With patent "reform" again on the congressional agenda, will lawmakers push back on other critical intellectual property issues? In 1992, Congress passed two acts pertaining to intellectual property, the Patent and Plant Variety Protection Remedy Clarification Act (Patent Remedy Act) and the Trademark Remedy Clarification Act. Over a decade ago, Congress had observed that states and their universities had become big players in filing patent lawsuits and had constructed the Patent Remedy Act to address the unfairness of the shield of immunity that protected these institutions from patent lawsuits.
However, the Supreme Court has issued rulings that, in some cases disavow the right of Congress to submit the states to jurisdiction of the federal courts, while in other rulings support it.
In 1999, the Supreme Court ruled 5-4 in a trademark case, College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, that the sovereign immunity granted by the 11th Amendment to the Constitution could not be abrogated by Congress, effectively declaring the Patent Remedy Act unconstitutional. But in 2002, the court ruled unanimously in Lapides v. Board of Regents of the University System of Georgia that a state loses its 11th Amendment immunity when it removes a case from state to federal court, reversing its stance from four years prior. Again in 2006, the high court held in a 5-4 ruling in Central Virginia Community College v. Katz, a bankruptcy case in the federal system, that sovereign immunity did not hold.
The 11th Amendment, passed in 1794, laid the groundwork for states to claim "sovereign immunity" against lawsuits filed against them. However, in the 200 years subsequent to the passage of the amendment, the environment we live and work in has become exponentially litigious and states and state run institutions may be abusing their sovereignty status. Further, the real question is, should any party be given a pass to appropriate the intellectual property of another without recourse?
But the Supreme Court seemed to reverse itself again on this issue when it denied certiorari in an intellectual property case earlier this year based on a recommendation from the Solicitor General of the United States. Biomedical Patent Management Corporation appealed to the high court after the federal district court allowed the State of California to claim sovereign immunity to avoid a patent infringement ruling.
After the high court announced its refusal to hear the case, Robin Conrad of the National Chamber Litigation Center (NCLC) issued this statement: "It's audacious for a state to use the federal courts to sue for patent infringement, but to block infringement suits against it as a sovereign that cannot be sued." The center, an arm of the U.S. Chamber of Commerce, had filed an amicus brief supporting certiorari. In its 30 year history, this is only the second brief the NCLC has filed in a Supreme Court patent case.
At the heart of this case is a de facto double standard. When states or state institutions choose to litigate in the federal courts, under patent or other federal laws, it waives sovereign immunity in order to seek a verdict from the court. Simply put, in order to file in federal court, the state must subject itself to the ruling of the court, thereby setting aside its immunity for purposes of the lawsuit.
In the case of California, its state agencies, among them the University of California, heavily rely on the federal courts to protect its patent rights. Since California routinely uses federal enforcement of patent laws, by default it relinquishes claims to sovereign immunity. California state universities own more than 3,000 patents generating more than $200 million in revenues each year. To protect these assets, California has filed 21 times in the federal courts for infringement in the last 18 years and since 2000 has been awarded nearly $1 billion in damages. On the flipside, California has played the sovereign immunity card more than six times to avoid litigation against its institutions for infringing the patents of others.
California is not the only state enjoying this unbalanced privilege. Since the passage of Bayh-Dole, state universities have used patents to generate billions of dollars in revenue and have aggressively sued over patent infringement while hiding behind the veil of the 11th Amendment.
This begs a larger question - should sovereign immunity ever come in to play? When states and state institutions engage in commercial activities, why would they not be held to the standards of good business practices and be called on to respect the property rights of others?
Sovereign immunity allows state institutions to be immune from lawsuits and legal actions except when it consents to them. Other than when it is itself filing the suit, why would it consent?
In cases like that of Biomedical Patent Management where the infringer is the state, sovereign immunity grants the state carte blanche to preclude the property rights of its citizens and citizen corporations and convey that property to the state without recourse. With innovation critical to the future of our nation, this exploitation of intellectual property cannot go unchecked.
Sovereign immunity creates two levels of society. There are those above the law and those below it. One segment of society may flout the law while the other will be imperiled. This terrible assumption may metastasize into absolute power corrupting absolutely.
The Patent Act protects patent owners from being deprived of their property rights without due process of law. This is a critical consideration in an era when incentives to innovate are already under fire from state institutions wielding Bayh-Dole to siphon away inventors' rights. In a number of cases, federal district and circuit courts have found that the small burden the Patent Remedy Act places on states is greatly outweighed by the vital need for patentees to be able to protect their rights against infringing states and state institutions.
The Supreme Court has recommended that Congress modify the Patent Remedy Act such that it prevents and remedies conduct that violates 14th amendment rights of due process for citizens. However, legislation will not prevent or remedy any action that does not have the weight of the judiciary to enforce it.
Individual innovators, researchers and business advocacy groups were each hopeful that the Supreme Court would hear Biomedical Patent Management's claims and rule that the unfair competitive advantage that state entities currently enjoy under sovereign immunity would be abridged. But with its denial of certiorari in the case, individual patent holders remain enjoined from seeking protection from and compensation for a state's violation of their intellectual property and patent rights. And states still enjoy the double standard of using the courts to protect its patents while they use sovereign immunity as a weapon against competitors and innovators. Business, entrepreneurs and innovators will continue to suffer until the scales of justice rest in balance.
"The court is indeed troubled by the University of California's ability to reap the benefits of the patent system without being exposed to liability for infringement," wrote U.S. District Court Judge Marilyn Hall Patel in an opinion dismissing the case.
IP Advocate questions whether the current congress, our new president and his newly appointed Under Secretary of Commerce for Intellectual Property and Director of the USPTO, David J. Kappos will address this disparity? For indeed, we should all be troubled when the state has no accountability for its actions and injured citizens have no venue for recourse.