By Peter Reap, J.D., LL.M.
But the exclusion of the patent-owner university from the suit did not require dismissal.
State sovereign immunity under the Eleventh Amendment prevented the University of Texas (UT) from being involuntarily drawn into a patent infringement lawsuit brought by patent-owner UT’s exclusive licensee Gensetix against defendants Baylor College of Medicine, Diakonos Research Ltd., and William K. Decker, the U.S. Court of Appeals for the Federal Circuit determined, affirming a federal district court’s ruling. However, the lower court abused its discretion in analyzing the factors under Rule of Federal Civil Procedure 19(b) and finding that the exclusion of UT from that lawsuit required the dismissal of the case. Thus, in a precedential opinion, the Federal Circuit affirmed-in-part and reversed-in-part the district court, and remanded the case (Gensetix, Inc. v. Baylor College of Medicine, July 24, 2020, O'Malley, K.).
UT’s patents-in-suit, U.S. Patent Nos. 8,728,806 and 9,333,248, are directed to methods of modifying a patient’s immune system to kill cancer cells. UT’s exclusive license agreement of the patents to Gensetix provided that Gensetix, at its own expense, must enforce any patent "covered by the license and is entitled to retain recovery from such enforcement." UT retained a secondary right to sue if Gensetix fails to file suit against a substantial infringer within six months of knowledge of infringement.
After Gensetix filed this suit, it requested that UT join as a co-plaintiff, but UT declined. Gensetix therefore named UT as an involuntary plaintiff pursuant to Rule 19(a). UT filed a motion to dismiss pursuant to Rule 12(b)(1), seeking to dismiss itself from the lawsuit.
The district court granted UT’s motion to dismiss. It held that "[t]he purpose of the Eleventh Amendment is to prevent states from being compelled to litigate." Accordingly, the court held that, because "UT did not waive its immunity, initiate [the] suit, or agree to participate in [the] litigation," the Eleventh Amendment prohibited involuntary joinder. As to whether the infringement suit could proceed in UT’s absence, the court held that UT was a "necessary" party under Rule 19(a) because it retained substantial rights in the patents-in-suit. Analyzing the applicable Rule 19(b) factors, the district court concluded that UT was an "indispensable" party, and that the suit could not proceed in its absence. The district court dismissed the case and Gensetix appealed.
Rule 19(a)(2) joinder. Rule 19(a)(2) requires a court to order a required plaintiff "who refuses to join as a plaintiff" to "be made either a defendant or, in a proper case, an involuntary plaintiff." On appeal, Gensetix argued that sovereign immunity does not preclude coercive joinder of a sovereign under Rule 19(a)(2). In Gensetix’s view, the Eleventh Amendment bars suits brought by private citizens against the state, which was not the case here. UT responded that sovereign immunity protects it from private party litigation and this protection extends to joinder.
Gensetix’s attempt to limit the Eleventh Amendment to its text—i.e., to cases "against" a state—was unpersuasive and contrary to Supreme Court guidance, according to the Federal Circuit. The Court has made clear that "[t]he Eleventh Amendment does not exist solely in order to prevent federal-court judgments that must be paid out of a State’s treasury; it also serves to avoid the indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties." Seminole Tribe of Fla. v. Fla., 517 U.S. 44, 58 (1996).
Gensetix erroneously interpreted the Federal Circuit’s Regents of the Univ. of Cal. v. Eli Lilly & Co., 119 F.3d 1559 (Fed. Cir. 1997) to broadly hold that Eleventh Amendment immunity is inapplicable in all cases where the state is a plaintiff (even if involuntarily) and there are no counterclaims against the state, the court said. Regents of UC did not create a rule whereby parties may drag a sovereign into the federal court system against its will simply because there is no claim "against" the sovereign. Instead, the holding there was predicated on the state voluntarily submitting itself to federal court jurisdiction. The key distinction between Regents of UC and the present case—that UT did not voluntarily invoke federal court jurisdiction—was dispositive, the Federal Circuit held. In the absence of a state voluntarily availing itself of federal court jurisdiction, or an express waiver of sovereign immunity, Rule 19(a) must yield to the state’s assertion of sovereign immunity.
Rule 19(b) dismissal. Rule 19(b) provides that, where joinder of a required party is not feasible, "the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed." Four factors required consideration: (1) the extent to which a judgment rendered might prejudice the missing required party or the existing parties; (2) the extent to which any prejudice could be lessened or avoided; (3) whether a judgment rendered in the required party’s absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder. The district court abused its discretion by failing to meaningfully analyze each of these factors, the appellate court ruled.
The district court improperly collapsed the multi-factorial Rule 19(b) inquiry into one dispositive fact: UT’s status as a sovereign. For example, in evaluating the prejudice to UT, the district court relied on A123 Systems, Inc. v. Hydro-Quebec, 626 F.3d 1213 (Fed. Cir. 2010), and concluded that it must give weight to the fact that the sovereign risked losing rights in its patent without an opportunity to defend itself. But in A123, the Federal Circuit noted that the interests of the licensee and licensor were "overlapping" not "identical," because the licensee had only a field-of-use license. Here, Gensetix held a license in every field, and, as such, the parties’ interests in the validity of the patents-in-suit were identical. The prejudice to UT was minimal, or at least substantially mitigated, because, unlike the licensee in A123, Gensetix would adequately protect UT’s interests in the validity of the patents-in-suit.
Similarly, the district court dismissed the lack of an adequate remedy for Gensetix resulting from UT’s nonjoinder—i.e., the fourth Rule 19(b) factor—as simply "an inherent risk for anyone who chooses to contract with a sovereign entity." The district court should have given weight to the fact that Gensetix was without recourse to assert its patent rights because UT could not be feasibly joined, the Federal Circuit reasoned.
Beyond giving controlling weight to UT’s status as a sovereign in its analysis of several of the applicable factors, in concluding that a judgment rendered in UT’s absence would be inadequate, the district court also refused to properly analyze the third Rule 19(b) factor. Allowing the litigation to proceed in UT’s absence did not pose a substantial risk of multiple suits.
Under a proper and more nuanced analysis than the district court gave the 19(b) factors, the prejudice to UT, the interests of UT and Gensetix were aligned, according to the Federal Circuit. There was also no risk of multiple suits because, under the express terms of the parties’ agreement, UT may not sue Baylor once Gensetix commenced litigation. And, as an exclusive licensee with less than all substantial rights in the patents-in-suit, Gensetix could not enforce its patent rights without the court allowing the suit to proceed in UT’s absence. Given this clear factual record, it was an abuse of discretion to find that the suit could not proceed in UT’s absence.
Judge Newman opinion. In her concurring in part, dissenting in part, and concurring in the judgment opinion, Judge Newman dissented from the court’s holding that the University had Eleventh Amendment immunity from joinder. She argued that the Eleventh Amendment is not an authorization whereby State agencies may violate their commercial and contractual obligations and disagreed with the majority’s conclusion that the Eleventh Amendment shielded UT from compliance with its contractual obligation to "cooperate fully" with its exclusive licensee, Gensetix, in enforcing the patents against infringers.
Judge Taranto opinion. In his concurring in part and dissenting in part opinion, Judge Taranto disagreed with the majority that the district court abused its discretion by dismissing the case. According to Taranto, the Supreme Court’s decision in Republic of Philippines v. Pimentel, 553 U.S. 851 (2008), explained that when a sovereign entity is a required party under Rule 19(a), is protected against joinder by sovereign immunity, and makes a non-frivolous assertion that it will be prejudiced by a suit proceeding in its absence, a district court is generally obligated to dismiss the suit under Rule 19(b), and such was case here.
This case is No. 19-1424.
Attorneys: Paul Skiermont (Skiermont Derby LLP) for Gensetix, Inc. Michael Hawes, (Baker Botts LLP) for Baylor College of Medicine and Diakonos Research Ltd. Peter E. Mims (Vinson & Elkins LLP) for Board of Regents of the University of Texas System.
Companies: Gensetix, Inc.; Baylor College of Medicine; Diakonos Research Ltd.; Board of Regents of the University of Texas System
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