Bulletproof Teflon Patent Infringers

Imagine an entity that receives far more patents from the U.S. PTO than any related entity in the country. An entity that has generated at least $500 million in patent royalties over the last five years. One that often uses the courts, routinely alleging patent infringement as a plaintiff and settling against such giants as Genentech for $200 million, Monsanto for over $100 million, and Microsoft for $30 million settlement, to name but a few. And yet, this entity cannot itself be sued or pursued for patent infringement. Some would say this sounds like a typical “patent troll,” which does not actually make, use, or sell anything (and thus is not likely to be sued for patent infringement) but seeks only to “monetize” its patent portfolio by forcing legitimate practitioners of the technology to pay licensing fees.

However, the entity is the University of California, and it enjoys sovereign immunity from claims of patent infringement under the Supreme Court’s application of the 11th amendment. In fact, every state university and state entity may currently infringe patents and sue for patent infringement, avoiding any patent suits in return.

A recent WSJ article (related WSJ law blog post here) shares the opinions of several critics of current state immunity from IP infringement. Here are a few of those voices, also summed up at the WSJ blog:

  1. Judge Marilyn Hall Patel, in dismissing the BPMC case: “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. Similarly situated private universities enjoy no such advantage.”
  2. Stanford Law School professor Mark Lemley: “The underlying problem is that the Supreme Court is applying an antiquated doctrine — the 11th Amendment — to circumstances in which it was never intended to apply,” he says. “The Framers never contemplated states suing people for patent infringement.”

So, do you think sovereign immunity should protect state actors from claims of IP infringement?

Here is a little more background for those who are interested:

During the early 1990s, Congress attempted, citing its authority lift sovereign immunity to enforce guarantees of the 14th amendment’s due process clause, to stop this state gravy train by enacting legislation in various realms of intellectual property protection, including in the patent statutes and the Lanham Act, which lifted state sovereign immunity in the context of patent and trademark infringement.

However, in 1999 the Supreme Court struck down these laws on the grounds that the statutes could not “be sustained as legislation enacted to enforce the guarantees of the Fourteenth Amendment’s Due Process Clause” where “[t]he legislative record . . . suggests that the [statutes at issue did] not respond to a history of widespread and persisting deprivation of constitutional rights of the sort Congress has faced in enacting proper prophylactic . . . legislation [under its Fourteenth Amendment powers to do so].” Fla. Prepaid Postsecondary Ed. Expense Bd. v. College Savs. Bank, 527 U.S. 627, 630, 645 (1999).

The Federal Circuit recently applied this ruling in further finding that state actors, such as universities with deep patent portfolios, are entitled to assert 11th Amendment sovereign immunity after Florida Prepaid even where it has sued and/or intervened in an earlier, related action under the same patent(s) and involving the same parties that was dismissed for improper venue. See Biomedical Patent Mgt. Corp. v. Cal. Dept. of Health Servs., —F.3d —- (Fed. Cir. Oct. 23, 2007).

As Lemley pointed out, this does seem to leave private universities and public universities, similar institutions with similar goals and similar IP portfolios, on quite unequal footing when it comes to intellectual property exploitation. Also, I wonder what the result would be if a public university sued to enforce a patent, and the defendant counterclaimed with related but noncompulsory claims of infringement of patents within the defendant’s portfolio. If the counterclaims would be dismissed based on sovereign immunity, then it seems public universities should be looking carefully at leveraging their patent portfolios for more revenue in these cash-strapped times for public treasuries and generally high dollar recovery potential in patent infringement lawsuits, where the risk of counter and/or “retaliatory suits” would be quite low.

3 Responses to Bulletproof Teflon Patent Infringers

  1. I’ve always thought that infringement should be treated as a 5th amendment taking without compensation, and that infringers dealing with the state of California ought to be able to purchase from those the state had sued the claims that others had against the state and to pay them with those.

  2. Mark D. says:

    I think the patent system is a net drag on the economy, particular in the realm of software. Software patents are typically so general they shouldn’t be granted at all.

    In other fields, Congress could restore sanity by changing to a compulsory licensing scheme, with maximum recovery set to some healthy multiple of development costs or $100,000, whichever is greater. After that the patent would go into the public domain.

  3. Jordan F. says:

    I agree regarding most “software patents.” During the 1990s, the PTO was handing out “software patents” like candy. Now, courts across the country are finding many such patents invalid.

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