Stepping through a door it opened last year, the U.S. Court of Appeals for the Federal Circuit ruled Friday that states do not enjoy sovereign immunity from inter partes review (IPR).

Unless overturned by the Supreme Court, the Federal Circuit's unanimous decision in Regents of the University of Minnesota (UMN) v. LSI Corp. could make it a lot easier, and cheaper, to challenge foundational drug and device patents stemming from state-owned university research. It also could open thousands of university patents to IPR scrutiny.

In 2017 alone, public and private universities in the U.S. produced more than 6,800 patents, Rick Brandon recently told the Senate Judiciary Subcommittee on Intellectual Property (IP) when he was testifying on behalf of the Association of American Universities. Those patents spurred 1,000 startups and "generated millions of dollars of economic benefit and many new medical breakthroughs," Brandon said.

As indicated by Foster City, Calif.-based Gilead Sciences Inc.'s request to intervene in the UMN appeal because it was facing claims of sovereign immunity from its own IPR petitions, there is interest in testing some university-held patents via the IPR process. However, Aziz Burgy, a partner in the IP practice at Axinn, Veltrop & Harkrider LLP, told BioWorld that he doesn't anticipate a big rush of IPR petitions being filed against university patents following the Federal Circuit's decision.

"I don't see that this will change the dynamic too much," he said. But he added the decision may make some universities willing to enter more licensing deals, joint venture agreements and settlements.

The only surprise in the Federal Circuit's decision was that it went so much further than the Patent Trademark and Appeal Board's (PTAB) ruling, Burgy said. An expanded PTAB panel didn't strike down sovereign immunity from IPRs; it merely said UMN had waived its immunity when it filed lawsuits in district court claiming that LSI and another party were infringing its patents related to semiconductor chips and technology used in 4G LTE networks.

In its appeal to the Federal Circuit, the university argued that state sovereign immunity, which protects state entities from lawsuits brought by private parties, made its patents exempt from all IPR challenges.

While UMN's appeal was pending, the Federal Circuit ruled last year in Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc. that IPR proceedings were not barred by tribal sovereign immunity. Although the case law cited in that decision applied to sovereign immunity in general, the appellate court made it clear that Saint Regis only addressed tribal immunity.

"While we recognize there are many parallels, we leave for another day the question of whether there is any reason to treat state sovereign immunity differently," Judge Kimberly Moore wrote for the court. (See BioWorld, July 24, 2018.)

In his concurring opinion in Saint Regis, Judge Timothy Dyk previewed the reasoning the Federal Circuit followed last week in ending state sovereign immunity from IPR proceedings: An IPR is a federal agency action, not a private action. Thus, sovereign immunity does not apply to such proceedings.

"Under FMC, it is clear that sovereign immunity cannot bar agency denial of an original patent application filed by a sovereign entity or, consequently, agency reconsideration of an original patent grant," Dyk wrote in Saint Regis. "Such reconsideration simply does not involve agency adjudication of a private dispute, but rather agency reconsideration of its own prior actions."

Dyk's concurring opinion traced the history and need for post-grant patent reviews, characterizing an IPR as "an agency reconsideration rather than an adjudication of a private dispute." As such, an IPR doesn't "implicate sovereign immunity," the judge concluded in Saint Regis.

This time around, Dyk wrote the court opinion, which resounds with clear echoes from his Saint Regis comments. "It is clear from the history and operation of IPR that these proceedings are designed to allow the [U.S. Patent and Trademark Office] to harness third parties for the agency to evaluate whether a prior grant of a public franchise was wrong," he said in UMN.

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