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PTAB dismisses another inter partes review on sovereign immunity grounds

By Jesse Schwartz
Published: May 31st, 2017

For the second time this year, last week the U.S. Patent Trial and Appeal Board dismissed an inter partes review based on an assertion of 11th Amendment sovereign immunity, in this case ruling in favor of the University of Maryland. The University of Florida had previously prevailed using the same 11th Amendment argument.

In a client briefing, the IP law firm Quarles & Brady said the latest decision strengthens the growing perception that patents owned by governmental entities like public universities and research hospitals are less susceptible to invalidity challenges. According to Quarles’ analysis, the two cases may serve as a boon to these universities and hospitals, and their TTOs, in several ways.

“First, it is common practice for patents having a higher likelihood of validity to command higher royalty rates. For example, patent license agreements commonly have a royalty escalation clause that increases the royalty rate in the event the licensed patent survives a validity challenge,” they point out. If those patents are protected from an IPR challenge in the first place, “an argument could be made that higher royalty rates are warranted,” the firm concludes.

In addition, the firm points out, “one of several difficult obstacles for universities and their licensees in policing unauthorized use of their patented technology is the high cost of litigation and associated patent office challenges. These cases suggest public universities and their licensees may soon start seeing fewer IPR challenges.”

A third potential benefit is that state schools and hospital systems “may see their research sponsors begin to stop demanding full ownership of patents resulting from sponsored research and/or clinical studies, in favor of a more natural joint ownership structure.”  Since all owners of a patent are necessary parties to an IPR, the 11th Amendment protection may extent to a for-profit entity with joint patent ownership, providing a higher expectation that a patent will not be lost through court challenges.

The case in question is NeoChord, Inc. v. Univ. of Md., Baltimore, Case No. IPR2016-00208, Paper 28 (PTAB, May 23, 2017). PTAB dismissed NeoChord’s already-instituted IPR proceeding after the the University of Maryland, Baltimore (UMB) asserted its sovereign immunity rights. NeoChord was attempting to invalidate a patent UMB licensed to Harpoon Medical.

“The more recent UMB case is notable and distinct from the UFRF case in that the IPR against UMB’s patent had already been instituted and fully briefed, and was on the eve of the trial hearing before UMB raised the sovereign immunity defense,” Quarles attorneys point out.

In its decision, PTAB ruled against NeoChord on several issues. Referring back to the U Florida case, the company argued that the Board had erred in finding that sovereign immunity is a defense in IPR, that UMB had waived its sovereign immunity through participating in the IPR and through licensing, and that the PTAB could proceed without UMB.

Though the PTAB agreed that it was not bound by the Covidien decision, it relied on the same case law reviewed in the earlier case and came to the same conclusion – that sovereign immunity is indeed available as a defense in an IPR. The Board also   held that a State does not waive sovereign immunity by being a defendant in an IPR proceeding, but may waive immunity where the State takes affirmative steps to invoke federal jurisdiction, such as filing a patent suit or seeking removal to federal court.   

PTAB also rejected NeoChord’s assertion that UMB had waived sovereign immunity through its license with Harpoon Medical, as the license expressly reserves a defense of sovereign immunity. In addition, the ruling states that the IPR could not proceed without the university, because UM retained rights under the license to Harpoon Medical.

The sovereign immunity defense will soon be tested again, it appears. On May 4, PTAB granted the University of Minnesota’s request to file a motion to dismiss IPR2017-01068 on sovereign immunity grounds.

Sources: Quarles & Brady and Patexia

Posted under: Tech Transfer e-News

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