IP Law Daily University of Texas cannot challenge transfer of infringement claims on immunity grounds
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Thursday, September 5, 2019

University of Texas cannot challenge transfer of infringement claims on immunity grounds

By Thomas Long, J.D.

Sovereign immunity cannot be asserted to challenge a venue transfer in a patent infringement case where a State acts solely as a plaintiff.

State sovereignty principles asserted by the Board of Regents of the University of Texas System (UT) did not grant it the right to bring a patent infringement suit in an otherwise improper venue, according to the U.S. Court of Appeals for the Federal Circuit. The appellate court affirmed a district court’s decision determining that venue was improper in the Western District of Texas and transferring the case to the District of Delaware. According to the Federal Circuit, state sovereign immunity did not apply where a State acted solely as a plaintiff, as UT was doing in this case. Nor did the Original Jurisdiction Clause of the U.S. Constitution or UT’s inherent powers as a state sovereign permit it to choose an otherwise improper venue as the forum for its patent infringement suit against a medical device manufacturer that was incorporated in Delaware and based in Massachusetts (Board of Regents of the University of Texas System v. Boston Scientific Corp., September 5, 2019, Stoll, K.).

The Board of Regents is the governing body for the University of Texas System. Its status as an arm of the State of Texas was undisputed. UT was the assignee and exclusive owner of patents resulting from research conducted at the University of Texas System, including the patents-in-suit, which were directed to implantable drug-releasing biodegradable fibers. Dr. Kevin Nelson, co-inventor of the patents-in-suit, developed the claimed technology at the University of Texas at Arlington and founded co-plaintiff TissueGen Inc. as a vehicle for commercializing his inventions. UT exclusively licensed the patents-in-suit to TissueGen, which then commercialized its ELUTE® fiber product.

In November 2017, UT and TissueGen sued Boston Scientific Corp. (BSC) in the Western District of Texas, asserting that several Boston Scientific medical stent products infringed the patents-in-suit. UT conceded that BSC was a Delaware corporation with a principal place of business in Massachusetts, but it asserted that venue is proper in the Western District of Texas because UT had sovereign immunity, and the Texas court had personal jurisdiction over BSC. According to UT, "it would offend the dignity of the State to require it to pursue persons who have harmed the State outside the territory of Texas." Also, UT contended that the State of Texas could not be compelled to respond to counterclaims outside its territory, due to the Eleventh Amendment.

BSC filed a motion to dismiss for improper venue, requesting that the case be dismissed or, in the alternative, transferred to the District of Delaware. BSC asserted that not own or lease any property or maintain a business address in the Western District of Texas. Although BSC had about 46 employees in the Western District of Texas, they all maintained home offices and did not work in spaces that were owned, leased, or controlled by BSC. The district court granted BSC’s motion and transferred the case to the District of Delaware, explaining that 28 U.S.C. §1400(b)—the sole and exclusion provision controlling venue in patent infringement cases—required transfer because BSC did not reside in the district or have a "regular and established place of business" there. The district court rejected UT’s sovereign immunity arguments, explaining that sovereign immunity was meant to function as a shield rather than a sword, and there was no claim or counterclaim against UT that placed it in the position of a defendant. UT appealed the transfer order.

Appellate jurisdiction. As a threshold matter, the Federal Circuit determined that it had jurisdiction under the appeal under an exception from the final judgment rule called the "collateral order doctrine." Transfer orders are interlocutory and generally cannot be appealed immediately, but UT’s assertion of sovereign immunity made this case fall under the collateral order doctrine. To be covered by the doctrine’s narrow exception to the final order rule, an order must (1) conclusively determine the disputed question, (2) resolve an important issue completely separate from the merits of the action, and (3) be effectively unreviewable on appeal from a final judgment. The U.S. Supreme Court had held that determined that decisions denying claims of sovereign immunity by a State or its arms fell within the "small class" of decisions covered by the collateral order doctrine because decisions denying sovereign immunity "purport to be conclusive determinations that [States] have no right not to be sued in federal court." Resolving the issue of sovereign immunity "generally will have no bearing on the merits of the underlying action," the High Court reasoned, and the value of sovereign immunity to a State "is for the most part lost once litigation proceeds past motion practice." In the Federal Circuit’s view, the Texas court’s transfer order was conclusive for purposes of the collateral order doctrine, the state sovereignty issues raised by UT were "important" and separate from the merits of the case, and the order was effectively unreviewable because once UT had litigated the case in the Delaware court to a final judgment, an appeal of its claims of state sovereignty would be effectively pointless. Accordingly, the Federal Circuit concluded that it had jurisdiction over UT’s appeal.

Venue transfer challenge. UT argued that venue was proper in the Western District of Texas because a State, as a sovereign entity, has the right to sue a nonresident in its forum of choice as long as personal jurisdiction is satisfied. UT contended that the federal patent venue statute cannot abrogate a State’s right to choose the forum when asserting infringement of its federal patent rights. Finally, UT argued that the District of Delaware lacked jurisdiction because UT never consented to suit in Delaware, never waived its sovereignty in Delaware, and never had its sovereignty abrogated by statute. The Federal Circuit disagreed with all of UT’s arguments and held that the state sovereignty principles asserted by UT did not grant it the right to bring a patent infringement suit in an improper venue.

Sovereign immunity. The district court determined that BSC neither resided in nor had a regular and established place of business in the Western District of Texas under Section 1400(b). UT did not appeal those conclusions and challenged the transfer order only on the basis of state sovereignty. According to the Federal Circuit, state sovereign immunity did not apply where a State acted solely as a plaintiff, as UT did here. In addition, nothing in the U.S. Constitution’s Original Jurisdiction Clause or in UT’s other asserted authorities supported the proposition that a State has the right to bypass federal venue rules when it engages in patent litigation as a plaintiff, the court said.

Under Federal Circuit precedent, as guided by Supreme Court precedent, the Eleventh Amendment applied to suits against a state entity, not suits by a state. The court held that sovereign immunity cannot be asserted to challenge a venue transfer in a patent infringement case where a State acts solely as a plaintiff. UT argued that "State sovereign immunity"—a complementary attribute of state sovereignty—meant that only the state can dictate where it litigated its property rights. The Federal Circuit rejected this argument, noting that it was aware of no cases in which the Supreme Court applied the Eleventh Amendment to suits in which a State was solely a plaintiff.

Original jurisdiction clause. UT next argued that the Original Jurisdiction Clause ensured that a State cannot be forced to sue in a court located in another State. The Federal Circuit declined to adopt this reasoning, pointing out that cases cited by UT involved the ability of States to sue in lower courts in addition to the Supreme Court, and did not support the proposition that States may sue in any forum regardless of venue rules. Moreover, UT never sought to invoke original jurisdiction, but instead brought this suit "pursuant to 28 U.S.C. §§ 1331 and 1338(a)." Whether UT could have instituted the suit as an original proceeding in the Supreme Court was irrelevant because UT brought suit in a federal district court under federal question jurisdiction, the court explained.

Inherent powers of state sovereign. UT asserted that it had the right to sue for patent infringement in its forum of choice based on the inherent powers of a state sovereign to choose the forum in which to enforce its property rights against citizens of another state. The Federal Circuit said that it was not convinced that the inherent powers of Texas as a sovereign allowed UT to disregard the rules governing venue in patent infringement suits once it chose to file suit in federal court. By appearing in federal court, UT voluntarily invoked the federal court’s jurisdiction. Logically, the State must then abide by federal rules and procedures—including venue rules—as must any other plaintiff, the court said, adding that it would be "anomalous or inconsistent" for UT to invoke federal question jurisdiction and then to assert sovereignty to defeat federal jurisdiction.

Jurisdiction in District of Delaware. Finally, UT argued that the District of Delaware lacked jurisdiction over this case because UT did not consent to suit in Delaware, did not waive its sovereignty in Delaware, and never had its sovereignty abrogated by statute. However, the court reiterated that sovereign immunity did not apply when a State proceeded as a plaintiff. "Moreover, none of the authorities cited by UT support a broader privilege of state sovereignty that gives a State the right to bring suit in an improper venue," the Federal Circuit said. "The issues of waiver and abrogation of such rights thus do not arise, because there is no sovereign immunity or relevant state sovereign right to waive or abrogate. Accordingly, jurisdiction in the District of Delaware was proper, the court concluded.

This case is No. 18-1700.

Attorneys: Michael W. Shore (Shore Chan Depumpo LLP) for Board of Regents of the University of Texas System and TissueGen Inc. John Nilsson (Arnold & Porter Kaye Scholer LLP) for Boston Scientific Corp.

Companies: Board of Regents of the University of Texas System; TissueGen Inc.; Boston Scientific Corp.

MainStory: TopStory Patent FedCirNews

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