A panel of the Patent Trial and Appeal Board (PTAB) recently issued a decision that could significantly strengthen patent portfolios of public universities and other state entities. In Covidien LP v. University of Florida Research Foundation Inc., IPR2016-01274, Paper 21 (PTAB Jan. 25, 2017), the PTAB panel held that sovereign immunity under the Eleventh Amendment of the Constitution protects state-owned patents from being challenged in inter partes review (IPR) proceedings. Id. at 24.
In Covidien, the Petitioner filed three separate IPR petitions challenging U.S. Patent No. 7,062,251, owned by University of Florida Research Foundation Incorporated (patent owner or UFRF). The PTAB panel permitted the patent owner to file a motion to dismiss the proceeding based on the assertion that it is an arm of the State and, therefore, entitled to sovereign immunity. Id. at 2-3. The panel ultimately agreed with UFRF and dismissed all three IPR petitions.
The Eleventh Amendment of the Constitution provides: “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.” U.S. CONST. AMEND. XI.
The panel considered whether an IPR proceeding qualifies as an adjudicative administrative proceeding covered by the Eleventh Amendment. The panel cited to Supreme Court precedent (Fed. Mar. Comm’n v. South Carolina State Ports Auth., 535 U.S. 743 (2002) (“FMC”)) and Federal Circuit precedent (Vas-Cath, Inc. v. Curators of Univ. of Missouri, 473 F.3d 1376 (Fed. Cir. 2007)) for the proposition that certain administrative proceedings bearing strong similarities to civil litigation can invoke Eleventh Amendment protections. Covidien at 5. The panel determined that “considering the nature of inter partes review and civil litigation, we conclude that the considerable resemblance between the two is sufficient to implicate the immunity afforded to the States by the Eleventh Amendment.” Id. at 24.
The panel next turned to the issue of whether UFRF is in fact an arm of the State. The panel noted that courts look to certain factors for this determination, including: (1) how state law defines the entity; (2) what degree of control the State maintains over the entity; (3) where the entity derives its funds; and (4) who is responsible for judgments against the entity. Id. at 28. In applying this four-factor test, the panel found that (1) UFRF is designated as a “direct-support-organization” of the University of Florida and that the parties did not dispute that the University of Florida is an arm of the State of Florida; (2) “the degree of control exercised over UFRF by the State of Florida and the University of Florida weighs in favor of finding that UFRF is a state instrumentality;” (3) “UFRF’s assets and liabilities are considered to be a component of the University of Florida’s finances” and UFRF’s bylaws “demonstrate the University’s control over UFRF’s finances;” and (4) “generally the State of Florida places constraints on a [direct-support-organization’s] ability to issue debt.” Id. at 29-38. As a result, the panel concluded that the weight of the evidence supported a finding that “UFRF is an arm of the State of Florida.” Id. at 39.
In sum, the PTAB panel held that a patent owned by a State, or by an owner who can establish that it is an arm of the State, is exempt from an IPR challenge because of sovereign immunity afforded by the Eleventh Amendment. Given the high rate of claim cancellation in IPRs and the increasing popularity of IPR proceedings, this decision clearly gives public universities and other state entities a valuable advantage when it comes to protecting and maintaining valuable patent portfolios.
The panel’s decision also adds fuel to the ongoing debate over whether certain PTAB decisions should be appealable. One may query whether the panel would have reached this decision but for the nonappealable nature of decisions on IPR institution. It will be interesting to see, however, whether an appeal of this case is filed in reliance on the “constitutional question” exception of Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131, 2136 (2016) (holding that 35 U.S.C. § 314(d) “may not bar consideration of a constitutional question.”).
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