With the threat of inter partes reviews (IPR) hanging over any patent owner looking to assert its rights in the US, there’s bound to be interest in rulings that could help to give potential defendants a shield from prospective challenges. Thus, a PTAB decision in January in the case Covidien LP v University of Florida Research Foundation Inc has not surprisingly attracted a lot of attention for possibly giving state universities sovereign immunity from IPR petitions.
In this guest post for the IAM blog, Soryn IP Group’s Fatih Ozluturk takes a closer look at the case and says that despite fears about going on the attack, the decision could embolden some universities’ assertion efforts. Here’s what he has to say:
I was at the annual meeting of the Association of University Technology Managers (AUTM) recently and a hot topic was the recent PTAB decision to dismiss multiple IPR petitions challenging a University of Florida patent on grounds of sovereign immunity. No one had been able to shield patents from IPR challenges until now. It is a very important decision for state colleges and universities as it potentially enables them to have licensing discussions without the fear of their patents being put in jeopardy through IPRs, or without the fear of facing a declaratory judgment action.
The case between the University of Florida and Covidien (which was acquired by Medtronic in 2015) concerned a contract dispute over an existing patent licence agreement and the university's audit rights under the same agreement. After Medtronic refused to allow the audit, the University of Florida sued in state court for breach of contract. In response, Medtronic/Covidien attempted to move the case to federal court, it filed a declaratory judgment action for non-infringement, and it also filed multiple IPR petitions challenging the validity of the patent. The motion to remove the case to the federal court was denied on the basis of the university's sovereign immunity, which was expected. All attention was then focused on what the PTAB was going to do. With the PTAB's recent dismissal of the IPR petition, that door is closed also. We will see if the Federal Circuit would have a different take on the issue. In my judgment it is unlikely.
There’s no doubt that all state colleges and universities will take notice and factor this into their strategy when conducting patent licensing discussions. It is possible that the only way to bring an IPR challenge to a patent held by a state university is if the university itself waives sovereign immunity. In cases where a state university initiates a patent infringement action, it is possible the PTAB could consider such a suit as waiving sovereign immunity, and may not dismiss an IPR petition on that ground.
The legal foundation of sovereign immunity is laid out in the Constitution. The 11th amendment of the US Constitution provides that: "The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against of the United States by citizens of another state, or by citizens or subjects of any foreign state.”
In short, you can't sue a state or the state's institutions in a federal court. There are instances when a state can waive its sovereign immunity and agree to be sued. There had been cases filed and decided that revolved around issues of discrimination and due process rights that tested the extent of sovereign immunity status for state universities. However, this recent case is very interesting in that it tested whether sovereign immunity extends to IPRs and the answer that the PTAB gave is 'yes'. Although the board said that there are differences between civil litigation and IPRs, they are similar enough that the sovereign immunity afforded by the Constitution extends to IPR proceedings. What's more, PTAB decision to not institute an IPR may not be appealable judging by some recent Federal Circuit decisions.
According to statistics that the USPTO published in January of this year, the PTAB institutes IPR proceedings in more than half of the petitions filed. Once an IPR is instituted, the PTAB invalidates all of the claims in the challenged patent in 67% of the cases, and invalidates at least some of the challenged claims in about 16% of the cases. Only 17% of patents that are challenged come out of IPR proceedings unscathed.
Given the stunningly high rate of invalidation, and given the relatively low cost of an IPR petition, IPRs have been a part of many patent litigation cases for some time now. Since the cost of an IPR petition can be in the couple of hundred thousand dollars range, as opposed to the cost of a full-blown patent litigation that can range in the many millions, the economic calculation of whether to fight a patent claim or to take a licence has changed dramatically since the passing of America Invents Act (AIA). What the University of Florida case illustrates is that the maths may now revert back to the pre-AIA calculations in cases where state universities are involved and are willing to assert sovereign immunity.
There are still a number of questions that the recent PTAB decision has not answered. No doubt we will continue to see patent cases involving public schools and some of these issues will be tested. For example, it is uncertain if sovereign immunity extends to institutions that are separate entities but somehow affiliated with a public school. As an example, it is not clear if the Wisconsin Alumni Research Foundation (WARF), a non-profit entity that is the designated patent and licensing organisation for University of Wisconsin, would benefit from sovereign immunity. Perhaps not, but we will not know for sure until there is a case that addresses it.
Based on my conversations at AUTM, at least some professionals in the university technology transfer world feel that asserting sovereign immunity is the 'nuclear option' and should not be used lightly. Some recognise that patent assertion by state universities has brought negative publicity at times, and if it is perceived that somehow a university is playing 'unfairly', it may lead to public relations issues. So far in the University of Florida case, however, there has not been any negative publicity.
State universities that come to believe friendly patent licensing is a dead-end street might be less apprehensive about asserting their patents going forward. If that happens, sovereign immunity will assuredly be a key tactical option. Very frequently public schools feel they are trying to license with one arm tied behind their backs since those on the other side of the table are not shy about highlighting that universities are non-practising entities.
During the recent patent reform discussions some questioned whether universities that receive federal or state funding should even be able to assert patents. However, the climate may be changing. Universities with valuable patents are well aware of the $750 million settlement Carnegie Mellon obtained from Marvell last year, and the University of Wisconsin's $234 million win against Apple a couple of years ago. Perhaps, they are wondering whether they have been playing the game with the wrong rules.
As was highlighted at the AUTM meeting, all state schools would be wise to take notice of the recent PTAB decision and calibrate their licensing strategies accordingly. As the University of Florida case demonstrated, they may be afforded a shield that is not available to others. I would expect that we are going to see an uptick in the patent cases filed by universities and hence more instances of sovereign immunity issues being raised at the PTAB. In the meantime, we will stay tuned!