State research institutions enjoy a considerable advantage over their private sector counterparts in that states possess sovereign immunity. This means that a state, including its universities and colleges, cannot be sued in federal court without its consent. The result is that, without a waiver of immunity, state research institutions cannot be sued for patent infringement. This creates a substantial benefit for state universities as they seek to commercialize technology often times developed with federal research dollars. State research institutions should be aware, however, that the scope of their immunity has been limited by a recent court decision interpreting and applying the law relating to state sovereign immunity.
In 1992, Congress attempted to eliminate state sovereign immunity in the Patent and Plant Variety Protection Remedy Clarification Act. The Act provided that any state, and any officer or employee of a state acting in official capacity, shall not be immune from a federal lawsuit by any person, including any governmental or nongovernmental entity, for infringement of a patent under the Eleventh Amendment of the Constitution of the United States.
In 1999, the United States Supreme Court held the Act’s abolition of states sovereign immunity for patent infringement to be invalid. Since that time, various patent owners have attempted during patent infringement litigation to argue that a state has either consented to a lawsuit in federal court or waived its immunity based on specific conduct by the state.
The most recent case involving this issue is Baum Research and Development Company et al. v. University of Massachusetts at Lowell, in which Charles Baum and Baum Research and Development entered into a confidential patent license agreement with the University of Massachusetts at Lowell. The Agreement provided a provision that the Agreement would be interpreted and applied according to the laws of the state of Michigan, and that all parties agreed to proper venue, and submitted to jurisdiction in the state and federal courts in Michigan.
In time, a dispute arose between Baum and the University, and Baum filed suit in the United States district court alleging breach of contract and patent infringement. The University asserted it was immune from the lawsuit based on its Eleventh Amendment rights.
The district court denied the University’s motion to dismiss the case based on sovereign immunity, and ruled that the University waived its right by agreeing to submit to jurisdiction in the appropriate state or federal courts in Michigan. More specifically, the district court reasoned that by agreeing to this particular provision, Baum affirmatively agreed to resolve in federal court any disputes that may arise.
State research institutions need to be aware that the scope of their sovereign immunity has been limited. There are no “throw away” provisions in patent license agreements, regardless of the apparently innocuous nature of the language. In Baum, the section of the agreement on which the courts relied is generally found with other “miscellaneous” provisions that often are not bargained for, but rather are added as an after-thought. States should consider negotiating to have such provisions excluded from their agreements, especially those involving patent-related matters, because their inclusion can work to the extreme detriment of the state.