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Eleventh Amendment Bars Claim Against State to Correct Inventorship

August 31, 2004

Decision icon Decision

Last Month at the Federal Circuit - September 2004

Judges:  Newman (author), Gajarsa, and Linn

In Xechem International, Inc. v. University of Texas, No. 03-1406 (Fed. Cir. Aug. 31, 2004), the Federal Circuit affirmed the trial court’s conclusion that the University of Texas, an arm of the state of Texas (“the University”), is immune from federal suit for the correction of inventorship and that the University had not waived that immunity by entering into commercial arrangements with Xechem International, Inc. (“Xechem”) and by applying for and receiving patents.

Xechem and the University entered into collaborative research agreements for the purpose of developing a pharmaceutical formulation that would enhance the solubility and effectiveness of the cancer drug paclitaxel. Upon the successful development of that formulation, Xechem prepared a draft patent application naming Xechem’s Dr. Pandey and the University’s Dr. Andersson as joint inventors. The University objected to the designation of inventorship and filed the patent application naming the University’s Dr. Andersson as the sole inventor. Xechem and the University subsequently entered into a patent and technology license agreement, and Xechem agreed to pay certain continuing sums and a royalty to the University. The patent application subsequently resulted in the issuance of U.S. Patent Nos. 5,877,205 (“the ‘205 patent”) and 6,107,333 (“the ‘333 patent”). Dr. Andersson assigned the patents to the University.

Eventually, Xechem brought suit, seeking correction of inventorship of the ’205 and ’333 patents to include Xechem’s Dr. Pandey. The University claimed immunity from suit under the Eleventh Amendment. Xechem argued that the University had waived immunity by: (1) entering into various commercial agreements with Xechem for the purpose of financial gain; (2) causing its employee, Dr. Andersson, to apply for a United States patent; and (3) accepting “gifts” from the federal government in the form of United States patents. Finally, Xechem argued that Eleventh Amendment immunity does not apply to actions for correction of inventorship. The Federal Circuit rejected each of these arguments in turn, acknowledging that Supreme Court precedent controlled each of Xechem’s arguments.

The Federal Circuit rejected the notion that a state’s entrance into commercial arrangements can waive Eleventh Amendment immunity. Specifically, the Federal Circuit rejected Xechem’s argument that by entering into a collaborative research agreement and then a license agreement with Xechem for purposes of financial gain, the University waived objection to federal court jurisdiction to secure constitutionally protected property rights (patents), and for issues that can be decided only in federal court under preemptive federal statutes (the Patent Act). The Federal Circuit highlighted Supreme Court precedent that a waiver of a state’s immunity cannot be imposed or implied based on a state’s entry into commerce; rather, the waiver must be founded on a clear declaration of the state’s intent to submit to federal jurisdiction. The Federal Circuit found no such “clear declaration” of waiver by the University in entering into its various relationships and contracts with Xechem.

The Federal Circuit further rejected Xechem’s argument that the University constructively waived immunity when it averred that Dr. Andersson was the sole inventor in its application for a United States patent and, thus, consented to correction of that erroneous averral in a federal court. The Federal Circuit noted that the Supreme Court had already rejected the argument that a state’s voluntary participation in activities controlled by federal statute imposes a consent to suit arising from those activities.

Likewise, the Federal Circuit rejected Xechem’s argument that the grant of a patent is a “gift” from the government, whereby acceptance of that gift is a constructive waiver of immunity. The Federal Circuit reasoned that the grant of a patent is not a disbursement of government largesse. Rather, it is the result of a carefully crafted bargain that encourages both the creation and the public disclosure of new and useful advances in technology, in return for an exclusive monopoly for a limited period of time.

Finally, the Federal Circuit rejected Xechem’s argument that because the University is not a necessary party to the action to correct inventorship, it need not consent to or participate in the hearing and, thus, the Eleventh Amendment does not bar federal suit to correct inventorship. The Federal Circuit noted, however, that without any defendant, there is no suit. The Federal Circuit further argued that, while inventorship is determined under federal law, state courts can apply federal law to issues properly before the state court. And, federal preemption of causes arising under the Patent Act does not include matters of ownership. Therefore, because Xechem is not left without a possible remedy under state law, the due-process concerns of the Fourteenth Amendment are not implicated and there is no reason to abrogate the state’s Eleventh Amendment immunity.