When a patent is co-owned by a state university and another party, an IPR may proceed against the remaining party even after the state university co-owner has been determined to have sovereign immunity from the proceeding.  Reactive Surfaces Ltd., LLP v. Toyota Motor Corp., [Case No. IPR2017-00572, Paper 32 (July 13, 2017)]. This recent decision was the first to address a situation where a university owned a patent jointly with a company.  This decision follows two earlier cases, Covidien v. University of Florida , discussed here, and NeoChord, Inc. v. University of Maryland, Baltimore, [Case No. IPR2016-00208, Paper 28 (PTAB, May 23, 2017)], where the Board determined that sovereign immunity under the Eleventh Amendment as an “arm of the state” prevents an IPR from being instituted regarding patents owned by state universities.

Petitioner Reactive Surfaces filed a petition on January 4, 2017 for IPR of U.S. Patent No. 8,252,571.  Before a Preliminary Response by the Patent Owner was due, Toyota Motor Corporation and Regents of the University of Minnesota (“the Regents”), co-owners of the ‘571 patent (collectively, “Patent Owner”), filed a motion to dismiss the Petition on the grounds that the Regents were entitled to sovereign immunity, that the merits of the IPR could not be judged in their absence, and therefore the IPR should be dismissed in their absence.  Petitioner opposed, arguing that Patent Owner failed to prove that the Regents are entitled to assert sovereign immunity, that the Eleventh Amendment does not extend to IPRs, and that any sovereign immunity the Regents possess does not inure to Toyota’s benefit.  Petitioner also argued that sovereign immunity does not apply to IPR proceedings because “[t]he explicit language of [35 U.S.C. § 311] indicates that [an inter partes review] is a challenge to the patent, not the patent owner,” making it “a proceeding in rem, not in personam.”

The Board reasoned that IPRs have some in rem features but have sufficiently more in personam features.  As a result, the Board determined, consistent with Covidien and NeoChord, that sovereign immunity may be asserted in IPRs.  Because it also concluded that the Regents were an arm of the State of Minnesota, it granted in part the motion to dismiss by dismissing the Regents from the IPR.

The Board then determined that the IPR could continue in the absence of the Regents.  The Board reasoned that the “rules governing inter partes review proceedings provide for continuing in the absence of a patent owner in at least three circumstances.”

  1. The Board may institute trial and proceed to a final written decision even in the absence of any preliminary response or response by the patent owner. 37 C.F.R. §§ 42.108(c).
  2. If the parties to an IPR settle their dispute, the Board may continue to “independently determine any question of jurisdiction, patentability, or Office practice.” Id. § 42.74(a); see 35 U.S.C. § 317(a).
  3. “An owner of a part interest in the subject patent may move to act to the exclusion of an inventor or a co-owner” upon a showing that the excluded co-owner is unable or refuses “to prosecute the proceeding” or upon a showing that there is another reason “why it is in the interests of justice to permit the owner of a part interest to act in the trial.” 37 C.F.R. § 42.9(b).

The Board determined that these rules, although not precisely on point, demonstrate that the absence of one patent owner does not necessarily require the termination of the IPR.  The Board stated that “[as] the moving party, Patent Owner has the burden of establishing “that it is entitled to the requested relief,” i.e., that this proceeding should be terminated rather than continuing in the absence of the Regents. 37 C.F.R. § 42.20(c).  Patent Owner argued that the only way to prevent “injury to the interests of the absent sovereign” is to dismiss the action entirely.  Petitioner argued that federal courts have not applied a bright-line rule that requires dismissal of any action after a finding that one defendant has sovereign immunity, and that dismissal would not be appropriate in this case.

The Board agreed with Petitioner.  In doing so, the Board discussed Rule 19(b) of the Federal Rules of Civil Procedure and stated that it provides that when the absent sovereign party and a remaining party have identical “interests in the asserted patents,” the remaining party adequately represents the interests of the absent sovereign party under Rule 19(b)(1).  The Board stated that “adequacy of that representation is even stronger when the parties at issue are patent owners, when all of the patent owners except the absent sovereign are present in the action, and when all of the present patent owners are represented by the same legal counsel.”

The Board acknowledged that IPR rules are not directly analogous to rule 19(b), but the Board found that the Federal Circuit’s analysis under Rule 19(b)(1) in two cases regarding the identity of interests between present and absent patent owners were instructive in this case, A123 Sys., Inc. v. Hydro-Quebec, 626 F.3d 1213, 1221–22 (Fed. Cir. 2010) and University of Utah v. Max-Planck-Gesellschaft zur Forderung der Wissenschaften e.V., 734 F.3d 1315, 1319 (Fed. Cir. 2013).  The Board concluded that Toyota would represent adequately the interests of the Regents, and the IPR therefore could proceed.

Licensees and co-owners of state university-owned patents, as well as their challengers, are now on notice that an IPR challenge may proceed even in the absence of some patent owners.