Politics & Policy

Patently Unfair

Innovative decision.

Heads, I win! Tails, I win! That is essentially how the state of California views the issue of patent infringement. States own thousands of patents and raise millions by licensing them — and that is good innovation policy. And, when someone infringes their patents, they aggressively use the federal courts to enforce their rights. Yet, when states violate the rights of other inventors and innovators, they unfairly hide under a troubling view of the 11 Amendment’s sovereign immunity to get off scot-free. This is bad innovation policy.

On April 21, the Supreme Court asked the solicitor general to file a brief stating the government’s views on whether or not the Court should hear the case of Biomedical Patent Management Corporation (BPMC) v. California Department of Health Services. This only happens in about two dozen cases per year and it shows that Court thinks something important is at stake here. At issue is the simple principle of fairness.

California, like many states, has received billions of dollars in federal funding for state colleges, universities, and laboratories to perform research that would aid society. To ensure that the public was reaping the best and most complete innovations that could grow out of the federally funded research, back in the 1970s and 1980s, Congress encouraged public institutions to license their patents so that others could build on to the research that was already in progress. The series of laws that facilitate this technology transfer are an eminently sensible policy, and their authors former Senators Dole and Bayh should be commended for this initiative.

However, in forcefully seeking to patent their research results and to raise revenue through licensing, state institutions have clashed with the private sector more and more frequently over ownership rights. As it has every right to do, California routinely enforces its intellectual-property rights in federal court, yet it simultaneously asks the same courts — and the same federal judges — to reject the enforcement efforts of others by using the shield of “sovereign immunity” under the Eleventh Amendment.

This is particularly egregious since California has invoked federal jurisdiction in at least 21 patent suits since 1990 and has obtained over $900 million in judgments and settlements in patent-infringement actions from 2000 to 2006 alone. But while claiming victim status in those actions and reaping the rewards of the federal government’s patent system, California has seen no hypocrisy in its escape of the same patent system when individual and private inventors’ innovations are infringed upon by the state. Call it hypocrisy, hubris, or chutzpah, it’s just not right, fair or consistent with our common conception of justice under the U.S. Constitution.

It’s also a bit of a stretch with Supreme Court precedent. Longstanding Supreme Court precedent establishes that a state waives sovereign immunity when and if it submits its rights for judicial determination. When a state repeatedly and voluntarily invokes federal-court jurisdiction as part of a broad pattern of litigation under the patent laws, that effects a general waiver of sovereign immunity with respect to suits brought by other parties under those same laws. This result is consistent with the Supreme Court’s unanimous 2002 case of Lapides v. Bd. of Regents of the Univ. Sys. of Ga.

Despite all of this, the Federal Circuit Court of Appeals, the exclusive appellate court for patents in the U.S., has issued a decision that if sustained would allow California to continue its beneficial use of the patent system without having to pay when it infringes private patent rights. Outside the patent field, other federal circuits, such as the First and Eighth Circuits, have adopted more reasonable approaches, setting up a conflict only the Supreme Court can resolve.

The Supreme Court should address this important issue. Failure to hear the case would in effect endorse this continued imbalance in the law, with serious consequences for innovation policy in the United States and the marketplace — and potentially grave consequences for those who are relying on our nation’s best and brightest to continue the quest for advanced technological advances and medical breakthroughs.

Under the federal circuit’s opinion, California and other states are free to flout the legally obtained patents of others without even having to consider the cost of potential litigation. Examples exist of states who already feel empowered to refuse to even negotiate an equitable licensing agreement with a patent or copyright owner when they make unauthorized use of intellectual property. On the flip side of that same coin, states can unfairly claim a property right in a patent case, threaten to file an infringement action to enforce it, and deter others from taking legal actions where they could — even remotely — be called infringing, while at the same time also stopping private entities from bringing declaratory judgment actions to challenge the validity of the patent or to establish that their proposed conduct does not infringe. These actions threaten the ability of others from advancing needed research, technology and medical innovation.

Finally, as the trial judge in the case noted, the status quo allows a clear competitive disadvantage for “similarly situated private universities” and entities. Operating without an immunity shield, private universities and hospitals — like Stanford — are at a substantial disadvantage to their counterparts in the University of California state system. That can’t be the right policy.

It is both inconsistent and unfair for the states to acknowledge that the federal courts have authority to adjudicate their property rights when it suits their interests, but to deny the federal courts’ authority when it runs afoul of their interests. The U.S. Chamber of Commerce agrees and favors the Supreme Court’s consideration of the case, saying, “The hallmark of the American economy is a fair playing field for all participants … Allowing states that are actively participating in the marketplace to put their thumb on the scale of justice undermines the fair play guaranteed by the rule of law.”

Of course, every state should have the right to decide whether or not they will waive their immunity in any field of law, including the patent arena. And every state has the right and should be protected from the federal government’s infringement of its Tenth or Eleventh Amendment rights. But what a state should not do is what California is doing so flagrantly here: Enforce its intellectual-property rights loudly and often against private parties in federal court while simultaneously telling the same federal court it has no authority to enforce the intellectual property rights of private parties against the state when it misbehaves. The Supreme Court should hear this case and provide a comprehensive approach to this issue as it relates to the federally preempted patent laws in a manner that is pro-innovation, pro-property right, and ultimately restore our commonly-held conception of fairness under the Constitution.

– Makan Delrahim, a partner at the Los Angeles and Washington, D.C., offices of Brownstein Hyatt Farber Schreck, LLP, was the former chief counsel of the U.S. Senate Judiciary Committee and the former deputy assistant attorney general in charge of Appellate, International and Policy at the Antitrust Division of the U.S. Department of Justice. He also represented a group of American high-technology companies in the U.S. Supreme Court case of eBay v. MercExchange.

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