On 14 June 2019 a Federal Circuit panel (Judges Dyk, Wallach and Hughes) in Regents of the Univ of Minn v LSI Corp (2018-1559) held that state sovereign immunity does not apply to inter partes review proceedings conducted before the Patent Trial and Appeal Board (PTAB) of the Patent and Trademark Office (PTO).
In this dispute, the University of Minnesota (UMN) sued LSI and Ericsson customers in district court for the infringement of several UMN patents claiming 4G LTE telecoms technology. LSI and Ericsson subsequently petitioned the PTAB to institute inter partes review proceedings against those patents. In turn, the UMN moved to dismiss the proceedings based on state sovereign immunity. An expanded panel of the PTAB determined that state sovereign immunity applied to inter partes review – but that the UMN had waived such immunity by suing petitioners in district court. The UMN appealed the PTAB's determination to the Federal Circuit.
The Federal Circuit held that state sovereign immunity does not apply to inter partes review. Accordingly, the Federal Circuit did not reach the issue of whether, if state sovereign immunity were to apply, the UMN had waived such immunity by suing petitioners in district court.
Dyk wrote the Federal Circuit's opinion, which began with a discussion of "the history of inter partes review proceedings and the reasons that Congress created such proceedings". The Federal Circuit noted that:
- the PTO faces a considerable backlog of patent applications;
- PTO examiners have only about 22 hours to review each application;
- "until 2000, there was virtually no public input in the initial examination process since patent applications were not published";
- until recently, non-litigation challenges to the validity of issued patents were confined to ex parte and inter partes re-examinations;
- these re-examinations were inefficient and "less widely used than Congress had hoped"; and
- the replacement by Congress of inter partes re-examination by inter partes review in 2011 did not alter their basic purpose: "[j]ust as with the prior re-examination procedures, inter partes review allows a third party to ask the U.S. Patent and Trademark Office to re-examine the claims, albeit with broader [third-party] participation rights" (internal quotations and citations omitted).
The Federal Circuit then explained that, while states typically enjoy immunity from suits brought by private parties, such immunity does not extend to agency enforcement proceedings. Here, the Federal Circuit relied heavily on Saint Regis Mohawk Tribe v Mylan Pharms, Inc,(1) in which it previously held that tribal immunity did not apply to inter partes review proceedings because the proceedings – despite incorporating litigation-like features to expand private-party participation and thereby help the PTO with its "agency resource constraints" – are more akin to "agency enforcement actions" than to civil litigation. As in Saint Regis, the Federal Circuit observed that:
- the decision to institute an inter partes review lies with the PTO director rather than with a private party;
- the PTAB can proceed with an inter partes review even if the petitioner or patent owner elects not to participate; and
- inter partes review proceedings differ procedurally from litigation in several ways.
The Federal Circuit also drew from recent Supreme Court decisions to support its conclusion that inter partes review are more like agency proceedings, including:
- Oil States Energy Servs, LLC v Green's Energy Grp, LLC,(2) which characterised inter partes review proceedings as proceedings between the government and the patent owner over public rights;
- Cuozzo Speed Techs, LLC v Lee,(3) which asserted that inter partes review proceedings are intended to allow an agency (ie, the PTO) to re-examine its earlier decisions; and
- Fed MarComm'n v SC State Ports Auth,(4) (FMC) which recognised 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 Federal Circuit acknowledged that two recent Supreme Court decisions, SAS Inst, Inc v Iancu(5) and Return Mail, Inc v US Postal Serv,(6) characterised inter partes review proceedings as less 'agency-led' and more 'adversarial', but these characterisations did not disturb the ultimate conclusion that inter partes review "is more like an agency enforcement action than a civil suit brought by a private party".
The Federal Circuit further rejected the UMN's efforts to distinguish the tribal immunity at issue in Saint Regis from state sovereign immunity. The UMN had argued that tribal immunity is subject to the "superior and plenary control of Congress", whereas state sovereign immunity can be abrogated only under "a valid grant of constitutional authority". The Federal Circuit dismissed that purported distinction, noting that:
- suits brought by the United States are not impeded by either tribal or state sovereign immunity; and
- when Congress intends to abrogate either form of immunity in suits brought by private parties, it must do so with clear language.
The UMN also argued that, unlike tribal immunity, there is a presumption (the Hans presumption) that state sovereign immunity applies to proceedings that had been "anomalous and unheard of when the Constitution was adopted". The Federal Circuit disagreed that the Hans presumption applied to inter partes review proceedings, noting – as did the Supreme Court in Oil States – that when the Constitution was adopted, precedent had existed for the cancellation of patent claims by the executive (ie, by the Privy Council in England). The Federal Circuit also noted that, in FMC, the Hans presumption "did not bar resolution of an agency enforcement action against a state that was initiated based on information supplied by a third party".
The Federal Circuit concluded that inter partes review:
represents the sovereign's reconsideration of the initial patent grant, and the differences between state and tribal sovereign immunity do not warrant a different result than in Saint Regis. We therefore conclude that state sovereign immunity does not apply to IPR [inter partes review] proceedings.
Unusually, Dyk, Wallach and Hughes included a separate section from the court's opinion, which set out their additional views. This section asserts that inter partes review proceedings "are in substance the type of in rem proceedings to which state sovereign immunity does not apply". It explains that, while courts have found state sovereign immunity to apply to certain in rem actions involving state-owned real property, patents are not real property; instead, they are creations of federal law and are subject to regulation by that law, "which includes the ability of the executive to consider whether a previous grant was erroneous".
The 'additional views' section analogises an inter partes review to a bankruptcy proceeding to discharge a state student loan debt – a type of proceeding in which the Supreme Court held in Tenn Student Assistance Corp v Hood,(7) that state sovereign immunity did not apply. According to Dyk, Wallach and Hughes, like such a bankruptcy proceeding, an inter partes review "is not premised on 'obtaining jurisdiction over a state or its officers' and does not subject a state to monetary damages, affirmative relief or a 'coercive judicial process'". The section concludes 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 (internal quotations and citations omitted).
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