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State University’s Filing of a Patent Infringement Suit Did Not Waive Immunity from a Declaratory Judgment Suit on the Same Patent in a Different District

August 10, 2006
Williamson, John M.

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Last Month at the Federal Circuit - September 2006

Judges: Newman (author), Archer, Gajarsa

[Appealed from: W.D. Wash., Judge Lasnik]

In Tegic Communications Corp. v. Board of Regents of the University of Texas System, No. 05-1553 (Fed. Cir. Aug. 10, 2006), the Federal Circuit affirmed the district court’s grant of patentee’s motion to dismiss a DJ action on the ground that patentee, as an arm of the state of Texas, was immune from suit under the Eleventh Amendment and had not waived its immunity.

The Board of Regents of the University of Texas System (“the University”) owns U.S. Patent No. 4,674,112 (“the ’112 patent”) directed toward an apparatus and method for “inputting text into a device keyboard, wherein the device software recognizes the text and predicts the word the user intends to type.” Slip op. at 2. The University sued forty-eight cellular-telephone companies in the Western District of Texas, alleging infringement of the ’112 patent (“the Texas actions”). Tegic Communications Corporation (“Tegic”) sells and licenses its “T9 Text Input” software to thirty-nine of the forty-eight defendants in the Texas actions.

Tegic is not a party to the Texas actions, but contended that those actions against Tegic’s customers are really directed against Tegic, as the manufacturer and licensor of the software accused of infringing the ’112 patent. Tegic reacted to the Texas actions by filing a DJ suit against the University in the Western District of Washington alleging invalidity, unenforceability, and noninfringement. The district court granted the University’s motion to dismiss the DJ action on the ground that, as an arm of the State of Texas, the University is immune from suit under the Eleventh Amendment. Tegic appealed.

On appeal, the Federal Circuit first noted that it was undisputed that the University is properly accorded Eleventh Amendment immunity because it is deemed to be an arm of the State of Texas. The Court stated, however, that by voluntarily invoking federal jurisdiction in Texas, the University waived any immunity it may have had regarding its claims and counterclaims in the Texas actions. But the Federal Circuit determined that this waiver did not extend to Tegic’s DJ action in the Western District of Washington because the University’s filing of the Texas actions did not effect a “clear waiver” as to “a new action brought by a different party in a different state and a different district court.” Id. at 11. The Court explained that a “[s]tate’s constitutional interest in immunity encompasses not merely whether it may be sued, but where it may be sued.” Id. at 10, quoting Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 99 (1984) (emphases in original).

The Federal Circuit rejected Tegic’s argument that the “customer suit exception” requires that the Eleventh Amendment waiver effected by the Texas actions extends to Tegic’s DJ action in the Western District of Washington. The Court explained that the “customer suit exception” is an exception to the rule that favors the forum of the first-filed action. Where a patentee sues a manufacturer’s customers, the “customer suit exception” affords preferential treatment to a manufacturer’s laterfiled action seeking to resolve the patent infringement charges leveled against the manufacturer’s customers.

The Federal Circuit determined that the “customer suit exception” did not effect a waiver as to Tegic in Washington because the exception is grounded on principles of efficiency and judicial economy, and that Tegic failed to show that it would be more efficient to stay the Texas actions in favor of Tegic’s DJ action in Washington. In reaching this conclusion, the Court noted that the defendants in the Texas actions are not “mere resellers” of Tegic’s products, that the defendants in the Texas actions have not agreed to be bound by a decision in favor of Tegic, and that other suppliers in addition to Tegic, including Motorola and Zi Corporation, provide software used in phones accused of infringing in the Texas actions. Without deciding whether the “customer suit exception” could justify a waiver of Eleventh Amendment immunity under different facts, the Federal Circuit determined that the exception does not effect a waiver under the facts of this case.

Finally, the Federal Circuit dismissed Tegic’s argument that the University’s immunity afforded it an unfair litigation advantage. Tegic suggested that the defendants in the Texas actions would not have the technical information necessary for their defenses and also would not be able to assert a laches defense that was personal to Tegic. But the Federal Circuit noted that Tegic was free to assist its customers in the Texas actions and that Tegic was also free to seek to formally intervene in the Texas actions.