Eleventh Amendment’s Immunity Bars Coercive Joinder of a State Sovereign Patent Owner – But Exclusive Licensee’s Infringement Suit May Continue Independently

Gensetix, Inc. v. Bd. of Regents of Univ. of Texas Sys., 966 F.3d 1316 (Fed. Cir. 2020)

An exclusive licensee of two patents assigned to a state university sued alleged infringers and named the state university as an involuntary plaintiff under Rule 19(a) of the Federal Rules of Civil Procedure. The District Court for the Southern District of Texas dismissed the case by (i) granting the state university’s motion to dismiss, based on Eleventh Amendment immunity-from-suit grounds, and (ii) finding that the exclusive licensee did not have independent standing to bring suit without the state university.

The Federal Circuit affirmed in part and reversed in part. The panel found that Eleventh Amendment immunity bars joining state entities as involuntary plaintiffs. The panel cited the Supreme Court in observing that the Eleventh Amendment protects states against “federal-court judgments that must be paid out of a State’s treasury” and “also serves to avoid the indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties.” The panel rejected the exclusive licensee’s comparison to Regents of the Univ. of California v. Eli Lilly & Co., 119 F.3d 1559, 1564 (Fed. Cir. 1997), where the Eleventh Amendment immunity did not bar a venue transfer, because in Regents, unlike the present case, the state entity had originally brought the suit. The panel found that the “key distinction” is whether the state entity voluntarily invokes federal court jurisdiction.   

The Federal Circuit panel, however, reversed the district court’s dismissal of the suit and remanded for further consideration of Federal Rule 19(b)’s directive that, where joinder of a required party is not feasible, “the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” The Rule 19(b) “inquiry involves consideration of four factors: (1) the extent to which a judgment rendered might prejudice the missing required party or the existing parties; (2) the extent to which any prejudice could be lessened or avoided; (3) whether a judgment rendered in the required party’s absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.” The panel found that the district court had abused its discretion in giving too much weight to the state entity’s interest without consideration of each Rule 19(b) factor. For example, the panel focused on whether the facts of the present case evidences that the exclusive licensee could adequately represent the state entity’s interest in the litigation.

Judge Newman concurred in part and dissented in part. Judge Newman disagreed that Eleventh Amendment immunity applied here, because the license required the state university patent owner to “cooperate fully” with the exclusive licensee’s enforcement of the asserted patents. Judge Newman observed that the “Eleventh Amendment is not an authorization whereby State agencies may violate their commercial and contractual obligations.”

Judge Taranto also concurred in part and dissented in part. Under Judge Taranto’s view, the district court did not abuse its discretion in weighing the Rule 19(b) analysis in favor of protecting the state sovereign’s interest. As support, Judge Taranto characterized the Supreme Court’s decision in Republic of Philippines v. Pimentel, 553 U.S. 851 (2008), as standing for the proposition that, “when a sovereign entity is a required party under Rule 19(a), is protected against joinder by sovereign immunity, and makes a non-frivolous assertion that it will be prejudiced by a suit proceeding in its absence, a district court is generally obligated to dismiss the suit under Rule 19(b).”

View the full opinion here.