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Latest Federal Court Case, 9/9/19

September 9, 2019

Overview

PATENT CASE OF THE WEEK

Board of Regents of the University of Texas Sys. v. Boston Scientific Corp., Appeal No. 2018-1700 (Fed. Cir. Sept. 5, 2019)

This week’s case of the week involves issues relating to venue and state sovereignty. Specifically, the Federal Circuit held that state sovereignty does not grant the right to bring suit in an otherwise improper venue. As background, the Board of Regents for the University of Texas System (“UT”)—which is an arm of the State of Texas—sued Boston Scientific (“BSC”), a Delaware corporation, in the Western District of Texas for infringement of two patents relating to implantable drug-releasing fibers. Conceding that BSC was in fact a Delaware corporation with a principal place of business in Massachusetts, UT asserted that venue in Texas was proper because UT has sovereign immunity and the district court had personal jurisdiction over BSC. As to its state sovereignty assertion, UT explained that because UT is an arm of the State of Texas, it would “offend the dignity of the State to require it to pursue persons who have harmed the State outside the territory of Texas” and that the Eleventh Amendment prevents the State from being compelled to respond to counterclaims outside its territory. In its motion to dismiss or transfer venue, BSC explained that it does not own or lease property in the Western District of Texas, and that while it has 46 employees there, they maintain home offices and do not work in spaces owned, leased, or controlled by BSC. The district court determined that venue in Texas was improper because BSC does not maintain a regular and established place of business there. It also rejected UT’s arguments relating to sovereign immunity, and transferred the case to the District of Delaware.

As an initial matter, the Federal Circuit explained that it has jurisdiction over UT’s appeal, despite the fact that transfer orders, which are interlocutory, are not generally immediately appealable. Because UT’s challenge of the district court’s order was based on state sovereignty, the case falls into a small class of orders excepted from the final judgment rule by the collateral order doctrine. Typically, transfer orders are not “final judgments” and are only appealable incident to a final judgment in a case. However, the Supreme Court has held that issues relating to state sovereignty fall into the “small class” of orders excepted, justified by the importance of ensuring that the states’ dignitary interests can be fully vindicated. Thus, (1) the district court’s order “conclusively determined” that state sovereignty principles do not apply and as such the transfer order was not tentative, informal or incomplete; (2) the issues presented were “important issues,” the resolution of which are separate from the merits of the patent infringement suit; and (3) the district court’s order is effectively unreviewable on appeal from a final judgment since UT would have been litigating in Delaware the entire time, making an appeal of the state sovereignty claims effectively pointless. The mere fact that UT is a plaintiff here rather than a defendant is not relevant because UT’s assertion of state sovereignty is similar to claims of Eleventh Amendment immunity, both of which invoke attributes of state sovereignty to preclude a suit going forward.

As to the merits—i.e., whether venue in Delaware is proper—the Court held that the state sovereignty principles asserted by UT do not grant it the right to bring a patent infringement suit in an improper district. First, the Court held that state sovereign immunity, sometimes referred to as Eleventh Amendment immunity, does not apply where a state acts solely as a plaintiff. Rather, it applies only to suits “against” a state. UT nonetheless argued that state sovereign immunity confirms that only the state can dictate where it litigates its property rights, but the Court disagreed on similar grounds—that UT was acting here as solely a plaintiff.

Second, the Court held that UT’s argument that the Original Jurisdiction clause, which grants the Supreme Court original jurisdiction over cases in which a state shall be a party, ensures that a state cannot be forced to sue in a court located in another state is incorrect. But the Court held that the Original Jurisdiction clause does not broadly grant power to states to bring suit in any forum so long as personal jurisdiction requirements are met. Rather, it allows for states to sue in lower federal district courts in addition to the Supreme Court—not for states to sue in any forum regardless of venue rules. Moreover, UT never sought to invoke original jurisdiction, so its arguments are irrelevant.

Third, the Court held that UT’s assertion that the inherent powers of a state sovereign allow it to sue for patent infringement in its forum of choice is incorrect because when a state voluntarily appears in federal court, as UT did, it voluntarily invokes the federal court’s jurisdiction, which means it must abide by federal rules and procedures, including venue rules, like any other plaintiff. In other words, when a state sues in federal court, it waives sovereign immunity with respect to its asserted claims, subjecting itself to the jurisdiction of federal courts, and thus must accept the federal statutory provisions governing the allocation of cases among those courts.

Finally, the Court also disagreed with UT’s argument that the case is not subject to jurisdiction in the District of Delaware because UT did not consent to suit in Delaware, did not waive its sovereignty in Delaware, and never had its sovereignty abrogated by statute. The Court held that the issues of waiver and abrogation of rights do not arise because there is no sovereign immunity or relevant sovereign right for UT to waive or abrogate, and moreover, sovereign immunity does not apply to a state acting solely as a plaintiff. Thus, jurisdiction in the District of Delaware was proper.

The opinion can be found here.

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