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Are Patents by State Universities More Valuable?

February 07, 2017
Post by Xiaohong Liu, Ph.D.

A recent USPTO Patent and Trial Appeal Board (“PTAB”) decision begs the question whether patents owned by State Universities have increased value. The case, Covidien LP v. University of Florida Research Foundation Inc., held that patents assigned to State universities cannot be challenged in popular inter parties review (IPR) proceedings, because of state sovereign immunity under the 11th Amendment of the Constitution.

 

For the past five years, IPR has been a popular venue for invalidating claims in a patent at least for the reasons of (1) applying a lower claim interpretation standard—the broadest reasonable interpretation (BRI) standard—than one used in a federal district court, and (2) being more cost effective than litigation, as an IPR is scheduled to conclude in about a year and with generally less discovery. Statistics show a fairly high invalidity rate for the claims being challenged in IPR proceedings.  For a patent owner, being able to avoid an IPR is an advantage.  Free of an IPR challenge, a patent is arguably more valuable. 

In the decision last week, PTAB dismissed petitions from Covidien LP challenging a University of Florida patent, even after University of Florida sued Covidien LP in a state court for matters related to certain contract provisions in a license agreement for the patent. University of Florida and Covidien LP are actively litigating the issue whether the state court can be removed to a federal court because the dispute is related to a patent.

The 11th Amendment to the US Constitution limits the “judicial power of the United States” so that it does not “extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.”  The Supreme Court has broadly interpreted the statute to preclude  many adjudicative administrative proceedings against states or state entities without waiving this immunity.  

The earlier rulings of the Court of Appeal of Federal Circuit (CAFC) seem to provide a basis for the PTAB’s decision.   In its 2006 opinion, Tegic Communication Co. v. Board of Regents of University of Texas System , the CAFC held that a declaratory judgment action for patent is invalidity and unenforceability cannot be brought by Tegic in the United States District Court for the Western District of Washington because state sovereign immunity applied, even though the University sued many others in the US District Court for Western District of Texas for infringement of the patent. In its 2007 opinion,VAS-CATH, Inc. v. Curators of the University of Missouri, the CAFC held the University of Missouri waived its 11th Amendment sovereign immunity because the University requested and participated in an interference proceeding in the USPTO.  This opinion implies that the university cannot be forced into a PTAB proceeding, but can waive its immunity if it chooses to participate. 

Covidien may seek to appeal the PTAB decision to CAFC. However, Covidien will have to overcome an extra hurdle as the U.S. Supreme Court has previously held the decision to institute an IPR cannot be appealed in most circumstances.  See our earlier blog post for discussion on that case, In re Cuozzo Speed Technologies, LLC.

As for now, there is a good argument that patents by state universities have increased value because they are immune from an IPR challenge. Therefore, state universities should be encouraged to file more patents and to give this intellectual property more value when writing license agreements.

For more information on the case details, please view Covidien LP v. University of Florida Research Foundation Inc.



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