Sovereign immunity does not exempt state governments from inter partes review, according to a Federal Circuit decision issued on Friday in Regents of the University of Minnesota v. LSI Corp. The decision extends the Federal Circuit’s earlier decision in Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals that Native American tribes cannot rely on sovereign immunity against an IPR.
This case began with the University of Minnesota suing semiconductor supplier LSI and customers of telecommunications company Ericsson for infringement. LSI and Ericsson responded with inter partes review petitions. Despite Minnesota’s status as a public university, that is, part of the state government of Minnesota, the Patent Trial and Appeal Board ruled that sovereign immunity did not prevent the IPR petition from being instituted. The decisions to institute the IPRs was appealed immediately to the Federal Circuit. Pharmaceutical company Gilead, facing a similar situation, successfully intervened in the appeal.
While the appeal was pending, the Federal Circuit issued its decision in Saint Regis. In that case, the Federal Circuit ruled that tribal sovereign immunity did not prevent institution of an IPR against a patent owned by the Saint Regis Mohawk tribe. The court decided that IPRs were closer to agency enforcement actions, to which sovereign immunity does not apply, than to civil litigation against a sovereign entity, to which it does. Sovereign immunity can prevent a private party from hauling a sovereign entity into an adversarial proceeding, but it does not apply to agency enforcement because agency enforcement is an action by a superior sovereign, the United States government. To begin with, an IPR is not instituted simply because a party wants one; the Director of the Patent and Trademark Office must choose to institute. Moreover, the PTAB can continue a review even if the petitioner or the patent owner drops out. Finally, the review is more limited than a district court case in terms of discovery. For those reasons, the court categorized IPRs as agency enforcement.
While the Saint Regis court explicitly left open the question of whether the same reasoning applied to states as to tribes, in this case the court decided that it did. Saint Regis did not depend on any features of sovereign immunity peculiar to tribes in its reasoning, so the decision applied here to Minnesota as well. Moreover, the court pointed to Oil States v. Greene’s Energy, in which the Supreme Court held that IPRs do not run afoul of Article III of the Constitution. In that decision, the Supreme Court characterized patents as public rights, akin to franchises granted by the government, as opposed to purely private property. The court in this case leaned on that characterization as additional justification for treating IPRs as agency enforcement actions that do not invoke sovereign immunity. Finally, the court ended its opinion with a short policy argument warning that granting sovereign immunity could lead to sovereign entities effectively renting out their immunity to private parties.
The Federal Circuit panel in this case was unanimous, with Judges Dyk, Wallach, and Hughes all signing on. Beyond the opinion, the case included an attachment described as “Additional Views,” also signed by all three judges. In effect, the panel filed a concurring opinion to its opinion, providing an alternative justification. It is unclear to me why the panel wanted to provide this additional justification while not actually relying on it.
The alternative justification for the case’s outcome is that IPRs are in rem proceedings. In an in rem proceeding, the decisionmaker asserts jurisdiction over property, as opposed to an in personam proceeding, which is the typical situation in which the decisionmaker asserts jurisdiction over the parties. The Supreme Court has held in several cases that sovereign immunity does not apply to in rem proceedings, even if the proceeding is a dispute among private parties. While sovereign immunity does sometimes apply to in rem proceedings, the panel thought that this case was more similar to cases in which sovereign immunity did not apply.
While the disposition should send this case back to the PTAB to conduct the IPR, there is a good chance that the next step is the Supreme Court granting certiorari to an appeal from Minnesota. First, the case involves interpretations of constitutional law. Second, state universities are major participants in the patent system, and it can make a big difference whether their patents are subject to IPRs in the same way as other market players’ patents.