Gensetix, Inc. v. Baylor College of Medicine (S.D. Tex. 2018)

By Donald Zuhn --

Earlier this month, in Gensetix, Inc. v. Baylor College of Medicine, District Judge Andrew S. Hanen of the U.S. District Court for the Southern District of Texas issued an Order granting a Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(1) filed by Involuntary Plaintiff The Board of Regents of the University of Texas ("UT"), as well as related portions of a Supplemental Reply in Support of a Motion to Dismiss Gensetix's First Amended Complaint filed by Defendant Baylor College of Medicine ("BCM") and a Motion to Dismiss Gensetix's First Amended Complaint filed by Defendant Diakonos Research, Ltd. ("Diakonos").  The District Court also declined to exercise supplemental jurisdiction over Gensetix's state law claims and therefore dismissed the case.

The dispute between the parties arose when Plaintiff Gensetix, Inc. filed suit against Defendants BCM, Diakonos, and Dr. William K. Decker, asserting that Defendants infringed U.S. Patent Nos. 8,728,806 and 9,333,248, which Gensetix exclusively licensed from UT.  The '806 and '248 patents are directed to methods of modifying a patient's immune system to kill cancer cells.  Dr. Decker developed the claimed methods during his tenure at The University of Texas MD Anderson Cancer Center.  In its complaint, Gensetix asserted that although Dr. Decker retained no rights in the asserted patents, he continued to practice the claimed methods after moving to BCM.  In its complaint, Gensetix named UT as an involuntary plaintiff.  UT responded by filing a Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(1), asserting immunity from suit under the Eleventh Amendment as an arm of the State of Texas, and contending that such immunity deprived the District Court of subject matter jurisdiction.  Gensetix countered that Eleventh Amendment sovereign immunity did not apply in this case because no claims were asserted against UT.

In deciding whether the Eleventh Amendment deprived the District Court of subject matter jurisdiction, the Court noted that the issue in the case was more accurately whether the Eleventh Amendment prevented UT from being joined as an involuntary plaintiff in a patent suit.  Gensetix argued that the Eleventh Amendment did not bar this type of joinder, citing Independent Wireless Telegraph Co. v. Radio Corporation of America, 269 U.S. 459 (1926), for the proposition that "if there is no other way of securing justice to the exclusive licensee," the licensee may join the licensor "as a coplaintiff without his consent."  Gensetix also cited Regents of the University of California v. Eli Lilly & Co., 119 F.3d 1559 (Fed. Cir. 1997), for the proposition that "the Eleventh Amendment applies to suits 'against' a state, not suits by a state," arguing that where a suit does not involve any actual claims against the state, the state is not in the position of a defendant.  The District Court, however, indicated that "Independent Wireless and Regents are readily distinguishable from the case at hand," noting that "[t]he Court in Independent Wireless did not contemplate the coercive joinder of a sovereign" because the patent owner was a private company and could not assert the Eleventh Amendment, and pointing out that in Regents, "UC had agreed to participate in the suit in the first place."  Thus, the District Court concluded that "Independent Wireless and Regents are not as instructive as Plaintiff contends."  Instead, the Court agreed with UT and the Defendants that sovereign immunity was applicable to the coercive joinder analysis in this case, and found that joinder of UT as an involuntary plaintiff was barred by the Eleventh Amendment.  The Court noted that "[a]lthough there are currently no claims against UT, requiring joinder would, in effect, force UT to pursue claims against its will," and because "UT did not waive its immunity, initiate this suit, or agree to participate in this litigation . . . the Eleventh Amendment prohibits involuntary joinder."

Finding that the Eleventh Amendment prevented UT's joinder, the District Court next considered whether Gensetix independently had standing to pursue the infringement claims.  With respect to this issue, the Court noted that when a patent owner transfers all "substantial rights" in the patents-in-suit to an assignee or licensee, the transfer is "tantamount to an assignment of those patents to the exclusive licensee, conferring standing to sue solely on the licensee," citing Alfred E. Mann Found.for Sci. Research v. Cochlear Corp., 604 F.3d 1354, 1358-59 (citing Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 873-74 (Fed. Cir. 1991)).  Although Gensetix argued that it held all substantial rights to the patents, the Court noted that in the license agreement between Gensetix and UT, UT retained a broad right to sue and control litigation.  The Court therefore concluded that the license agreement failed to confer standing to Gensetix.  The Court also noted that:

UT retained the right to publish general findings, use licensed subject matter for research, teaching, or other academic purposes, and transfer rights to other research institutions for non-commercial research use.  UT may practice and license the patent for non-commercial use; accordingly, while there are some limits on UT's right to license the patent, it still retains the right to do so.  Thus, Gensetix's right to license the patent is not truly "exclusive."

After weighing all the factors, the District Court concluded that:

While Gensetix has the right to practice, it does not have the unfettered right to exclude others.  The right to practice is not substantial enough to allow Gensetix to bring suit in its name alone.  Accordingly, Gensetix does not have standing to sue for infringement of the '806 and '248 patents without joining UT as a party [citations omitted].

The District Court also determined that joinder of UT was necessary under Fed. R. Civ. P. 19(a)(1), finding that patent owners who grant exclusive licenses and retain substantial rights in the patent are necessary parties to infringement actions brought by their licensees.  The Court noted that "[w]ithout UT, Defendants in this case could be subject to multiple suits," pointing out that "were this case to proceed without UT, UT would risk losing the '806 and '248 patents without the opportunity to defend its rights."  However, in this case, UT did not waive its sovereign immunity.  The Court therefore concluded that "where UT retains substantial rights in the patents-in-suit, refuses to join voluntarily, but retains sovereign immunity, UT may not be joined as an involuntary plaintiff."  The Court also noted that:

[W]here the substantial rights holder—here, UT—refuses to sue to protect its own patent, it is not proper for the Court to step in and effectuate a rescue.  While the result may be harsh, it is an inherent risk for anyone who chooses to contract with a sovereign entity.

The District Court concluded by declining to exercise supplemental jurisdiction over Gensetix's state law claims, finding that that "judicial economy, convenience and fairness to litigants" would not be served by keeping the remaining causes of action in federal court.  The Court therefore determined that the Eleventh Amendment barred UT's joinder as an involuntary plaintiff; granted UT's Motion to Dismiss, the related portion of BCM's Supplemental Reply in Support of its Motion to Dismiss, and the related portion of Diakonos' Motion to Dismiss; and dismissed the case.

Gensetix, Inc. v. Baylor College of Medicine (S.D. Tex. 2018)
Memorandum and Order by District Judge Hanen

Comments

[Greg DeLassus]

All right, the take home point here appears to be that if you want to have the right to enforce the patent against non-licensees, then you need to put that term in the license agreement. Seems fair.

[Daniel Owens]

I actually think the point that has largely been missed is that there has been no commercialization of this technology. It is being studied academically at a research institution, where scientists are simply trying to understand it better and and publish academic papers. The suit even cites mouse experiments as an example of infringement. Diakonos (the company working with the lab now) is trying to fund a phase I clinical trial for terminal cancer patients (but patients don't pay for clinical trials). Thus, there could be no commercialization anyway until FDA approved as a standard of treatment (which is roughly 15-20 years down the road after a phase III trial is approved by the FDA). Knowing this, the suit actually only asks for "damages" for "future patent infringement." There is no specified amount (since money hasn't and isn't being made), and "future patent infringement" is not a thing. And all academic research in this country is protected from such ridiculousness. This was never anything more than a patent troll trying to bully settlement money out of BCM or MD Anderson or someone.