January 10, 2019Client Alert

Licensing, Litigation, and Sovereign Immunity: Know Your Rights from the Beginning

On December 10, 2018, a judge in the Southern District of Texas issued an order and opinion that should be of interest to all universities licensing their patents and all parties who license those patents. In Gensetix, Inc. v. Baylor College of Medicine, Case No. 4:17-cv-1025, Judge Hanen ruled that Eleventh Amendment sovereign immunity precluded the court from compelling a state university to join an action filed by a licensee alleging infringement of patents owned by the university.

The Gensetix patents claimed technology in which a patient’s immune system was modified to kill cancer cells. The patents were owned by the Board of Regents of the University of Texas System (“UT”). UT exclusively licensed them to an individual, who assigned the license to Gensetix. In 2007, Gensetix sued the inventor and his current employer, Baylor College of Medicine, for practicing the technology. 

The complaint also named UT as an involuntary plaintiff. UT filed a motion to dismiss for lack of subject matter jurisdiction, asserting that it was immune from suit under the Eleventh Amendment. The parties did not dispute UT was an arm of the State of Texas. Gensetix argued, however, that Eleventh Amendment sovereign immunity did not apply because no claims were asserted against UT. The issue before the court was whether the Eleventh Amendment prevented UT from being joined as an involuntary plaintiff.

The district court held Eleventh Amendment sovereign immunity applied. The court distinguished cases where state actors waived sovereign immunity, initiated suit, or voluntarily participated in a suit. In this case, the court stated, there was a “coercive joinder” of a state actor. Thus, although no claims were asserted against UT, joining UT would force UT to pursue claims against its will. Based on precedent from other circuits, the court noted the purpose of the Eleventh Amendment is to prevent states from being compelled to litigate, whether to “defend or pursue claims” (emphasis in original). Accordingly, UT could not be joined as an involuntary plaintiff to pursue patent infringement claims. 

The court went on to analyze whether the license gave the plaintiff sufficient rights to confer standing to bring an infringement suit. The court held that UT had reserved substantive patent rights, including the right to bring suit on its own, which is apparently why UT was listed as an involuntarily plaintiff at the outset. As a result, the court concluded that UT was a necessary party that needed to be joined. Because UT could not be compelled to join the suit and was a necessary party, the court dismissed the complaint without prejudice.

Although scenarios like this one are rare, Gensetix highlights the importance of ensuring that license agreements reflect the parties’ intent as to who will have the ability to enforce the patent. Exclusive licensees by law can, under certain circumstances, have standing to proceed against infringers. To avoid unintended consequences, it is critical that the parties agree explicitly in the license whether the licensee will have the substantive rights necessary to confer standing and align all licensing terms accordingly, and whether the licensor retains the right to bring suit. If the licensor does so, it will almost certainly be a necessary party. 

In Gensetix, UT obviously determined that it was not in its interests to proceed against another Texas university. There are other circumstances when it would not be in a university’s best interest to enforce a patent against a particular party. Sometimes those circumstances are hard to foresee. Nevertheless, in each license, a university and its licensee should evaluate to what extent each party will participate in the decision whether to enforce a patent. How that balance is struck might impact the monetary terms of the license one way or the other, but resolving the balance explicitly avoids uncertainty that can impact both licensees and universities in unpredictable ways.

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