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IP Alert: PTAB Again Holds Sovereign Immunity Applicable to IPR Proceedings

May 31, 2017

The Eleventh Amendment to the U.S. Constitution generally prohibits the district courts from asserting jurisdiction over individual U.S. states, including state entities. On May 23, 2017, in NeoChord, Inc. v. University of Maryland, Baltimore and Harpoon Medical, Inc., the Patent Trial and Appeal Board (PTAB) granted the motion of the University of Maryland (UMD), the patent owner in this proceeding, to terminate an IPR proceeding on Eleventh Amendment grounds. In this case, the PTAB granted UMD’s motion to dismiss, holding that UMD did possess Eleventh Amendment immunity as an arm of the State of Maryland, and that UMD had not waived its immunity of the grounds asserted by the challenger. This is the second time that the PTAB has held that sovereign immunity applies to IPR proceedings, the first time being in Covidien LP v. University of Florida Research Foundation, Inc. (see previous IP alert here).

In November of 2015, NeoChord filed a petition for IPR review of a patent belonging to UMD. UMD responded by stating that Harpoon Medical is the exclusive licensee of the patent and is also a real party-in-interest. The PTAB instituted IPR review in May of 2016 and scheduled an oral argument for January 31, 2017. On the day before the hearing, however, UMD contacted the PTAB seeking authorization to file a motion to dismiss on sovereign immunity grounds. NeoChord responded by stating that the decision in Covidien was in error, UMD had waived sovereign immunity through its participation in the proceeding without prior objection or through its licensing activity, and the PTAB should proceed without UMD.

In its analysis, the PTAB agreed that the Covidien decision was not binding, on the grounds that Covidien was decided on a different procedural posture and did not constitute binding precedent. Nonetheless, following the 2002 U.S. Supreme Court case Federal Maritime Comm’n v. South Carolina State Ports Authority, the PTAB stated that an agency proceeding that sufficiently resembles a proceeding in the Article 3 district courts is subject to Eleventh Amendment analysis. Here, the PTAB observed that an IPR proceeding typically involves adverse parties, examination of witnesses, findings by an impartial federal adjudicator, and power to implement the decision (e.g., by cancellation of patent claims). The PTAB also considered a later Supreme Court case, Cuozzo Speed Techs, LLC v. Lee, which had differentiated IPR proceedings from district court proceedings. The PTAB reasoned that the Cuozzo court had held that the different purpose of IPR proceedings may make it reasonable to have different claim construction standards between such proceedings, but that this difference was not relevant for analyzing the applicability of the Eleventh Amendment under the earlier Federal Maritime Comm’n case.

The PTAB then concluded that Congress had not abrogated Eleventh Amendment immunity for IPR proceedings under the PTAB, and that UMD had not waived Eleventh Amendment immunity by accepting the issuance of a patent. The PTAB went on to reject NeoChord’s attempt to analogize PTAB proceedings to bankruptcy proceedings, and further rejected NeoChord’s contention that that UMD had waived its sovereign immunity defense by failing to raise it earlier in the proceedings. NeoChord next argued that UMD’s license agreement with Harpoon Medical constituted a waiver, but the PTAB rejected this contention as well. Although the license agreement between the parties did contain language that might constitute a waiver, the PTAB held that any waiver was limited to disputes between UMD and Harpoon.

Finally, NeoChord contended that UMD was not an indispensable party to the proceeding such that the PTAB could move ahead with the IPR proceedings in UMD’s absence. The PTAB rejected this contention too, determining that the license agreement did not transfer substantially all of UMD’s rights to the patents to Harpoon Medical.

Based on this analysis, the PTAB granted UMD’s motion to terminate the proceeding. This case and the earlier Covidien case firmly established that in the PTAB’s current view, a state entity may assert an Eleventh Amendment immunity in an IPR proceeding, absent a waiver or other exception. It remains to be seen whether the Court of Appeals for the Federal Circuit, as reviewing court, will overrule the PTAB. For now, this case, and the earlier Covidien case, remain important cases for those concerned with patents owned by a state or a state entity.

If you have any questions concerning the above decision, please contact Fitch Even partner Allen E. Hoover, author of this alert.

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