Sovereign Immunity for the Involuntary State Plaintiff; But Infringement Lawsuit Continues Without the Patent Owner

by Dennis Crouch

This decision offers some interesting analysis of Federal Courts questions. We have three opinions; a “splintered majority;” and a loss of dignity for the state of Texas. The basic issue here is core to many biotech patents because they are owned by public universities and then licensed out to private entities.  The holding: (1) an exclusive licensee cannot force the university be joined as a plaintiff in the case (State Sovereign Immunity); (2) But, a lawsuit brought by the exclusive licensee can continue without the patent owner (balancing test of FRCP 19(b)). 

Gensetix, Inc. v. Baylor College of Medicine and William K. Decker, Appeal No. 19-1424 (Fed. Cir. 2020)

University of Texas (UT) owns the patents (US8728806; US9333248 — using modified dendritic cells to create an anti-tumor immune response); Gensetix is the exclusive licensee who sued Baylor for patent infringement.  The first-named-inventor, William K. Decker continues to research in this area, but is now at Baylor rather than UT and is a defendant in the lawsuit. Note also that the Gensetix license doesn’t come directly from UT. Rather, UT provided the exclusive license to “Mr. Alex Mirrow” who later “sold” the license to Gensetix.

When Gensetix sued, UT refused to participate in the litigation.  The problem though is that the patent owner is regularly seen as a necessary party to patent litigation.  Ordinarily, a necessary party can be be forced into a lawsuit under Fed. R. Civ. Pro. 19 (Required Joinder of Parties).  This case is not an ordinary case because the party to be joined is a branch of a US State.  Gensetix, Inc. v. Baylor Coll. of Med., 354 F. Supp. 3d 759 (S.D. Tex. 2018). With a few exceptions, States are generally immune from being sued in Federal Court under the 11th Amendment of the US Constitution. And here, the district court held that UT was immune from being forced into court – even as a plaintiff.

In cases where a necessary party cannot be joined, the district court then has to decide whether to allow the case to proceed or to dismiss the case.  The basic test is also set out in R. 19 and asks “whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Here, the district court dismissed the case.

On appeal, the Federal Circuit has reversed — holding that the case should continue despite the immunity. Each of the three judges issued an opinion and I’ve broken-down their basic holding in the chart below:

As you can see, from the chart, Judge O’Malley’s approach carries the day — holding that UT is immune from litigating the case Federal Court, but that the case should be allowed to continue. In her opinion, Judge O’Malley identified this as a “splintered majority.”

Immunity: First, everyone recognizes that the Supreme Court has extended sovereign immunity beyond the text of the 11th Amendment.  The court explained in Coll. Sav. Bank v. Fla. Prepaid Postsecondary Ed. Expense Bd., 527 U.S. 666 (1999) that sovereign immunity was not created by the 11th Amendment but rather is “reflected in” the amendment and that immunity “transcends the narrow text of the Amendment itself.”  Of course, that conclusion from the Supreme Court overlooks history — that the Amendment was adopted to overrule a U.S. Supreme Court decision denying immunity to the States.

Gensetix argued that immunity should be limited to its text and applied only to cases “against one of the United States.” (Quoting the Amendment).  On appeal, Judge O’Malley explained that the 11th Amendment protects state egos against the “indignity” of coercive judicial process.  And, the court could find no principle to distinguish an unwilling plaintiff from an unwilling defendant based upon the breadth of Supreme Court cases.

Writing in dissent, Judge Newman argued that exclusive license created a contractual obligation for UT to participate in patent enforcement litigation, and that the 11th Amendment cannot to be used to protect the state in this context. “When a State
agency enters into commercial transactions, it is subject to the rules of commerce.” Newman in dissent.  On this point, Judge Newman cites to Justice Breyer’s dissent in College Savings Bank.

When a State engages in ordinary commercial ventures, it acts like a private person, outside the area of its ‘core’ responsibilities, and in a way unlikely to prove essential to the fulfillment of a basic governmental obligation.

Judge O’Malley responds to this criticism by citing precedent — Justice Breyer’s dissent is not the law.

While I may not speak for our splintered majority on this point, I have some sympathy for Judge Newman’s views. Unfortunately, absent abrogation of Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999), which I suspect would be welcome by many, I remain of the view that involuntary
joinder of UT as a plaintiff to this action is impermissible.

Slip Op. at Note 6. Judge Taranto joined the immunity portion of the majority opinion – except for FN 6.  He explained:

Those portions of the opinion conclude that the constitutionally preserved protection of state sovereign immunity bars a coerced joinder of the University of Texas (UT), which is an arm of the State of Texas, as an involuntary plaintiff in this federal action, which Gensetix, Inc., as UT’s exclusive licensee, initiated to assert infringement of UT-owned patents.

Taranto concurring-in-part and dissenting-in-part.

Necessary and Indispensable Party: The rules of civil procedure have separate joinder rules “required joinder” (R.19) and “permissive joinder” (R.20).  Required joinder is grounded in both due process and efficiency of the court system and has two steps with a branch: (a) determine whether a party is “required” — this is often termed necessary; (b) if required and joinder is feasible, then join the party; (3) if required but joinder is not feasible then apply “equity and good conscience” to decide whether the case should continue.  Here, everyone appears to agree that UT is a required party — it owns the patents. The dispute is on 19(b) – whether the case should continue.

The rule asks the district court to apply its discretion when determining whether to move forward — and thus is reviewed on appeal with the deferential standard of abuse of discretion.  The rule itself requires analysis of four distinct factors: “(1) the extent to which a judgment rendered might prejudice the missing required party or the existing parties; (2) the extent to which any prejudice could be lessened or avoided (3) whether a judgment rendered in the required party’s absence would be adequate; and (4) “whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.” (Slip op., paraphrasing Rule 19(b)).

On appeal, the majority (for this portion O’Malley and Newman, JJ) found that the district court “collaps[ed] the multi-factorial Rule 19(b) inquiry into one dispositive fact: UT’s status as a sovereign.”

Rather than cede control … to UT’s claim of sovereign immunity, the district court should have given weight to the fact that Gensetix is without recourse to assert its patent rights because UT cannot be feasibly joined. Accordingly, we conclude that the district court abused its discretion in giving overwhelming weight to UT’s sovereign status to the exclusion of all other facts.

Slip Op.

Judge Taranto dissented on this point — arguing that the district court was bound by Supreme Court precedent to give extreme weight to the Sovereign Immunity argument.

The Supreme Court’s decision in Republic of Philippines v. Pimentel, 553 U.S. 851 (2008), explains that when a sovereign entity is a required party under Rule 19(a), is protected against joinder by sovereign immunity, and makes a non-frivolous assertion that it will be prejudiced by a suit proceeding in its absence, a district court is generally obligated to dismiss the suit under Rule 19(b).

Taranto in dissent.  The majority attempted to distinguish Pimentel on a few grounds — the distinction that rings most true to me is that, unlike in the Philippines case, here there is a party (the exclusive licensee) who will protect the State’s interest in the patent right.