On June 14, 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 (IPRs) conducted before the Patent Trial and Appeal Board (PTAB) of the Patent and Trademark Office (PTO).
Background
In this dispute, the University of Minnesota (UMN) sued LSI and customers of Ericsson in district court for the infringement of several UMN patents claiming 4G LTE telecommunications technology. LSI and Ericsson subsequently petitioned the PTAB to institute IPRs against those patents. UMN in turn moved to dismiss the IPRs on the basis of state sovereign immunity. An expanded panel of the PTAB determined that state sovereign immunity applied to IPRs—but that UMN had waived such immunity by suing petitioners in district court. UMN appealed the PTAB's determination to the Federal Circuit.
The Federal Circuit Opinion
The Federal Circuit held that state sovereign immunity does not apply to IPRs. Accordingly, the Federal Circuit did not reach the issue of whether, if state sovereign immunity were to apply, UMN had waived such immunity by suing petitioners in district court.
Judge Dyk wrote the Federal Circuit's opinion, which began with a discussion of "the history of IPR proceedings and the reasons that Congress created such proceedings." The Federal Circuit noted that the PTO faces a considerable backlog of patent applications; that PTO examiners have only about 22 hours to review each application; that "until 2000, there was virtually no public input in the initial examination process since patent applications were not published"; that non-litigation challenges to the validity of issued patents until recently were confined to ex parte and inter partes reexaminations; that these reexaminations were inefficient and "less widely used than Congress had hoped"; and that the replacement by Congress of inter partes reexamination by IPRs in 2011 did not alter their basic purpose: "[j]ust as with the prior reexamination procedures, IPR allows a third party to ask the U.S. Patent and Trademark Office to reexamine 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 lawsuits 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., 896 F.3d 1322 (Fed. Cir. 2018), cert. denied, 139 S. Ct. 1547 (2019), in which the Federal Circuit previously held that tribal immunity did not apply to IPRs because IPRs—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 IPR lies with the PTO director rather than with a private party; that the PTAB can proceed with an IPR even if the petitioner or patent owner elects not to participate; and that IPRs differ procedurally from litigation in several ways.
The Federal Circuit also drew from recent Supreme Court decisions to support its conclusion that IPRs are more like agency proceedings, including Oil States Energy Servs., LLC v. Green's Energy Grp., LLC, 138 S. Ct. 1365 (2018), which characterized IPRs as proceedings between the government and the patent owner over "public rights"; Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2137, 2144 (2016), which asserted that IPRs are intended to allow an agency (i.e., the PTO) to reexamine its earlier decisions; and Fed. Mar. Comm'n v. S.C. State Ports Auth., 535 U.S. 743 (2002) ("FMC"), which recognized 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, 138 S. Ct. 1348 (2018), and Return Mail, Inc. v U.S. Postal Serv., No. 17-1594 (June 10, 2019), characterized IPRs as less "agency-led" and more "adversarial," but these characterizations did not disturb the ultimate conclusion that "IPR is more like an agency enforcement action than a civil suit brought by a private party."
The Federal Circuit further rejected UMN's efforts to distinguish the tribal immunity at issue in Saint Regis from state sovereign immunity. 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 that when Congress intends to abrogate either form of immunity in lawsuits brought by private parties, it must do so with clear language. UMN also had argued that, unlike tribal immunity, there is a presumption (the Hans presumption) that state sovereign immunity applies to proceedings that were "anomalous and unheard of when the Constitution was adopted." The Federal Circuit disagreed that the Hans presumption applied to IPRs, noting—as did the Supreme Court in Oil States—that when the Constitution was adopted, precedent existed for the cancellation of patent claims by the executive (i.e., 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 "IPR 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 proceedings."
"Additional Views"
Unusually, Judges Dyk, Wallach, and Hughes included a section, separate from the opinion of the court, setting forth their "additional views." This "additional views" section asserts that IPR 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, but instead 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 analogizes an IPR to a bankruptcy proceeding to discharge a state student loan debt—a type of proceeding in which the Supreme Court in Tenn. Student Assistance Corp. v. Hood, 541 U.S. 440, 453 (2004), held that state sovereign immunity did not apply. According to Judges Dyk, Wallach, and Hughes, like such a bankruptcy proceeding, an IPR "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 "additional views" 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).