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Patent Trial and Appeal Board Dismisses Second Inter Partes Review of University Patent on Sovereign Immunity Grounds

Stephen J. Gardner, Nikia L. Gray, Bryce Loken
Research Institutions Alert

On May 23, 2017, the United States Patent Trial and Appeal Board dismissed an inter partes review for the second time based on an assertion of 11th Amendment sovereign immunity.

The decision serves to strengthen the growing perception that patents owned by governmental entities like public universities and research hospitals are less susceptible to invalidity challenges. This is a boon to these universities and hospitals, and their technology transfer offices, in a number of respects.

First, it is common practice for patents having a higher likelihood of validity to command higher royalty rates. For example, patent license agreements commonly have a royalty escalation clause that increases the royalty rate in the event the licensed patent survives a validity challenge. If patents owned by public Universities are not even subject in the first instance to IPR challenges, an argument could be made that higher royalty rates are warranted ab initio.

Second, one of several difficult obstacles for Universities and their licensees in policing unauthorized use of their patented technology is the high cost of litigation and associated patent office challenges. These cases suggest public universities and their licensees may soon start seeing fewer IPR challenges.

Third, public universities and hospital systems may see their research sponsors begin to stop demanding full ownership of patents resulting from sponsored research and/or clinical studies, in favor of a more natural joint ownership structure. Presumably, since all owners of a patent are necessary parties to an IPR (and district court litigation), even a private, for-profit entity that is a joint owner of a patent with a public university or hospital may be able to benefit from assertions of sovereign immunity in IPRs.


In NeoChord, Inc. v. Univ. of Md., Baltimore, Case No. IPR2016-00208, Paper 28 (PTAB, May 23, 2017), the PTAB dismissed Petitioner NeoChord's already-instituted IPR proceeding after the Patent Owner University of Maryland, Baltimore (UMB) asserted the proceeding could not continue because the University was entitled to sovereign immunity.

This decision follows an earlier, and similar decision by the PTAB in Covidien LP v. Univ. of Fl. Research Foundation Inc., Case No. IPR2016-01274, Paper 21 (PTAB, Jan. 25, 2017), in which the University of Florida's Research Foundation (UFRF) was also able to obtain dismissal of an IPR petition on sovereign immunity grounds. The more recent UMB case is notable and distinct from the UFRF case in that the IPR against UMB's patent had already been instituted and fully briefed, and was on the eve of the trial hearing before UMB raised the sovereign immunity defense.

In the UMB case, the Petitioner NeoChord asserted that a patent directed to cardiac valve repair and owned by UMB was unpatentable. The PTAB instituted an IPR in May 2016, and substantive briefing was completed by UMB and NeoChord by November 2016. In January 2017, on the day prior to the IPR oral hearing (which is typically the parties' last chance to argue the substantive merits of the case before the PTAB panel renders its decision), UMB contacted the PTAB and requested permission to file a motion to dismiss based on sovereign immunity. Somewhat surprisingly, given the statutory deadlines that obligate the PTAB to render fast decisions on IPRs and the late stage of the proceedings, the PTAB panel agreed to allow briefing on the issue.

In its decision ultimately dismissing the case, the PTAB largely followed the same rationale as the UFRF opinion, though the PTAB panel went out of its way to note that the UFRF decision (which was not subject to an appeal to the U.S. Court of Appeals for the Federal Circuit) was not binding precedent. The PTAB found that UMB was an arm of the State of Maryland, and then followed the Federal Circuit's analysis in Vas-Cath, Inc. v. Curators of Univ. of Missouri, 473 F.3d 1376, 1382 (Fed. Cir. 2007) to find that IPRs are adversarial, contested proceedings appropriate for an assertion of sovereign immunity. NeoChord's argument that UMB's voluntary participation in briefing in the case amounted to a waiver of sovereign immunity by conduct was found unpersuasive. The PTAB noted that UMB had not "delayed for any tactical reasons," and thus the PTAB followed precedent holding that "mere participation in judicial proceedings does not create a waiver unless the State has taken affirmative steps to invoke federal jurisdiction." Likewise, NeoChord's assertion that the U.S. Supreme Court has recently found IPRs to be akin in some respects to reexaminations (an ex parte proceeding for which sovereign immunity was not historically a proper defense) was interesting, but ultimately did not carry the day.

Given that the UMB decision issued after the IPR had been instituted, the chances of an appeal and eventual precedential ruling by the Federal Circuit are significantly greater than was the case with the UFRF proceeding. Practitioners, public universities and research hospitals, and any other research institution or company that collaborates with or licenses from a public university or research hospital should all be watching this case.

For questions, please contact Stephen Gardner at (608) 283-2476/stephen.gardner@quarles.com, Nikia Gray at (202) 372-9517/nikia.gray@quarles.com, Bryce Loken at (608) 283-2608/bryce.loken@quarles.com or your Quarles & Brady attorney.

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