In Covidien LP v. University of Florida Research Foundation, Inc., No. IPR2016-01274, Paper No. 21 (P.T.A.B. January 25, 2017), the PTAB held that sovereign immunity prevents would-be petitioners from using IPR’s to challenge the patentability of patents owned by states. Noting that the 11th Amendment confers to the states a broad grant of immunity to federal judicial authority, both in the federal courts and in administrative adjudications, the PTAB found no “unequivocal, express intent by Congress in the AIA to abrogate immunity for the purposes of inter partes review.” Id. at 26. In the absence of such express intent, the PTAB held that the states had not been divested of sovereign immunity, and that the University of Florida Research Foundation (UFRF) could not be forced to defend its patents in an IPR. Id. at 27.
In reaching this conclusion, the PTAB rejected a number of theories offered by Covidien. The PTAB was unpersuaded by Covidien’s argument that patents—as public rights that would not exist but for federal law—must logically be reviewable under federal law, noting that Covidien offered no legal authority for the proposition that there was a public rights exception to 11th Amendment’s grant of immunity. Id. at 10-11. The PTAB similarly rejected Covidien’s argument that IPR’s are directed to the patent itself rather than to the patent owner, observing that “the term inter partes means between the parties, which in itself captures the notion that the proceeding is directed to both parties.” Id. at 13.
The procedural posture of this case may cabin its reach, at least for the time-being. UFRF had originally brought suit in state court, alleging breach of a license contract involving the patent at issue. Id. at 3. Covidien successfully removed to federal district court, seeking a declaratory judgment that it did not infringe. Id. At this time, Covidien separately filed three IPR petitions before the PTAB, giving rise to the instant decision. Id. at 4. UFRF subsequently raised the issue of sovereign immunity in the district court litigation, persuading the court to remand the matter back to state court. Id.
The case therefore originated as a state breach of contract action, and at the time of the PTAB’s decision, there was no federal district court action. The PTAB raised, but declined to decide, whether the existence of a related federal district court patent infringement (or declaratory judgment of validity) case brought by the Patent Owner “would effect a waiver of sovereign immunity.” Id. at 26, n. 4. This potential wrinkle in the absolute application of immunity to sovereign entity patent owners in IPRs will, no doubt, be addressed by the PTAB in the future as other sovereigns seek to take advantage of the PTAB’s decision in Covidien to defend their patents in IPR proceedings.
At least within the confines of its decision, however, the PTAB was clear—sovereign entities cannot be forced to defend patents in IPR’s. Because IPR’s are often the preferred vehicle for defending patent infringement actions, this holding is a potential boon to the value of patents owned by sovereign entities. This decision should also be a consideration in licensing negotiations. Absent a license agreement, a patent owner’s primary recourse is filing a patent infringement claim in the federal courts. It is yet unknown whether a sovereign entity’s filing an infringement action would expose the asserted patent(s) to challenge in an IPR.