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University patents now immune to inter partes review: Will business come calling?

State colleges and universities recently received a potential increase in the value of their patent portfolios in the form of a ruling from the Patent Trial and Appeal Board (PTAB). 

The January 25 decision confirmed that state sovereign immunity applies to patents held by state universities, barring use of the increasingly popular inter partes review (IPR) process to challenge those patents.

As a result, a large swath of higher education entities has apparently been spared from IPRs. This makes them a potentially attractive option for non-governmental businesses that are still vulnerable to IPRs and may be interested in shielding their patents from invalidity determinations. Already bustling university tech transfer offices may get even busier this year.

Background

With the rise of patent troll litigation, the America Invents Act’s administrative inter partes review (IPR) proceedings have become an important means for fighting aggressive patent holders. While patent troll litigation has decreased in frequency, inter partes reviews have remained an important tool for aggressively and proactively challenge competitor patents. 

The PTAB’s decision in Covidien LP v. University of Florida Research Foundation Incorporated, however, may have a serious impact on those administrative proceedings. 

The case began when the University of Florida Research Foundation Inc. (UFRF), the licensing division at the University of Florida, brought a state court action against Covidien, the licensee of the patent-at-issue, which related to computer systems that manage health care data. The suit alleged a breach of their agreement based on Covidien refusing to pay royalties for products they believed did not fall under the license or patent.

Covidien, having been purchased by Medtronic, counterclaimed, seeking a declaratory judgment of non-infringement, then subsequently and successfully petitioned to have the case removed to U.S. District Court. Covidien/Medtronic concurrently filed three separate petitions for IPR with the PTAB, challenging the validity of the UFRF patents at issue. In response to the counterclaims, UFRF argued that under the American Invents Act, they were “entitled to Eleventh Amendment immunity from [Covidien’s] declaratory judgment counterclaim in the federal court.” The district court agreed with UFRF’s argument, and the case was remanded to state court.

In the IPRs, UFRF requested permission from the PTAB to file a motion to dismiss on the basis of sovereign immunity. The PTAB agreed to hear arguments. In its final decision, the PTAB held that 11th Amendment state sovereign immunity applied to the University of Florida, as a public state university and “arm” of the state of Florida. 

In setting this standard, the PTAB noted that IPRs have “considerable resemblance” to litigation in district courts, and as such, Covidien (and purchasing company Medtronic) had no basis for sustaining a petition with the PTAB to challenge UFRF’s patents. 

The PTAB relied heavily on the similarities between IPR proceedings and civil litigation, finding unpersuasive Covidien’s arguments against applying sovereign immunity in IPRs. They noted that there was no evidence that Congress intended to remove sovereign immunity for states during IPR proceedings. The PTAB also noted that the district court, in dismissing Covidien’s counterclaims, said that “sovereign immunity applies regardless of whether a private plaintiff’s suit is for monetary damages or some other type of relief.”

What’s next?

This decision, which surprised many in the IP arena, could potentially halt any current IPR proceedings involving patent owners connected to state university systems. A search of pending IPR cases revealed only a handful of cases with a respondent that appeared to be a state university or college; but that doesn’t include other respondents that may be affiliated with state university or college through other means.

In fact, more and more colleges and universities are becoming active in the acquisition, licensing, and enforcement of patents. The Covidien ruling may substantially increase the value of patents held by state universities and their licensing arms, and encourage businesses to seek out new relationships with colleges and universities. 

Before pursing such affiliations, both higher education and outside businesses should consider that a decision with such major potential repercussions has the potential for itself being reviewed. U.S. district courts may want to weigh in on this issue, potentially resulting in turmoil unless and until a final decision is made by the Court of Appeals for the Federal Circuit, the U.S. Supreme Court or even potential legislation directed to this issue. 

Full case citation:
Covidien LP v. University of Florida Research Foundation Incorporated, patent owner.
Patent Trials and Appeals Board, decision entered January 25, 2017
Cases: IPR2016-01274 (Patent 7,062,251 B2), IPR2016-01275 (Patent 7,062,251 B2),
IPR2016-01276 (Patent 7,062,251 B2)

Jason Schwent and Jared Manse are attorneys in Thompson Coburn’s Intellectual Property group.