Courts Eliminate Rights and Immunities of Governments in PTAB

Recently, the Federal Circuit issued a series of decisions that address the rights and immunities that the federal and state government have when they become party to a post-grant proceeding before the Patent Trial and Appeal Board (PTAB). These decisions bring clarity to the extent to which a governmental entity can participate in PTAB proceedings, and may have implications for private entities that work with the government or work in technology spaces that the government also operates in.

In Return Mail Inc. v. United States Postal Service, the Supreme Court held that the U.S. government is not a “person” capable of challenging the validity of an issued patent before the PTAB.[1] The decision forecloses the U.S. government from petitioning for institution of inter partes review, post-grant review, and covered business method review of an issued patent under the America Invents Act (AIA) and limits the means by which the federal government may contest the validity of an issued patent to defending an infringement suit in the Court of Federal Claims or requesting ex parte reexamination of an asserted patent by the U.S. Patent and Trademark Office (USPTO).

In Regents of the University of Minnesota v. LSI Corp., the Federal Circuit held that state sovereign immunity does not apply in inter partes review proceedings.[2] Thus, parties sued for infringement by state entities retain the ability to challenge the validity of the asserted patent before the PTAB rather than being limited to challenging validity in district court.

Background

In 2011, the AIA created the PTAB.[3] The AIA established three types of administrative review proceedings before the PTAB by which a “person who is not the owner” of an issued patent may challenge the validity of the patent: inter partes review (IPR) (35 U.S.C. § 311); post-grant review (PGR) (35 U.S.C. § 321); and covered business method (CBM) review (35 U.S.C. § 321 (note)).

State governments typically have sovereign immunity and are not subject to lawsuits in federal court[4], but a state may waive sovereign immunity and consent to suit. In addition to Article III courts, state sovereign immunity has been held to apply in agency adjudications that are similar to court adjudications.[5] However, state sovereign immunity does not bar a federal agency from bringing an enforcement action against a state.[6]

Return Mail v. United States Postal Service

In Return Mail, the Supreme Court considered whether a federal agency is a “person” eligible to petition for review under the post-grant provisions of the AIA. Return Mail sued the United States Postal Service (USPS) in the Court of Federal Claims, alleging that the USPS had infringed Return Mail’s patent for processing undeliverable mail. While the lawsuit was pending, the USPS petitioned the USPTO to institute a CBM review of Return Mail’s patent. The PTAB instituted review and determined that Return Mail’s patent claimed patent-ineligible subject matter and was invalid. Return Mail appealed the PTAB’s decision to the Federal Circuit, which held that the U.S. government is a “person” eligible to petition for CBM review and affirmed the PTAB’s invalidity decision.

The Supreme Court reversed the decision of the Federal Circuit, concluding that a federal agency is not a “person” under the AIA’s administrative review provisions and therefore cannot petition the USPTO to institute IPR, PGR, or CBM review.

The majority opinion relied on a “longstanding interpretive presumption that ‘person’ does not include the sovereign, and thus excludes a federal agency like the Postal Service.” The patent statutes do not define “person,” and, in the absence of context indicating otherwise, courts apply the U.S. Code’s Dictionary Act to interpret statutes, which excludes the federal government from its definition of “person.”

In concluding that the context of the AIA is insufficient to overcome the presumption, the Court rejected the USPS’s argument that “person,” as used in § 311 and § 321, should include the federal government because § 207 expressly authorizes federal agencies to apply for and obtain patents. The majority concluded that the two sections are functionally unrelated because eligibility to apply for a patent “provides no clue as to the interpretation of the AIA review provisions because it implies nothing about what a federal agency may or may not do following the issuance of someone else’s patent.”

Notably, the majority also distinguished the AIA’s administrative review proceedings from ex parte reexamination. 35 U.S.C. § 301 allows “any person” to file a request for reexamination by the USPTO of any claim of a patent, and the USPTO has interpreted “any person” under § 301 to include the federal government. The majority concluded that the USPTO’s interpretation of § 301 has “no direct relevance” to the PTAB review provisions because, although “[b]oth share the common purpose of allowing non-patent owners to bring questions of patent validity to the Patent Office’s attention, … they do so in meaningfully different ways.” Specifically, the challenging party is not permitted to participate in ex parte reexaminations, while PTAB proceedings are adversarial proceedings between the petitioner and the patent owner. Thus, the Court’s decision in Return Mail leaves open the government’s ability to request ex parte reexamination.

University of Minnesota v. LSI Corporation

In University of Minnesota, the Federal Circuit considered whether state sovereign immunity applies in inter partes review (IPR) proceedings. The University of Minnesota (UMN) sued LSI Corporation (LSI) in district court for infringement of patents directed to semiconductor technologies. LSI petitioned the USPTO to institute inter partes review of UMN’s patents. Prior to institution, UMN filed a motion to dismiss LSI’s petition based on state sovereign immunity. The PTAB concluded that sovereign immunity applied to the proceedings but UMN had waived immunity when it sued LSI.

The Federal Circuit affirmed the outcome of the PTAB based on different reasoning. Rather than holding that UMN waived its sovereign immunity when it filed suit, the Federal Circuit concluded that sovereign immunity is not implicated at all in IPR proceedings because IPRs are more like an enforcement action brought by a federal agency than a civil suit brought by a private party.

The Federal Circuit considered UMN’s argument in light of the court’s earlier decision in Saint Regis Mohawk Tribe v. Mylan Pharmaceuticals[7], in which it held that IPR proceedings were not barred by tribal sovereign immunity, and concluded that “the differences between state and tribal sovereign immunity do not warrant a different result than in Saint Regis.” In creating IPRs under the AIA, the court held, Congress’ intent was to “reexamine an earlier agency decision”—that is, whether the USPTO had improperly issued the challenged patent. Because the court viewed IPRs as review by an agency, it concluded that sovereign immunity is not implicated.

University of Minnesota follows another decision earlier this year in which the Federal Circuit held that state sovereign immunity does not apply to validity defenses against infringement claims brought by state entities in district court.[8] In University of Florida Research Foundation, Inc. v. General Electric Co., the University of Florida Research Foundation (UFRF) sued General Electric (GE) in district court for infringement. GE moved to dismiss under F.R.C.P. 12(b)(6), arguing that UFRF’s patent was invalid under 35 U.S.C. § 101. UFRF argued that it was immune to GE’s validity challenge under the Eleventh Amendment. The Federal Circuit held that UFRF waived its sovereign immunity as to the cause of action and any relevant defenses when it brought suit.

Practical Implications

Parties that anticipate patent litigation against federal or state governments should consider Return Mail and University of Minnesota when formulating litigation strategies.

In light of Return Mail, parties who sue the federal government for infringement of their patents no longer have to worry about the government challenging the validity of those patents in AIA post-grant proceedings. The Return Mail decision removes these post-grant proceedings as an option to challenge the validity of a patent. Instead, since patent infringement suits against the U.S. government can only proceed in the U.S. Court of Federal Claims (which does not conduct jury trials), the validity of the patent will be decided by a sole judge, rather than a panel of PTAB judges with subject matter expertise. Though the federal government rarely files petitions for PGR, this potentially favorable reality should be considered when deciding whether to bring suit against the government.

In some cases, private parties that may be contractually related to the federal government’s allegedly infringing activity (e.g., through an indemnification agreement) may be able to petition the PTAB for review of issued claims when the government cannot. It remains unclear, however, whether a petition nominally filed by a private party could be barred based on Return Mail if the federal government is named as a real party-in-interest. If the government exercises sufficient command and control over a petition such that it is required to be a named as real party-in-interest, a petition filed by a private party could arguably be denied under Return Mail. Also, the private party in such situations must have its own independent stake in the outcome or it risks not being able to appeal an adverse PTAB decision to the Federal Circuit.

In light of University of Minnesota, parties accused of infringement by a state government retain access to lower cost PTAB proceedings as a means of challenging the validity of an asserted patent, and are not limited to challenging validity in district court proceedings. Similarly, state actors that seek patent protection, such as research universities, should consider that any patents obtained may be challenged befire the PTAB. Because the Federal Circuit held that state sovereign immunity is not implicated at all by IPRs—rather than concluding that a state waives immunity by filing suit—any private party may challenge a state-owned patent, not just parties sued by the state for infringement.

[1] Return Mail, Inc. v. United States Postal Service et al. (2019).

[2] University of Minnesota v. LSI Corp. (Fed. Cir. 2019).

[3] 35 U.S.C. § 6(a).

[4] Alden v. Maine, 527 U.S. 706 (1999); see also U.S. Const. amend. XI.

[5] Fed. Mar. Comm’n v. S.C. State Ports Auth., 535 U.S. 743 (2002).

[6] Id.

[7] 896 F.3d 1322 (Fed. Cir. 2018).

[8] University of Florida Research Foundation, Inc. v. General Electric Co. (Fed. Cir. 2019).