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In This Issue
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The
Federal Circuit Overturns Summary Judgment of Inherent Anticipation
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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.
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