Regents of the University of Minnesota v. LSI Corp. (Fed. Cir. 2019)

By Kevin E. Noonan --

The Federal Circuit handed down its decision in Regents of the University of Minnesota v. LSI Corp. on Friday, and perhaps not surprisingly (in view of its decision last summer in Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc.), held that State sovereign immunity does not preclude institution of inter partes review proceedings before the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office.  The panel decision was extensive and the Court relied heavily on its St. Regis decision's reasoning, but in doing so, likely increased the chances (to near certainty) of Supreme Court review sometime next year.

To recap, the Regents of the University of Minnesota, an "arm of the state," sued separately LSI Corp. (a semiconductor chipmaker) and customers of Ericsson Inc. (a telecommunications company that intervened on its customers' behalf) for infringement of U.S. Patent Nos. 5,859,601 ('601 patent; LSI)) and 7,251,768 ('768 patent), 7,292,647 (RE45,230 patent), 8,588,317 ('317 patent), 8,718,185 ('185 patent), and 8,774,309 ('309 patent; Ericsson), and each defendant separately filed inter partes review (IPR) petitions against each asserted patent.  Before the Board instituted the IPRs, the University of Minnesota filed a motion to dismiss on State sovereign immunity grounds.  The PTAB, in an expanded panel, ruled that while State sovereign immunity applied, Minnesota had waived the immunity by filing suit.  This was a parsimonious, limited decision that, if merely affirmed by the Federal Circuit, likely would not have roiled patent jurisprudence waters, would have smacked of fairness (and provided a simple dichotomy between immune and non-immune situations), would have immunized States from political pestering from gadflies, and would have avoided what is almost certain to be Supreme Court scrutiny.

Alas, like the proverbial moth drawn inexorably to the flame that will consume it (or, if recent patent jurisprudence is a guide, at least singe it a little) this panel (in a decision by Judge Dyk joined by Judges Wallach and Hughes) opined that State sovereign immunity did not immunize Minnesota from IPR proceedings for the same reasons that tribal sovereign immunity did not preclude IPR proceedings involving the St. Regis Mohawk Indian Tribe in last summer's decision.  The opinion notes that the Supreme Court did not grant certiorari in that case, perhaps believing the Court would similarly decline to consider the question in this case.  This outcome is not very likely, in view of the significant differences between the subordinate sovereignty that Indian Tribes enjoy compared to the constitutional enshrinement of State sovereign immunity in the Eleventh Amendment.

The opinion sets forth the history of Congress's enactments relating to reconsideration of granted patents, from ex parte reexamination enacted in 1980, to inter partes reexamination in 1999, and finally to the palette of post-grant proceedings (post-grant review, inter partes review, and covered business methods review) enacted into law as part of the Leahy-Smith America Invents Act in 2011.  The opinion recites the need for such proceedings, based on the increasing number of patent applications filed (from 100,000 in 1980 to 650,000 in 2018) and the relatively low amount of time examiners have to perform their review, concluding that "in light of the USPTO's constrained resources and the absence of material outside input during the initial examination, it is inevitable that there are patents granted in error."  (The issue isn't that some patents are granted in error, of course; the mantra since about 2000 is that there are too many such patents, and in this portion of the opinion, the Court's sentiments could be substituted for those of groups like the Electronic Frontier Foundation.)  There is little need for this disquisition, of course: whether or not robust post-grant review proceedings are warranted is under the purview of Congress, and its decision is clear under the AIA.  (And despite a 650% increase in the number of applications filed per year, Congress in the 31 years between 1980 and 2011 only addressed the issue, and ineffectively so according to the Court, until enacting the AIA.)  The opinion also detours from the question before it to remind the reader that in England the Privy Counsel could reconsider the validity of granted patents.  While true, English patent law is only marginally relevant to American patent law, and our law did without an executive branch reconsideration statute between 1790 and 1980, further bringing the relevance of the Privy Counsel into question here.  This portion of the opinion ends with a detailed discussion of IPR procedures under the statute; after eighteen pages of a twenty-nine-page opinion, the Court finally gets to a discussion of State sovereign immunity.

This portion begins with the greatest weakness of the Minnesota's (and its amici's) argument: neither ex parte not inter partes reexamination are barred by state sovereign immunity.  The opinion correctly notes that while the Eleventh Amendment provides a measure of immunity against suit to the States, "the sovereign immunity of the States neither derives from nor is limited by, the terms of the Eleventh Amendment," citing Alden v. Maine, 527 U.S. 706, 713 (1999), and Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 54 (1996).  More specifically, "'[t]he preeminent purpose of state sovereign immunity is to accord States the dignity that is consistent with their status as sovereign entities,' while collaterally 'serv[ing] the important function of shielding state treasuries,'" citing Fed. Mar. Comm'n v. S.C. State Ports Auth., 535 U.S. 743, 760, 765 (2002) -- the case that has been at the center of arguments for all parties in this and the St. Regis litigations, albeit each party reading this precedent in their own favor.  The exception to State sovereign immunity, according to the opinion, is for suits brought by the United States, which includes agency proceedings (this is the source of the panel's decision that State sovereign immunity no more excludes an "arm of the state" from being involved in an IPR than does tribal sovereign immunity according to the Court's St. Regis decision).  Citing FMC, the panel states 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.'"

As in St Regis (as well as Oil States Energy Servs., LLC v. Green's Energy Grp., LLC, 138 S. Ct. 1365 (2018)), the question for the panel came down to whether an IPR is a proceeding brought by an individual having sufficient similarity to Article III proceedings (and thus where State sovereign immunity should apply) or an administrative agency action as in FMC, where it should not.  In providing its opinion, the Court explicated its reasons in the St. Regis decision, and that decision's basis for finding IPRs to be agency decisions in the Supreme Court's decision in Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016).  The factors that convinced the Federal Circuit that IPRs are sufficiently akin to agency proceedings (and not adjudications between individual petitioners and patent holders) in its St. Regis decision were applied here to decide that State sovereign immunity also did not preclude subjecting patents owned by a State from IPRs.  The panel set out these factors as follows:

1.  The Director, acting as a "politically appointed executive branch official" is responsible for instituting an IPR, not the private party petitioner.  The Director's decision to institute is plenary and is not subject to judicial review.

2.  The PTAB can continue an IPR even if the third party petitioner decides not to participate in the IPR once it has been instituted.

3.  IPRs are procedurally distinct from civil litigation (including the formally correct but in practice infrequent capacity for the patent holder to amend claims.

The Court made the distinction that the PTO merely "harness[es] third parties for the agency to evaluate whether a prior grant of a public franchise was wrong," which it calls "a feature carried over from inter partes reexamination."  This characterization enabled the panel to analogize IPRs to the administrative proceedings at the heart of those in the FMC case and thus its decision that sovereign immunity does not shield the University of Minnesota from IPR proceedings in this case.

The Court also bolstered the basis for its opinion with the "public rights" grounds for the Supreme Court's decision in Oil States, stating "[w]e interpret the Court's language in Oil States as concluding that IPR is an adjudication of public rights, and therefore able to be resolved in a non-Article III forum, because it is in key respects a proceeding between the United States and the patent owner.  In this way, these proceedings are not barred by state sovereign immunity since sovereign immunity does not bar proceedings brought by the United States," again citing FMC.

The panel completed its consideration of the University's position in discussing whether the Hans presumption should apply ("that state sovereign immunity applies to proceedings, such as IPR, that were 'anomalous and unheard of when the Constitution was adopted'"), Hans v. Louisiana, 134 U.S. 1, 18 (1890).  The opinion disagrees, based in part on the putative understanding of the Founders that "'a patent system could include a practice of granting patents subject to potential cancellation in the executive proceeding of the Privy Council' (i.e., that the executive could provide a forum for resolving questions of patent validity)," citing Oil States, anomalously under circumstances where the Founders expressly did not include this practice.

Having based its decision that State sovereign immunity did not bar IPRs against State-owned patents expressly on its decision in St Regis that tribal sovereign immunity did not do so, the panel then provides "additional views" which comprise additional grounds for its opinion not contained in the opinion itself (although these grounds were enunciated in concurring opinions to the PTAB's decision).  The basis for these views is that IPRs constitute proceedings in rem (against the patent) rather than in personam (against the patent holder) and thus sovereign immunities do not apply.  This distinction is useful analytically because "precedent has drawn a distinction between in rem and in personam jurisdiction, even when the underlying proceedings are, for the most part, identical," citing Tenn. Student Assistance Corp. v. Hood, 541 U.S. 440, 453 (2004).  In other words, the distinction is categorical, and by making it, the Court can reach its conclusion without any of the messier factual arguments raised by the University (or any other, perhaps different circumstances that other universities or "arms of the state" might assert in future cases).  In rem proceedings do not "'subject[] a State to the coercive process of judicial tribunals at the instance of private parties,' which [would] constitute[] an affront to a state's dignity," citing Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 58 (1996), and do not require establishing personal jurisdiction over a state or its officers.  The views section distinguishes IPRs from instances where the Supreme Court has held in rem proceedings to be subject to sovereign immunity (typically instances involving real property (e.g., "land patents") or a State's ability to regulate within its borders).  The views assert that patents and IPR proceedings are more akin to proceedings in bankruptcy, which are in rem and not subject to State sovereign immunity.  Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440 (2004):

Just as with a bankruptcy proceeding to discharge a debt, IPR is an in rem proceeding that is not premised on obtaining jurisdiction over a state or its officers.  The Board's jurisdiction is premised on the res (i.e., the patent).  A person files a "petition to institute an inter partes review of the patent."  35 U.S.C. § 311(a) (emphasis added).  As in bankruptcy, a petitioner for IPR "does not seek monetary damages or any affirmative relief from a State by seeking to [have a patent reviewed in IPR]; nor does he subject an unwilling State to a coercive judicial process."  Hood, 541 U.S. at 450.  "[IPR] does not make any binding determination regarding 'the liability of [one party to another] under the law as defined.'"  Oil States, 138 S. Ct. at 1378 (quoting Crowell v. Benson, 285 U.S. 22, 51 (1932)).  The petitioner only seeks to have the agency reconsider a previous grant of a patent, and the only relief the Board can offer is the revocation of erroneously granted patent claims.  IPR ultimately terminates only with a certificate that either cancels erroneously granted patent claims, confirms claims determined to be patentable, or incorporates newly amended claims determined to be patentable.  35 U.S.C. § 318(b).  No monetary or other relief against the patent owner is authorized or provided.

The views conclude that "we see no reason why the exercise of the executive's historically well-recognized ability to reconsider a grant of a public franchise in an in rem proceeding 'is more threatening to state sovereignty than the exercise of" an Article III court's bankruptcy in rem jurisdiction,'" which supports on other grounds the panel's decision that State sovereign immunity does not shield the University of Minnesota from IPR proceedings.

Every State in the Union has one or more (and in larger states, several) state universities that, like the University of Minnesota, are "arms of the state."  Since enactment of the Bayh-Dole Act in 1980, Federally funded research at these universities (which comprises the overwhelming majority of such research) has resulted in robust patent portfolios that are actively licensed and hence valuable and attractive targets for challenge by IPRs.  These States constitute an active constituency certain to make their views on this decision known to the Supreme Court when Minnesota, almost certainly, petitions for certiorari.  The Question Presented will be one that addresses a fundamental question of the States' status as a sovereign entity under the Constitution, and as such is unlikely not to pique the Court's interest.  Add to that the Court's recent penchant for taking patent cases and that the decision is from the Federal Circuit, and it is extremely unlikely that the Court will not grant cert, and in about twelve months we will learn whether State sovereign immunity extends to IPR proceedings before the PTAB.

Regents of the University of Minnesota v. LSI Corp. (Fed. Cir. 2019)
Panel: Circuit Judges Dyk, Wallach, and Hughes
Opinion by Circuit Judge Dyk; additional views by Circuit Judges Dyk, Wallach, and Hughes

Comments

[Greg DeLassus]

Do the folks who think that the CAFC got this one wrong—those who think, in other words, that states should be able to escape the PTAB’s jurisdiction by asserting sovereign immunity—also think that the PTAB cannot declare an interference with a state-owned patent? I notice, for example, that no one in Eli Lilly & Co. v. Univ. of Wash., 334 F.3d 1264 (Fed.Cir.2003) seemed to think that UW could have escaped the BPAI’s jurisdiction on the basis of sovereignty.

[Kevin E Noonan]

There was a footnote regarding interferences in the decision:

We did not hold that interference proceedings were barred by state sovereign immunity in Vas-Cath, Inc. v. Curators of Univ. of Mo., 473 F.3d 1376, 1382 (Fed. Cir. 2007), nor do we decide that issue here. We note that interference proceedings may more closely resemble agency adjudication between private parties as compared to IPR proceedings.

Perhaps this distinction is enough, but we have no case law on the question.

[Greg DeLassus]

The distinction is certainly enough for the point that I am making: if interferences are even closer to adjudication between private parties, then the argument that sovereign immunity should apply is even stronger for interferences than it is for IPRs. And yet, precisely *none* of the voices currently advocating for sovereign immunity to apply in IPRs is on record as having held that sovereign immunity should have precluded interferences involving state-owned patents.

This rather serves to illustrate that the folks making the pro-sovereign immunity argument are arguing in bad faith. They do not actually care about the putative insult to the dignity of sovereigns---they just want *any* stick ready to hand with which to beat the IPR system.

[Skeptical]

At least three other times it has been remarked back to the same comment from Mr. DeLassus that context matters.

Perhaps he is looking for a different answer.

[Skeptical]

I truly doubt the veracity of a statement like:"

This rather serves to illustrate that the folks making the pro-sovereign immunity argument are arguing in bad faith."

You want an unrelated context on different fact patterns to be inserted on matters that simply are different. The fact that you yourself can distinguish the matter shows that a rebuttal can easily so do so, and thus, it would NOT be worthy to pursue that line of thinking.