University of Utah v. Max-Planck-Gesellschaft zur Forderung der Wiessenschaften e.V et al. (Fed. Cir. 2013) Hidden Field
The Federal Circuit, in a split decision, affirmed denial of motions to dismiss on jurisdictional grounds and Federal Court joinder rules in University of Utah v. Max-Planck-Gesellschaft zur Forderung der Wiessenschaften e.V et al., a decision likely to be reviewed by the Supreme Court (if only because the case implicates the Court's original jurisdiction over disputes between the states under Article III of the Constitution).
The case arose as an inventorship dispute over the "Tuschl" patents, U.S. Patent Nos. 7,056,704 and 7,078,196. The University of Utah ("UUtah") was plaintiff, and defendants included the assignees and licensees of the patents, including the Max-Planck-Gesellschaft zur Forderung der Wiessenschaften e.V., Max-Planck-Innovation GmbH, Whitehead Institute for Biomedical Research, Massachusetts Institute of Technology, Alnylum Pharmaceuticals, Inc., and the University of Massachusetts ("UMass"). As set forth in the Federal Circuit's majority opinion, Dr. Thomas Tuschl, from the University of Massachusetts, filed for and obtained the patents-in-suit. Dr. Brenda Bass, of the University of Utah, claimed that she disclosed the inventions claimed in the Tuschl patents at professional conferences attended by Dr. Tuschl. UUtah alleges in the suit that Dr. Bass is the sole or at least a joint inventor and, after the defendants declined to correct inventorship by agreement UUtah filed suit under 35 U.S.C. 256 (as well as various state law claims).
Defendant U Mass argued in a motion to dismiss that the Supreme Court has original jurisdiction because the dispute was between two States (through their Universities), citing Article III, § 2, cl. 2 of the Constitution: "In all Cases . . . in which a State shall be Party, the [S]upreme Court shall have original Jurisdiction." In response, UUtah substituted four officials for UMass to avoid the original jurisdiction issue. UMass then argued the case should be barred by sovereign immunity, and that UMass was an indispensible party (as an assignee).
District Court Judge Patti Saris denied defendants' motions to dismiss and defendants appealed. The court based its denial of UUtah's original jurisdiction argument under Connecticut ex rel. Blumenthal v. Cahill, 217 F.3d 93, 98 (2d Cir. 2000) because, first, UUtah had amended its complaint to recite university officials rather than Massachusetts, and that correction of inventorship was not a "core sovereign interest" that rose to a dispute between the States. The District Court also dismissed the argument that UUtah had failed to name UMass as an indispensible party because "neither UMass nor Defendants would be prejudiced by a judgment rendered in UMass's absence because UMass's interests would be adequately represented by the existing defendants, including the Named Officials" and that the remedy -- ordering the U.S. Patent and Trademark Office to correct inventorship -- would provide "adequate relief" with or without UMass.
The Federal Circuit affirmed, in a decision by Judge Reyna joined by Judge Wallach, and a dissent by Judge Moore. The majority addressed the issues squarely: whether inventorship disputes involving state university-assigned patents could properly be brought in federal court (instead of the Supreme Court) and whether the suit should be barred under sovereign immunity. In affirming the District Court, the Federal Circuit majority almost ensured that the Supreme Court will have another opportunity to correct Federal Circuit patent jurisprudence. Additionally, the majority held that the District Court did not grant defendants' motion to dismiss for failure to join an indispensible party because UMass was not indispensible in the action.
The majority begins its opinion recognizing the distinction between private assignees and the state, which "typically enjoys sovereign immunity." This immunity does not extend to suits brought by one state against another, however, and States can sue individual citizens of other States without raising sovereign immunity issues with the State in which an individual defendant resides. This is not the typical case, according to the Court, because there are States in both sides of the dispute.
The defendants raised three issues. The first is jurisdictional: according to defendants, the District Court did not have jurisdiction because a dispute between the States implicates the Supreme Court's original (and as noted by the majority, exclusive (28 U.S.C. § 1251(a)) jurisdiction. This question the majority considers under the law of the regional (here, First) Circuit, which reviews decisions on motions to dismiss de novo. Second, defendants argue that UMass is entitled to sovereign immunity as an "arm" of the State. The question of whether Massachusetts has waived its immunity is a question of Federal Circuit law according to the majority, citing Regents of the Univ. of N.M. v. Knight, 321 F.3d 1111, 1124 (Fed. Cir. 2003), which review is also de novo. Finally, defendants argued that UMass is an indispensible party and UUtah could not bring suit against the four University officials under Fed. R. Civ. Pro. 19(b), a question that the Court says is a matter to regional circuit law that in the First Circuit is decided under an abuse of discretion standard.
Having explicated the procedural niceties, the majority turned to the merits. On the issue of original jurisdiction, the Court affirmed based on its determination that UMass is not a real party in interest. Thus, the question for the majority was whether UUtah's suit is against the State of Massachusetts or individuals residing in Massachusetts (where the Supreme Court does not have original or exclusive jurisdiction under § 1251(b)(3)). Having made this distinction based on the identity of the parties, the majority somewhat incongruously shifts to a discussion on the weight of the merits of the case before them: "[w]hether original jurisdiction is appropriate depends upon 'the seriousness and dignity of the claim,' whether the 'named parties' have another forum 'where appropriate relief may be had,' and whether the case raises 'serious and important, federalism concerns," citing Illinois v. City of Milwaukee, Wis., 406 U.S. 91, 93-94 (1972); Wyoming v. Oklahoma, 502 U.S. 437, 451 (1992) and Mississippi v. Louisiana, 506 U.S. 73, 77 (1992). The majority also relies on the Illinois case for the proposition that it is appropriate for them to "look behind the named parties and determine the real party in interest" in making their ruling. The Supreme Court jurisdictional standard is that the state is "the real, substantial party in interest" wherein judgment in the matter would "operate against" the State and thus "adequate relie[f] cannot be granted without it," citing Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89 (1984); Dugan v. Rank, 372 U.S. 609, 620 (1963); Cunningham v. Macon & Brunswick R. R. Co., 109 U.S. 446, 457 (1883); as well as Illinois. The opinion also refers to cases where the State has been an indispensible party, not surprisingly under circumstances not before the Court here, as well as cases where the State was not an indispensible party (Illinois again).
Here, the Court asserted that UUtah is an arm of the State of Utah and that UMass is also an arm of the State; accordingly, as originally filed, UUtah's complaint might have implicated the Supreme Court's original and exclusive jurisdiction. That is not the case before the Court, according to the majority; Utah amended its complaint by naming the four university officials rather than UMass, and thus there are no State defendants before the Court. Thus the case is governed by § 1251(b)(3), not § 1251(a), and the Supreme Court does not have exclusive jurisdiction. The mere identity of the named defendants is not sufficient to decide the question, however, as defendants contended that Massachusetts is a real party in interest because UMass's (intellectual) property is at issue and UUtah should not be able to avoid Supreme Court jurisdiction by the procedural gambit of substituting state officials for the State as defendants. The majority agreed with the District Court that, under Cahill (paradoxically Second, not First, Circuit precedent) as well as "other Supreme Court precedent," the question of whether a State is a real party in interest is whether the question at issue "implicates the State's core sovereign interests" with a focus on "the seriousness and dignity of the claim" in cases that "implicate serious and important concerns of federalism." Such "core sovereign interests" include "boundary disputes, disputes over water rights, and disputes over contracts between states" from relevant Supreme Court precedent. (In an interesting twist in view of the likely trajectory of this case, then-Circuit Judge Sotomayor dissented in Cahill, finding that New York State was the real party in interest.)
Nevertheless, the majority applied the rubrics from Cahill in deciding that Massachusetts was not a real party in interest here and thus that the case did not fall under the Supreme Court's original and exclusive jurisdiction under Article III § 2, cl. 2, because even if "the alleged injury was caused by actions specifically authorized by State law," the inventorship issue did not implicate a "core sovereign interest" because the state officials are only defendants under Counts in the complaint directed solely to correcting inventorship. The majority's reasoning was based on the inventorship issue being personal to the inventors, and because "States cannot be inventors," any question of inventorship is not a "core sovereign interest." Additionally, the majority asserted that the defendants (and Judge Moore in dissent) "confuse the issue" by implicating ownership into the dispute. While ownership and inventorship are "closely related," the majority refused to equate (without explanation) State ownership of patent rights with, for example, water rights or other property rights that do implicate "serious and important concerns of federalism" which would implicate a State's "core sovereign interests." The majority also distinguished the Cahill dissent's reasoning on the grounds that the relief here, correction of inventorship by the PTO, will not compel Massachusetts to act (or not to act); inventorship can be corrected by the PTO without any participation by Massachusetts. The majority conceded that Massachusetts would be a "proper" party if named but refused to acknowledge that it is an indispensible party because "[w]hile certain of UMass' interests may be 'more or less affected by the decision'" the majority apparently did not think they would be affected enough (applying an unenunciated standard).
The majority rejected the second issue, sovereign immunity, almost summarily: because this is not a suit "by citizens against a State" there was no sovereign immunity issue according to the majority, and thus no basis to reverse the District Court's refusal to dismiss.
Finally, the majority turned to whether Massachusetts is an indispensible party under Fed. R. Civ. Pro. 19(b). That it would be feasible to join UMass is not the issue (the first prong of the test on whether a district court should dismiss under Rule 19); the issue is whether UMass is an indispensible party. The majority's decision that it is not is entirely consistent with its reasoning regarding lack of original jurisdiction by the Supreme Court. Here, the majority set out the four factors used in the First Circuit to decide the question:
(1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions in the judgment; (B) shaping the relief; or (C) other measures;
(3) whether a judgment rendered in the person's absence would be adequate; and
(4) whether the plaintiff would have an adequate remedy if the action were dismissed for non-joinder.
These factors must be considered because there is "no per se rule that patent owners are automatically indispensable parties -- there is no patent-specific exception to Rule 19(b)" (a position that should garner approval from the Supreme Court if it considers the matter). The majority held that the District Court did not abuse its discretion in ruling against defendants motion to dismiss, despite the fact that the lower court relied on precedent not from the First but from the Federal Circuit relying on Ninth Circuit law (Dainippon Screen Mfg. Co. v. CFMT, Inc., 142 F.3d 1266 (Fed. Cir. 1998)) because in the majority's view the reasoning in the Dainippon case was consistent with First Circuit law. In Dainippon, a suit against a wholly owned subsidiary of a named party that was created as a holding company for the patent was permissible without joining the patent-owning subsidiary (over which the court did not have personal jurisdiction) because the subsidiary's interests were adequately represented by the named party. Here, the majority held that UMass's interests were adequately represented by the other defendants, who had even more to lose (i.e., their exclusive ownership interests in the Tuschl patents) by an adverse judgment than the State. Also, UMass had "handed sole and exclusive control of this suit over to Alnylam," a named party, so there was little or no prejudice to UMass or Massachusetts. The prospective judgment, a change of inventorship by the USPTO, could be adequately rendered in the State's absence, and the alternative remedy (the Supreme Court exercising original jurisdiction) is not certain (and according to the majority unlikely). In the face of these distinctions, the majority held that the District Court did not abuse its discretion in denying defendants' motion to dismiss for failure to join an indispensible party (albeit admonishing the District Court to resolve "fact intensive" questions regarding joinder under the circumstances that prevail when the base returns to the lower court for trial or further proceedings).
Judge Moore filed a vigorous dissent, based on her perception of error in the majority's determination that an inventorship dispute involving patents owned by state universities is not a "controversy between two or more States" and further for failing to hold a patent owner to be an indispensible party. As to the first question, Judge Moore argued that the District Court lacked jurisdiction in what is at root a dispute between Utah and Massachusetts through their respective administrative arms in their state universities. Judge Moore disagreed with the majority on the merits but her concerns are more importantly directed to institutional integrity. Specifically, the question of whether the issues at stake in the litigation are sufficient for the Supreme Court to decide to exercise its original and exclusive jurisdiction is a different question of whether that jurisdiction exists, which to Judge Moore is a question whose answer comes directly from the plain language of the statute (28 U.S.C. § 1251(a)). Even more important, however, is that whether the Court will exercise its jurisdiction is the prerogative of the Court, and lower courts cannot and should not act as gatekeepers in deciding which questions the Court will be able to consider based on the lower court's perception of whether the question involved a "core sovereign interest." And the fact that UUtah and Dr. Bass had alternative avenues (such as filing their own application(s) and provoking an interference) is not a sufficient "perceived injustice" to permit the Federal Circuit or any lower court to usurp the Supreme Court's prerogatives regarding the exercise of its original jurisdiction.
Judge Moore also rejected the majority's view that UMass is not an indispensible party, and discredited the majority's conclusion that a change in inventorship for the Tuschl patents would not affect the State's interests. In her view, the majority erred in straying from the Court's established precedent that patent owners are indispensible parties, and she disagreed with the majority's view that the other defendants can adequately represent the university's interests. After all, she noted, UMass like many other universities garner considerable revenues from licensing their patents, and a decision by the other parties, for example, to settle by permitting Dr. Bass to be named as a co-inventor (or with even more dire consequences to UMass's interest, as a sole inventor) would negatively impact UMass's ability or opportunity to benefit from patent ownership (at least as against UUtah and its licensees if Dr. Bass is a co-inventor, and as against all its present licensees if Dr. Bass were to be found to be the sole inventor).
The majority's decision, particularly in the face of Judge Moore's dissent is likely to provoke Supreme Court review. Despite the majority's obeisance to the concept that there is no "patent exception" to Rule 19(b), and thus that patent owners are not always indispensible parties, it is neither unreasonable or unforeseeable that defendants will file a petition for certiorari having a Question Presented along the lines of the following:
Whether the Federal Circuit erred in holding that lower courts are responsible in the first instance for deciding whether the Supreme Court has original and exclusive jurisdiction in disputes between two or more States acting through their state universities.
In view of the Court's history with reviewing Federal Circuit decisions over the past decade, it does not take a Supreme Court scholar to conclude the likelihood of the Court granting such a certiorari petition.
Panel: Circuit Judges Moore, Reyna, and Wallach
Opinion by Circuit Judge Reyna; dissenting opinion by Circuit Judge Moore