May 27, 2020

May 26, 2020

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Don’t Mess with Texas? State Sovereignty Doesn’t Make Plaintiff Immune to Venue Transfer

The US Court of Appeals for the Federal Circuit rejected the arguments of a state university in support of sovereign immunity and affirmed the district court’s decision to transfer the case to the District of Delaware. Board of Regents of the University of Texas System, TissueGen, Inc. v. Boston Scientific Corporation, Case No. 18-1700 (Fed. Cir. Sept. 5, 2019) (Stoll, J).

The Board of Regents of the University of Texas System (UT) and TissueGen Inc. sued Boston Scientific Corporation (BSC) for patent infringement in the Western District of Texas alleging that several BSC stent products infringed patents owned by UT. Although BSC is a Delaware corporation with its principal place of business in Massachusetts, UT asserted that venue was proper in the Western District of Texas because UT has sovereign immunity as an arm of the State of Texas. UT argued that “it would offend the dignity of the State to require it to pursue persons who have harmed the State outside the territory of Texas, and the State of Texas cannot be compelled to respond to any counterclaims, whether compulsory or not, outside its territory due to the Eleventh Amendment.”

BSC filed a motion to dismiss for improper venue, noting that BSC does not own or lease any property or maintain a business address in the Western District of Texas. BSC has only 46 employees in the Western District of Texas, all of whom maintain home offices and do not work in spaces that are owned, leased or controlled by BSC. The district court granted BSC’s motion and transferred the case to the District of Delaware, relying on the 2107 Supreme Court decision TC Heartland v. Kraft Foods (IP Update, Vol. 20, No. 5) to establish that venue is proper where a defendant resides or has a regular and established place of business. The district court rejected UT’s sovereign immunity arguments in opposition to the transfer, emphasizing the lack of claim or counterclaim against UT to place it in the position of a defendant. UT appealed the district court’s transfer order.

As an initial matter, the Federal Circuit found that although transfer orders are interlocutory and generally cannot be appealed immediately, UT’s challenge to the district court’s transfer order on the basis of state sovereignty brought this case within the small class of orders excepted from the final judgment rule of the collateral order doctrine. On the issue of the propriety of the transfer order, the Federal Circuit held that the sovereignty principles asserted by UT did not grant it the right to bring suit in an otherwise improper venue.

While the Federal Circuit agreed that UT is an arm of the State of Texas and is thus entitled to the same sovereign rights as Texas, the Court found that 11th Amendment immunity applies only to suits against a state and not suits brought by a state, because the latter do not force an unconsented suit upon the state. This holding is consistent with the Federal Circuit’s 1977 decision in Regents of the University of California v. Eli Lilly in which the Court found that 11th Amendment immunity did not apply to the Regents of the University of California (UC) in a patent infringement case brought by UC against Eli Lilly. Thus, because UT was acting solely as a plaintiff, suing BSC for patent infringement with no claims or counterclaims brought by BSC, sovereign immunity did not apply, and UT could not rely upon it to challenge the transfer of the case to Delaware.

Although the issue was not raised at the district court, the Federal Circuit next addressed UT’s argument that the Original Jurisdiction Clause ensures that a state cannot be forced to sue in a court located in another state. The Federal Circuit found that UT’s interpretation of several Supreme Court cases went too far and pulled snippets from various cases out of context in an effort to support its arguments. Specifically, none of the cases cited by UT supported the proposition that states may sue in any forum regardless of venue rules. Instead, the cases supported the proposition that states may sue in lower courts in addition to the Supreme Court of the United States. Further, UT never sought to invoke original jurisdiction, instead bringing this suit pursuant to 28 USC §§ 1331 and 1338(a). Whether UT could have instituted this suit as an original proceeding in the Supreme Court was thus irrelevant.

The Federal Circuit also rejected UT’s argument that it had the right to sue for patent infringement in its forum of choice based on the inherent powers of a state sovereign. The Court held that by voluntarily appearing in federal court, UT had voluntarily invoked the federal court’s jurisdiction and therefore must abide by federal rules and procedures—including venue rules—like any other plaintiff.

Practice Note: When a state sues in federal court, it waives sovereign immunity with respect to its asserted claims, subjecting itself to the jurisdiction of the federal courts and thus the federal statutory provisions that govern the allocation of cases among the courts.

© 2020 McDermott Will & Emery


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