IP Law Daily State university could assert Eleventh Amendment immunity in inter partes proceeding
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Thursday, May 25, 2017

State university could assert Eleventh Amendment immunity in inter partes proceeding

By Peter Reap, J.D., LL.M.

The University of Maryland, Baltimore, was entitled to assert Eleventh Amendment immunity as a defense in an inter partes proceeding brought by Petitioner NeoChord, asking the USPTO’s Patent Trial and Appeal Board to review claims 1–23 of U.S. Patent No. 7,635,386 B1 (the ’386 patent), the Board has decided. Furthermore, the University did not waive its defense through its participation in this proceeding, nor through its licensing agreement, and the University was a necessary and indispensable party. Thus, the University’s motion to dismiss was granted and the IPR terminated (NeoChord, Inc. v. University of Maryland, Baltimore, May 23, 2017, Worth, J.).

According to the University, it was entitled to assert sovereign immunity as a defense because it is an "arm of the State of Maryland," and the ’386 patent is "property of the State." NeoChord contended that a prior panel of the Board in Covidien erred in finding that sovereign immunity was available as a defense before the Board, that the University has waived immunity through its participation in this proceeding, that the University has waived immunity through its licensing activity, and that the Board could proceed without the University (citing Covidien LP v. Univ. of Florida Research Foundation Inc., Case IPR2016-01274 (PTAB Jan. 25, 2017).

Whether a state may assert Eleventh Amendment immunity. NeoChord argued that a prior panel of the Board in the Covidien case erred in concluding that Eleventh Amendment immunity was available as a defense. NeoChord argued that sovereign immunity is unavailable as a defense in inter partes review proceedings because, according to NeoChord, the Supreme Court in Cuozzo compared inter partes review proceedings to reexamination proceedings and distinguished inter partes review proceedings from district court proceedings (citing Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016)). The Board, however, agreed with the University that the Supreme Court’s statements in Cuozzo could not be taken out of the context of the claim construction standard.

The Court in Cuozzo held that the different purpose of inter partes review proceedings made the differing claim construction standard reasonable, but the similarity of procedures is what is relevant for analyzing the applicability of the Eleventh Amendment, the Board reasoned. Therefore, Federal Maritime Comm’n v. South Carolina State Ports Authority, 535 U.S. 743, (2002) (FMC), remained the primary case law for analyzing the availability of the Eleventh Amendment to the Board, and the statements in Cuozzo relied on by NeoChord were not intended to be taken outside of the context from which they arose, according to the PTAB. Congress has not abrogated Eleventh Amendment immunity with respect to this inter partes review proceeding, under Section 5 of the Fourteenth Amendment or under Article I of the Constitution. Nor has the State of Maryland expressed an intent to waive Eleventh Amendment immunity.

NeoChord also argued that this proceeding could be likened to a bankruptcy proceeding, which is in rem. NeoChord’s analogy to bankruptcy law was without merit, the Board determined.

Waiver by participation. NeoChord argued that the University waived any defense of sovereign immunity by "participating in [the inter partes review proceeding] up until the Oral Hearing without a single mention of sovereign immunity." In general, mere participation in judicial proceedings does not create a waiver unless the State has taken affirmative steps to invoke federal jurisdiction, such as filing suit as a plaintiff or seeking removal of a proceeding to federal court, the Board noted. In other words, when a State serves as a defendant in federal court, without more, it generally has not waived sovereign immunity and remains free to raise the defense of Eleventh Amendment immunity at any time.

The Board took at face value the University’s stated reason for not raising the defense sooner, i.e., that before the Covidien decision it had not been aware that it could raise the Eleventh Amendment defense before the Board, and that it raised the defense within five business days of the Covidien decision. NeoChord argued that ignorance of the law does not excuse delay. Nevertheless, it was well established that Eleventh Amendment immunity is a defense that may be raised at any time, the Board said.

Waiver through license. The Board next addressed whether the University waived its defense of sovereign immunity by licensing its patent to Harpoon Medical.

The University argued that Section 3.7.1 of its Master License Agreement (MLA) only waived immunity with respect to challenges by Harpoon Medical, and that Section 14.6 of the MLA expressly reserved the defense of sovereign immunity. The Board agreed with the University that the waiver of Section 3.7.1 operates as a waiver limited to Harpoon and that Section 14.6 of the license agreement operated as a savings clause to preserve the defense of sovereign immunity, i.e., with respect to non-parties. States may enter into contracts that effect a limited waiver of sovereign immunity, e.g., as to the parties of the contract, without opening the door to suits from others.

Indispensable party. According to NeoChord, the University "should not be considered an indispensable party to this proceeding." In other words, NeoChord contended that the Board may conduct its proceeding with NeoChord and Harpoon Medical as the only parties. The University argued that it has retained rights under the license. The PTAB agreed.

The University retained rights under the license agreement, and transferred less than "substantially all" rights to Harpoon Medical. Therefore, the University remained a necessary and indispensable party to this proceeding, the Board could not proceed without the University.

The case is No. IPR2016-00208.

Attorneys: Eric H. Chadwick (Patterson Thuente Pedersen, P.A.) for NeoChord, Inc. Nancy A. Vashaw (Cooley LLP) for University of Maryland, Baltimore and Harpoon Medical, Inc.

Companies: Neochord, Inc.; Harpoon Medical, Inc.; University of Maryland, Baltimore

MainStory: TopStory Patent USPTO

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