July 17, 2017
On July 13, 2017, the Patent Trial and Appeal Board (PTAB) considered a challenge to a patent held collectively by Toyota Motor Corporation and the Regents of the University of Minnesota. The case at issue is Reactive Surfaces Ltd. LLP v. Toyota Motor Corp. On a preliminary motion to dismiss, the PTAB held that (1) the University of Minnesota has sovereign immunity under the Eleventh Amendment, but that (2) the challenge to the patent’s validity may continue even in the absence of the university. That is because (3) Toyota is a private company that does not enjoy Eleventh Amendment immunity, and Toyota “would adequately represent the interests of the [University] in the challenged patent.” This decision serves as a reminder that parties who jointly own a patent should have an agreement that allocates rights and responsibilities for the patent, including which party controls strategic decisions made when the patent is challenged.
This is the third decision at the PTAB to answer whether sovereign immunity under the Eleventh Amendment may be asserted in IPR proceedings. In two earlier decisions, NeoChord, Inc. v. University of Maryland, Baltimoreand Harpoon Medical, Inc.and Covidien LP v. University of Florida Research Foundation, Inc., the PTAB concluded that state actors indeed may invoke Eleventh Amendment immunity in IPR proceedings. In the current case, while noting that “neither of those decisions is binding on us,” this panel of the PTAB adopted the identical conclusion. The PTAB observed that the quasi-judicial nature of IPR proceedings accords Eleventh Amendment immunity to states and state entities and that the university (and the regents of the university, which are “interchangeable”) are state actors under the Eleventh Amendment analysis.
Finally, the PTAB determined that the IPR may continue even in the absence of the university. Toyota and the University of Minnesota (who were represented by the same law firm) argued for a rule requiring automatic termination of a proceeding upon the dismissal of one patent owner on the grounds of the sovereign immunity. The patent owners relied on Republic of Philippines v. Pimentel, a 2008 Supreme Court case holding that “where sovereign immunity is asserted, and the claims of the sovereign are not frivolous, dismissal of the action must be ordered where there is a potential for injury to the interests of the absent sovereign.”
The PTAB rejected this contention. In its analysis, the PTAB relied in part on University of Utah v. Max-Planck-Gesellschaft et al., observing that the Federal Circuit does not always find all patent owners to be indispensable parties to litigation involving the patent. In this case, Toyota and the University of Minnesota were co-owners of the patent, each apparently holding an identical interest. Under this circumstance, the PTAB held that upon dismissal of the university, the remaining party (Toyota) can adequately represent the interests of the sovereign party. Here, the PTAB determined that the adequacy of that representation was even stronger because the parties at issue were themselves patent owners, all of the patent owners except the absent sovereign were present in the action, and all of the patent owners were represented by the same legal counsel.
Because Toyota and the University of Minnesota were represented by the same counsel, it does appear that their strategic interests were identical or closely aligned. That is not always the case, however. In defending against an IPR or other patent challenge, it is conceivable that two patent owners might have divergent interests, particularly where one of the patent owners is obligated to pay an ongoing fee or royalty to the other (e.g., when one patent owner does not want to contest the IPR). Patent co-owners should have an agreement that allocates rights and responsibilities, particularly concerning what happens when a patent is challenged, including which party will control the challenge and which party will pay the fees and expenses.
It is also now fairly certain that the PTAB will find state universities and other state actors to enjoy sovereign immunity, which, absent a waiver or other exception, will preclude PTAB challenges to state-owned patents.
For more information please contact Fitch Even partner Allen E. Hoover, author of this alert.
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