Greenblum & Bernstein, P.L.C.


Recent Litigation News in Intellectual Property


                                                                                          March 2017


In This Issue

·    The Federal Circuit Overturns Summary Judgment of Inherent Anticipation      

·    U.S. District Court Holds that University of Florida Research Foundation, Inc. is Entitled to Eleventh Amendment Immunity, But Remands to State Court to Determine Waiver of the Immunity    






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The Federal Circuit Overturns Summary Judgment of Inherent Anticipation  


The Federal Circuit, in U.S. Water Services., Inc. v. Novozymes A/S, recently overturned the summary judgment of patent invalidity under inherent anticipation by the U.S. District Court for the Western District of Wisconsin. 


By way of background, U.S. Water sued Novozymes for infringement of U.S. Patent No. 8,415,137 (“the ‘137 patent”) and U.S. Patent No. 8,609,399 (“the ‘399 patent”), which are directed to reducing or preventing deposits that gum up ethanol production machinery.  The District Court granted Novozymes’ summary judgment motion finding that several claims in the ‘137 patent and the ‘399 patent were invalid as being anticipated by the prior art, which disclosed six of the seven claimed elements; prior art may anticipate a claim if it discloses all of the claimed elements, either explicitly or inherently, and here, the District Court found that the seventh element was “inherently” disclosed in the prior art.


On appeal, the Federal Circuit overturned the District Court holding that U.S. Water had proffered evidence purporting to show that the seventh element was not “inevitable” from practicing the prior art, and thus not “inherent” in the prior art.  Specifically, U.S. Water’s expert witness testified that practicing the prior art does not inevitably result in the seventh element.  The Federal Circuit noted that this testimony created a genuine issue of disputed material fact precluding summary judgment, and that in granting summary judgment, the District Court made improper credibility determinations weighing conflicting testimony. 


The Federal Circuit further reinitiated that merely showing that an element may occur is not enough to make it inherent.  Rather, there is a “high bar” for proving inherency: it “may not be established by probabilities or possibilities,” but “must inevitably result for the disclosed steps.”


U.S. District Court Holds that University of Florida Research Foundation, Inc. is Entitled to Eleventh Amendment Immunity, But Remands to State Court to Determine Waiver of the Immunity  

In University of Florida Research Foundation, Inc. v. Medtronic PLC, Medtronic, Inc., the U.S. District Court for the Northern District of Florida ruled that University of Florida Research Foundation, Inc. (“UFRF”), as part of the University of Florida (“University”) umbrella,  is an arm of the State of Florida, and thus entitled to immunity from suit in Federal Courts under the Eleventh Amendment.  The District Court, however, remanded the suit back to the Florida State Court to determine whether UFRF had waived this immunity by virtue of Defendants’ patent law based counterclaim in the initial State suit; i.e., if the counterclaim was compulsory under Florida Law, then UFRF may have waived immunity by bringing the underlying suit in Florida State Court.

This saga began with UFRF filing suit against Defendants in Florida State Court alleging breach of a license agreement.  Defendants responded with the counterclaim-at-issue seeking declaratory judgment of noninfringement of the licensed patent, and sought removal of the suit to Federal Court; the counterclaim is a basis for removal to Federal Court under 28 U.S.C. § 1454.  UFRF sought to remand the suit back to State Court arguing that (i) UFRF is an arm of the State of Florida and therefore cannot be a "diverse" party for purposes of Federal diversity jurisdiction, (ii) its claims as pleaded in the amended complaint do not arise under Federal Law, (iii) Defendants’ counterclaim is not compulsory and thus not a basis for removal under Section 1454 and that, in any event, Section 1454 cannot overcome Eleventh Amendment immunity.  UFRF also filed a separate motion to dismiss arguing the Eleventh Amendment immunity alone.

In determining whether an entity is an arm of the state and entitled to Eleventh Amendment protection, the court must assess the entity’s actions in view of the entirety of the circumstances surrounding the function .  This analysis looks to four-factors, i.e., “taking into account (1) how state law defines the entity; (2) what degree of control the state maintains over the entity; (3) the source of the entity's funds; and (4) who bears financial responsibility for judgments entered against the entity."

The District Court first found that UFRF would be considered an arm of the state under Florida Law.  The District Court noted that, here, (i) the relevant function was licensing of and collection of royalties from licensed patents and (ii) UFRF undertakes this function on behalf of the University pursuant to certification by the University Board of Trustees.  The District Court further noted that UFRF does not have free reign in that the University “board of trustees, in accordance with rules and guidelines of the Board of Governors, …  prescribe[s] by rule conditions with which [UFRF] must comply in order to use property, facilities, or personal services at any state university.  Such rules … provide for budget and audit review and oversight by the board of trustees."  UFRF's bylaws further limit its independence from the University and the State; for example, the "annual operating budget … must be approved by … the President of the University or his or her designee who shall be a Vice President or other senior finance or business officer of the University reporting directly to the President or to a senior official who reports to the President," and moreover, "[a]ny Director may be removed for cause by the President of the University or his or her designee after consulting with the non-affected Directors of the corporation or the Board's authorized designee acting in an executive capacity."

Based upon the above and the Florida Supreme Court’s recent holding that the University of Central Florida Athletics Association - like UFRF - an entity organized under Florida Statute §1004.28 was entitled to limited sovereign immunity under §768.28 as "an instrumentality of the state."  In so ruling, the Florida Supreme Court relied on many of the same facts, including the Central Florida University's control over the entity's board of directors and bylaws.  The District Court further noted that, while Eleventh Amendment immunity was not at issue in that suit, the Florida Supreme Court’s sovereign immunity analysis under Florida Law and the Eleventh Amendment analysis shared many common issues, including the degree of governmental control over the entity.  That said, the District Court found that, while not dispositive in the Eleventh Amendment analysis, the Florida Supreme Court ruling shows that UFRF would be afforded sovereign immunity under Florida Law, which suggested that UFRF is considered an Arm of the State under Florida Law.

While there was apparently not significant evidence bearing on the other factors, the District Court observed that (i) UFRF apparently derived much of its income from the development and commercialization of University work products, (ii) in the patent context, UFRF takes the inventions of the University researchers, profits from them, and then returns revenues back to the University and (iii) as such, UFRF is - in a sense - "funded" by the State.  That is, UFRF relies on the raw input of patents, etc. from State employees to derive revenues, and although not State "funding" in the traditional sense, this arrangement involved more reliance on the State than the case of cities or school boards that can raise revenue through bonds and taxes.  The District Court lastly noted that, while there was no indication in the record as to who would pay a money judgment against UFRF, it is reasonable to conclude that any financial harm to UFRF would, likewise, harm the University, which is indisputably an arm of the state.

Turning to waiver, the key question is whether UFRF was in Federal Court voluntarily.  The District Court first noted that UFRF did not file suit in Federal Court, nor seek to remove the suit to Federal Court.  While this typically would settle the matter, there was a twist here: when a state entity files a patent suit in Federal Court, the entity waives any Eleventh Amendment immunity with respect to a compulsory counterclaim.  But here, UFRF filed suit in Florida State Court, which does not have jurisdiction over the patent based counterclaim under 28 U.S.C. §1338. 

Defendants argue that this leaves a Hobson’s Choice, i.e., the State Court cannot hear the counterclaim, which Defendants allege is compulsory and lost if not brought, but the Federal Court cannot hear the case if UFRF is protected under Eleventh Amendment immunity.  Defendants conclude that the easiest resolution in this circumstance is to hold that UFRF has, at-least constructively, waived its Eleventh Amendment immunity, just as if UFRF had originally filed suit in Federal Court.

UFRF responded that an automatic waiver rule, especially when a counterclaim is not clearly compulsory, would effectively force State entities to waive Eleventh Amendment immunity in any case involving patents by allowing defendants to "fil[e] merit-less counterclaims that relate to ‘patent issues’ not presently raised or contested by the sovereign."

The District Court found some merit to Defendants’ argument noting that if the counterclaim were indeed compulsory under Florida Law, it could allow a State entity to bring suit in State Court knowing that the suit will trigger a compulsory counterclaim that is outside the jurisdiction of the State Court, and that in such circumstances, the State entity has in effect voluntarily availed itself of Federal Court by setting in motion a series of events that will inevitably lead the entity to Federal Court.

As such, the District Court remanded the suit to the State Court to determine whether the counterclaim was compulsory.  The District Court also further noted that, under claim preclusion, Defendants’ counterclaim, even if compulsory, may not be lost if UFRF had not waived immunity because (i) the counterclaim would only be lost if there was a ruling on the merits (i.e., with prejudice) and (ii) the a removal from State Court is not with prejudice.  That is, Florida does not permit preclusion unless the prior court had jurisdiction over the claim, and that the Eleventh Circuit had already ruled that "under antitrust laws that are within the exclusive jurisdiction of the federal courts and therefore could not have been raised in the state court proceeding due to lack of subject matter jurisdiction" were not barred by res judicata.  The same logic applies here, i.e., Defendants cannot be barred from bringing a counterclaim that they could not have brought in the first place.




The GREENBLUM & BERNSTEIN NEWSLETTER is issued by GREENBLUM & BERNSTEIN, P.L.C., an intellectual property firm, to provide timely news in the field of intellectual property.  The NEWSLETTER provides updates on recent issues of general interest in this field.  The views and/or opinions expressed herein do not necessarily reflect those of GREENBLUM & BERNSTEIN, P.LC.  Information regarding the contents of the Newsletter can be obtained by contacting P. Branko Pejic at GREENBLUM & BERNSTEIN, P.L.C., 1950 Roland Clarke Place, Reston, VA 20191.  Copyright © 2017 GREENBLUM & BERNSTEIN, P.L.C.