Bass, Berry & Sims attorney Terry Clark offered insight for an article in Law360 analyzing the impact of a recent Federal Circuit decision that upheld the University of Texas’ (UT) claim of sovereign immunity while letting their exclusive licensee pursue patent infringement litigation against an infringer. The 11th Amendment protects universities and other state entities from being involuntarily dragged into patent infringement litigation. The July 24 precedential opinion said that sovereign immunity bars courts from involuntarily adding a university as a co-plaintiff, as the patent owner and licensor, to a patent infringement litigation brought by the university’s exclusive licensee against a third party. Further, the Federal Circuit found that the university was not an indispensable party under Rule 19 of the Federal Rules of Civil Procedure. The ruling brings into light questions of how private companies and public universities should approach joint development and patent licensing agreements.

Judge Newman’s opinion, concurring in part, dissenting in part, and concurring in the judgment, explained that state sovereign immunity should not be used as a shield in cases where a university is actively engaged in commercial activities such as licensing its patents to private parties. Terry supported this element of the dissent suggesting a university should be willing to face potential litigation if engages in voluntarily commercial activity such as a patent license agreement. “When you voluntarily engage in commercial activity, isn’t that the same thing as a waiver?” he said. “Once you enter into contracts, and you put yourself out there in commerce with everybody else, does that mean you’re agreeing to participate in the process?”

One possibility for commercial partners of public universities to protect themselves via could be to build express waivers of sovereign immunity into contracts, but Terry suggested that would not be as simple as it seems. “That’s new territory that we’ll have to get into,” he said. “We have information now to understand when Congress can act such that sovereign immunity doesn’t apply, but we don’t have the flip side of that to say when a waiver is going to be sufficient to take away the sovereign immunity.” Thus, it remains unclear whether a university alone, as an agent of the state, may waive a state’s sovereign immunity without legislation.

One significant key for maintaining relationships between universities and private companies will be to structure the deals clearly in anticipation of litigation. Many universities maintain ownership of patents but attempt to avoid litigation by contractually granting their licensees the right to sue third infringers. However, companies may be reluctant to commit millions of dollars to research and development efforts or licensing relationships with universities unless they are confident the intellectual property from those arrangements are enforceable against infringers. “Otherwise, why in the world would you ever try to contract with a university with regards to a patent license?” he said. “There would be a very high risk that you would never be able to realize your return on investment and you certainly wouldn’t be able to go out and enforce intellectual property against third parties because you’re caught in a Catch-22.” This decision may require universities to rethink their licensing programs altogether and/or accept the risk of litigation down the road.

The full article, “Fed. Circ.’s UT Immunity Ruling Places Licensing In Spotlight,” was published by Law360 on July 31 and is available online.