worth, and then negotiate with a sovereign tribe to share the profits from the tort, so that the bad actor might be allowed to shelter under the tribe’s immunity.

For this reason, Congress *cannot* permit tribes to sell their immunity like a commodity. If the SRMs continue in this gambit, Congress will be left with no alternative but to constrain sovereign immunity of tribes. Other tribal conferences should see where this is headed and try to exert influence on SRM to cut it out. It will not end well for native tribes if this gambit is pursued or expanded.

[skeptical]

"For this reason, Congress *cannot* permit tribes to sell their immunity like a commodity."

I do not agree with the leap to that conclusion (especially phrased with such an emotive-laden word).

Your equating this with known torts is also simply off-base.

[Dozens]

"I do not agree..."

Your total lack of explanation for that disagreement speaks volumes. Incidentally, which word is "emotive-laden"?

[Kevin E Noonan]

Paul: that is a question not specifically resolved and gets into questions of Article I vs Article III courts that may be resolved by Oil States. It is resolved that an Indian tribe can invoke sovereign immunity as a shield against administrative agency action.

Thanks for the comment

[Kevin E Noonan]

Dozens: that is the political argument expected to be made. But recall that tribes are able to provide gambling venues in states with laws prohibiting it

[Dozens]

From today in Law360:

"House Judiciary Committee Chairman Bob Goodlatte, R-Va., said he too had concerns about companies 'paying to rent' the sovereign immunity of Native American tribes... 'If questionable deals with sovereign entities can extend immunity to artificially protect low-quality patents, the entire IP system is harmed,' he said."