Tech Transfer eNews Blog

Gensetix case with U Texas shows need to consider enforcement terms in license agreement

By Jesse Schwartz
Published: September 23rd, 2020

A detailed analysis of the Gensetix-University of Texas decision and its impact on university licensing appears in the September issue of Technology Transfer Tactics. To subscribe and access the full article, click here.

A case involving the University of Texas is yielding lessons about the proper way to construct contracts — particularly with regard to rights to enforcement — as well as the role of sovereign immunity when a licensee seeks to force a state university to join an infringement suit. Unfortunately, it raises as many questions as it answers.

The case revolves around a UT licensee, which wanted to sue Baylor College of Medicine for infringement on a valuable patent. But UT was not interested and refused to join the suit as a necessary party. The licensee pushed for the university to join the lawsuit, and ultimately the U.S. Court of Appeals for the Federal Circuit determined that UT could not be dragged into litigation against its will because it has sovereign immunity.

The court’s decision was sharply divided, however. A “fractured majority” determined that an exclusive licensee could proceed with the suit — absent UT’s participation — even though state sovereign immunity prohibited involuntary joinder of the patent owner. (See Gensetix, Inc. v. The Board of Regents of the University of Texas System, Case No. 19-1424 [Fed. Cir. July 24, 2020]).

Here’s a brief chonology: In 2014, Gensetix indirectly licensed two patents covering cancer treatment methods from UT. In 2017, Gensetix sued Baylor College of Medicine and others for patent infringement, asking UT, the legal patent owner, to join suit. UT declined, so Gensetix proceeded with the suit and named UT as an involuntary plaintiff. UT responded by citing sovereign immunity and seeking dismissal from the suit, followed by Baylor seeking dismissal of the suit because UT was a required party. The district court agreed with UT and Baylor, saying that because sovereign immunity prevented Gensetix from joining UT as a plaintiff, the lawsuit could not proceed. Gensetix appealed, and the Federal Circuit reversed. The majority opinion held that UT’s sovereign immunity prohibited its joinder as an involuntary plaintiff, but that Gensetix could proceed in its suit against Baylor without UT.

In concluding that UT’s 11th Amendment state sovereign immunity prohibited its involuntary joinder, the court said “[i]t is immaterial that there are no claims against UT, or that UT is named an involuntary plaintiff rather than an involuntary defendant.” It further clarified that “[t]he Eleventh Amendment serves to prevent ‘the indignity of subjecting a State to the coercive process of judicial tribunals’ against its will.”

However, the court also found that the district court went too far by giving “controlling weight” to UT’s sovereign immunity in dismissing the suit.

The case illustrates the importance of contracts clearly defining what the parties are agreeing to, says Jeffrey B. McIntyre, JD, partner with the Oblon, McClelland, Maier & Neustadt law firm in Alexandria, VA.

“Three judges all agreed and disagreed on different things. They got to an answer based on what the contract actually provides for, and what is reasonable and fair,” he says. “Tech transfer leaders need to think about what they really want out of the agreement and make sure the language in the agreement comports with that. Looking at the specific things the judges focused on, the general sense was that allowing the suit to proceed was what the parties actually wanted to happen.”

Some of the language from Judge Kathleen O’Malley’s opinion, for instance, noted that the contract addressed an exclusive license that the licensee “must” enforce, with “must” italicized. UT retained only secondary rights to sue. O’Malley and Judge Pauline Newman both concluded that the parties had agreed in the contract that the licensee should be able to sue on its own, McIntyre explains.

“That’s where I think the contractual language could have been more clear. Otherwise you wouldn’t have three judges agreeing and disagreeing on different things,” McIntyre says. “When you’re writing these contracts, think seriously about whether you want to be involved in litigation or you want to just back away and let the licensees handle everything. If you don’t want anything to do with litigation at all, that should be clear in the contract.”

The university also should determine what kind of licensing program it wants for a particular patent, he says. O’Malley’s opinion made a point of noting that the license was exclusive and for every field of use worldwide. That meant UT could not grant any more licenses for the property, he says.

“The viewpoint of the licensee was identical to the viewpoint of UT. They both had identical interests in preserving the patent should it ever be attacked,” McIntyre says. “If the university tried to break it up and license one compound for cosmetics and another for pharmaceuticals, as soon as you break it up like that any licensee’s interest is not identical to the university’s. Then you might start getting a different analysis from the court.”

Click here to continue reading this article with a subscription to Technology Transfer Tactics. Already a subscriber? Click here to log in.

Posted under: Tech Transfer e-News

Twitter Facebook Linkedin Pinterest Email

No Comments so far ↓

There are no comments yet...Kick things off by filling out the form below.

Leave a Comment