03-1406
XECHEM
INTERNATIONAL, INC.,
Plaintiff-Appellant,
v.
THE
UNIVERSITY OF
and BOARD
OF REGENTS OF THE
Defendants-Appellees.
John
P. Luther, Law Office of John P. Luther, of
David
L. Parker, Fulbright & Jaworski L.L.P., of
Appealed from:
Judge Ewing Werlein,
Jr.
v.
THE UNIVERSITY OF
and
BOARD OF REGENTS OF THE
Defendants-Appellees.
__________________________
DECIDED:
__________________________
Before NEWMAN, GAJARSA, and LINN, Circuit
Judges.
Opinion for the court filed by Circuit Judge NEWMAN;
additional views by Judge Newman.
NEWMAN, Circuit Judge.
Xechem International,
Inc., a biopharmaceutical company, brought suit against the University of Texas
M.D. Anderson Cancer Center and the Board of Regents of the
We affirm the
dismissal, for Supreme Court precedent controls the arguments raised by Xechem with respect to waiver or abrogation of the
University's Eleventh Amendment immunity.
Standards of Review
The University's
motion to dismiss was brought under Fed. R. Civ. P.
12(b)(6) (dismissal for failure to state a claim upon which relief can be
granted). When dismissal is on the
pleadings, the plaintiff's well-pleaded factual allegations are accepted as
true and all reasonable factual inferences are drawn in its favor. See Albright v. Oliver, 510
Dismissal under
Rule 12(b)(6) receives plenary appellate review. Boyle v.
BACKGROUND
The basic facts are
generally undisputed: Xechem and the University in
1995 entered into a Sponsored Laboratory Study Agreement, with financial and
technical support by Xechem, for the purpose of
developing a pharmaceutical formulation that would enhance the solubility and
thereby the effectiveness of the cancer drug paclitaxel. The persons principally involved in the
project were Dr. Ramesh C. Pandey,
president and CEO of Xechem; Dr. Luben
K. Yankov, a scientist employed by Xechem; and Dr. Borje S. Andersson and Dr. Elias Anaissie,
scientists employed by the University.
The complaint
states that a successful formulation was developed, and that Xechem prepared a patent application naming Dr. Pandey of Xechem and Dr. Andersson of the University as joint inventors, and in
early 1996 sent the draft application to the University. The University objected to the designation of
inventorship, and on
Further to our conversation of
today, as you have requested I am now forwarding you this letter in which I
recognize Dr. Borge S. Andersson,
as the sole inventor of the above referenced patent application.
I look forward to receiving Dr. Andersson's comments of the Draft Patent Application and to
wrap-up the licensing negotiations concerning the subject matter of the
application.
On
On
DISCUSSION
The
The Supreme Court
has addressed Eleventh Amendment immunity as it pertains to violation of
federal patent and trademark laws. In Florida
Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527
U.S. 627 (1999) and College Savings Bank v. Florida Prepaid Postsecondary
Education Expense Board, 527
The Court stressed the exclusive role of the Fourteenth Amendment[3]
in abrogation of Eleventh Amendment immunity in Tennessee v. Lane, ___
U.S. ___, 124 S. Ct. 1978 (2004), where the Court sustained abrogating
legislation against constitutional challenge, holding that "Title II [of
the Americans with Disabilities Act] unquestionably is valid §5 legislation as
it applies to the class of cases implicating the accessibility of judicial
services." 124
Title II -- unlike RFRA [the
Religious Freedom Restoration Act of 1993, held unconstitutional in City of
Boerne v. Flores, 521 U.S. 507 (1997)], the Patent Remedy Act [held
unconstitutional in Florida Prepaid, 527 U.S. at 547-48], and the other
statutes we have reviewed for validity under §5 -- reaches a wide array of
official conduct in an effort to enforce an equally wide array of
constitutional guarantees.
124
Xechem argues that the
Eleventh Amendment does not bar an action to correct inventorship
under 35 U.S.C. §256, because the correction of inventorship
will change the ownership of the patents, thereby raising property issues
cognizable under the due process clause of the Fourteenth Amendment. Xechem also argues
that correction of inventorship does not require
participation or consent of the owner of the patent, and thus can proceed in
federal court despite the University's objection. Xechem further
argues that because the University's employee Dr. Andersson
applied for and was granted these patents by the United States Patent and
Trademark Office, a federal agency, the University consented to federal
jurisdiction, at least for correction of the identity of the applicant. Xechem also argues
that patents are a gift or gratuity granted by the federal government, and that
the University's acceptance of the patents is a waiver of Eleventh Amendment
immunity. The University responds that
Supreme Court precedent has disposed of all of these theories, and that the
complaint was properly dismissed for failure to state a claim upon which relief
can be granted.
A
Xechem argues that the
University waived its Eleventh Amendment immunity when it entered into this
collaborative research agreement, and further waived its immunity by contracting
with Xechem in the License Agreement for purposes of
commercial gain. Xechem
argues that by entering into these contractual and commercial arrangements the
University waived objection to federal court jurisdiction to secure
constitutionally protected property rights, and for issues that can be decided
only in federal court under preemptive federal statutes.
The University
responds that it did not waive its immunity by entering into these
arrangements, for any waiver must be express and clear and "altogether
voluntary," and cannot be inferred.
In College Savings the Court explained that waiver of the
Eleventh Amendment right to be immune from the authority of federal courts can
occur in only two circumstances: first, if the state on its own initiative
invokes the jurisdiction of the federal courts; and second, upon a clear
declaration by the state of its intent to submit to federal jurisdiction. 527
Xechem argues that patent
law finds its authority in the Constitution, and that no state court can
adequately ensure that the federal interest in promoting progress of the useful
arts is upheld. Xechem
also argues that this case calls for an interpretation of federal law by
federal courts, because inventorship is a matter of
exclusive federal jurisdiction. However,
the Court has dealt definitively with the argument that a state waives its
immunity by entering into arrangements controlled by federal law and reviewable
only in federal court. In College
Savings the Court reaffirmed the principles of Seminole Tribe of Florida
v. Florida, 517 U.S. 44 (1996) and Fitzpatrick v. Bitzer,
427 U.S. 445 (1976), and overruled Parden
v. Terminal Railway of the Alabama State Docks Department, 377 U.S. 184
(1964).
In Seminole
Tribe the Court discussed the congressional power to abrogate state immunity
by federal statute, and reaffirmed that the Commerce Clause is not a source of
such power. In Parden
the Court had relied on the Commerce Clause to hold that when a state
voluntarily enters into federally regulated activity -- in Parden,
operating a railroad -- the state is deemed to have consented to federal
jurisdiction arising from that activity, in that case an action under the
Federal Employers' Liability Act. In
overruling Parden's constructive waiver, the
Court stressed in College Savings that a state's waiver of Eleventh
Amendment rights cannot be imposed or implied based on a state's entry into
commerce, but must be founded on a "clear declaration" by the state
of its intent to submit to federal jurisdiction.
B
Xechem also argues that
the University constructively consented to federal jurisdiction by causing its
employee Dr. Andersson to apply for
§256. Whenever through error a person is named in
an issued patent as the inventor, or through error an inventor is not named in
an issued patent and such error arose without any deceptive intention on his
part, the Director may, on application of all the parties and assignees, with
proof of the facts and such other requirements as may be imposed, issue a
certificate correcting such error.
The error of omitting inventors or
naming persons who are not inventors shall not invalidate the patent in which
such error occurred if it can be corrected as provided in this section. The court before which such matter is called
in question may order correction of the patent on notice and hearing of all
parties concerned and the Director shall issue a certificate accordingly.
The University
states that this statute does not waive state immunity, either expressly or by
implication. In College Savings
the Court negated the argument that a state's voluntary participation in
activities controlled by federal statute imposes a consent to suit arising from
those activities. The Court stated that
"we think where the constitutionally guaranteed protection of the States'
sovereign immunity is involved the point of coercion is automatically
passed -- and the voluntariness of waiver
destroyed -- when what is attached to the refusal to waive is the exclusion of
the State from otherwise lawful activity."
527
Xechem also argues that a
state's invocation of the authority of the PTO to grant patents is analogous to
the state's invocation of federal authority to enforce its patent rights at
state initiative, the latter clearly serving to waive Eleventh Amendment
immunity. See Regents of the
University of New Mexico, 321 F.3d at 1125 (recognizing the
"inconsistency and unfairness that could result from allowing a state that
voluntarily avails itself of the federal courts to simultaneously claim
immunity under the Eleventh Amendment") (citing Lapides
v. Board of Regents of the Univ. Sys. of Georgia, 535 U.S. 613
(2002)). Such analogy does not withstand
scrutiny, for waiver must be clear, explicit, and voluntary, and cannot be imposed
on a state that has not voluntarily entered federal jurisdiction.
Thus the argument
must be rejected that a state's entry into the patent system is a constructive
waiver of immunity for actions in federal court against the state under the
patent law.
C
Xechem also argues that
the grant of a patent is a "gift or gratuity" by the government,
whereby acceptance of the grant is a constructive waiver of immunity, citing Petty
v. Tennessee-Missouri Bridge Commission, 359 U.S. 275 (1959) and South
Dakota v. Dole, 483 U.S. 203 (1987).
The Court confirmed in Petty and again in Dole that
Congress can condition receipt of federal funds on a commensurate waiver of
state immunity. However, in College
Savings the Court explained that such conditions on federal disbursements
are "simply not analogous to Parden-style
conditions attached to a State's decision to engage in otherwise lawful
commercial activity." 527
The grant of a
patent is not a disbursement of governmental largesse. A gift is "nothing more than the
transfer of property without consideration." Kehr v.
Smith, 87
Patent activity is
commercial activity, not governmental beneficence. The holdings of Seminole Tribe, and
the overruling of Parden, have foreclosed the
broad ruling that by obtaining patents the state constructively waived its
Eleventh Amendment immunity as to any federal proceeding involving those
patents. Xechem
argues, as it did in the district court, that the reasoning in New Star
Laser, Inc. v. Regents of the University of California, 63 F. Supp.2d 1240
(E.D. Cal. 1999) supports a theory of constructive waiver. The New Star Laser court stated that
although the Patent Remedy Act of 1992 may have failed as abrogating
legislation, it succeeded as constructive waiver legislation. The Court explicitly rejected this
distinction in College Savings, stating that "constructive waiver
is little more than abrogation under another name." 527
D
Xechem also argues that
the University is not a necessary party to this action to correct inventorship, and therefore that it need not consent to or
participate in the hearing, provided only that it received notice of the
hearing. Under 35 U.S.C. §256 ¶2 a court
may order correction of inventorship over the
objection of those adversely affected. See
Stark v. Advanced Magnetics, Inc., 119 F.3d
1551, 1553 (Fed. Cir. 1997). Xechem argues that since the University cannot prevent the
§256 action from proceeding, both consent and immunity are irrelevant. Thus Xechem argues
that the Eleventh Amendment does not bar suit to correct inventorship
of a patent that is assigned to the University.
The district court did not discuss whether the assignee is a necessary
party to a §256 ¶2 suit to correct inventorship. However, state entities are the only party-defendants
to this suit; with no defendant, there is no suit.
The pleadings
stated that inventorship can be corrected only in
federal court, but ownership issues are generally the province of state
courts. Although the Federal Circuit has
held that inventorship is determined under federal
law, see MCV, Inc. v. King-Seeley Thermos Co., 870 F.2d 1568,
1570 (Fed. Cir. 1989), state courts can apply federal law to issues properly
before the state court. See Speedco, Inc. v. Estes, 853 F.2d 909, 914
(Fed. Cir. 1988) (citing Brady v. Southern Ry. Co.,
320
Although the Court
recognized in Florida Prepaid that possible state court remedies may be
"uncertain" or "less convenient" or "might undermine
the uniformity of patent law," the Court held that uncertainty and other
disadvantages flowing from a state's claim of Eleventh Amendment immunity did
not deprive a patentee of property without due process of law. 527
Conclusion
Xechem's pleadings and
representations do not meet the requirements of precedent for waiver or abrogation of a state's Eleventh Amendment immunity. Thus the district court's dismissal under
Rule 12(b)(6) is
AFFIRMED.
03-1406
XECHEM
INTERNATIONAL, INC.,
Plaintiff-Appellant,
v.
THE UNIVERSITY OF
and BOARD OF REGENTS OF THE
Defendants-Appellees.
NEWMAN, Circuit Judge,
additional views.
I write separately
to state my concern lest the caveats and safeguards recognized by the Supreme Court in its rulings in Florida Prepaid and College Savings[4]
become submerged in generalizations of absolute state immunity. The Court observed in Florida Prepaid
that if no state court remedy were available for patent infringement, such
failure of recourse could raise the due process concerns of the Fourteenth
Amendment. Compare Tennessee v. Lane,
124 S. Ct. 1978 (2004) (legislative abrogation sustained on due process grounds
for violation of Title II of the Americans with Disabilities Act of 1990)
with Board of Trustees of Univ. of
Ala. v. Garrett, 531 U.S. 356 (2001) (legislative abrogation rejected in
claims for money damages for violation of Title I of the ADA). Although Xechem is
here seeking judicial, not legislative, relief, its due process claims on the
ground that there is no alternative remedy have not been fully explored. Nor did Xechem in
this action seek the alternative path marked by Ex parte
Young, 209 U.S. 123 (1908). These
aspects are not raised in this dismissal on the pleadings.
Intellectual Property and the Fourteenth
Amendment
In Florida
Prepaid the Court, discussing abrogation of Eleventh Amendment immunity,
stated that "only where the State provides no remedy, or only inadequate
remedies, to injured patent owners for its infringement of their patent could a
deprivation of property without due process result." 527 U.S. at 643, quoting Hudson v. Palmer,
468 U.S. 517, 539 (1984) (O'Connor, J., concurring) that "in challenging a
property deprivation, the claimant must either avail himself of the remedies
guaranteed by state law or prove that the available remedies are
inadequate," in turn citing Parratt v.
Taylor, 451 U.S. 527, 537-544 (1981).
Throughout the evolution of Eleventh Amendment jurisprudence the Court
has stressed the rigor of the restraint imposed by the Fourteenth Amendment on
the federal government as well as on the states. Thus the Court found in Florida Prepaid
that patent infringement by states did not appear to be a sufficiently
prevalent national problem to warrant §5 abrogation. And in College Savings the Court held
that unfair competition by a state based on false advertising did not raise a
Fourteenth Amendment property issue; the Court observed that general business
interests are not property rights, and held that while trademarks are
constitutionally protected property, false advertising has no relation to the
right to exclude and does not raise a constitutional issue. The Court recognized, however, that "the
assets of a business . . . unquestionably are property, and any state taking of
these assets is unquestionably a 'deprivation' under the Fourteenth
Amendment." College Savings,
527
Xechem has asserted that
in this case inventorship controls ownership and the
right to practice the patented invention -- fundamentals of patent
property. See Consolidated
Fruit-Jar Co. v. Wright, 94
In Florida
Prepaid the Court noted that patent infringement by the state might be
remedied in state court on the traditional state law grounds of taking of
property or conversion, 527
The Doctrine of Ex Parte
Young
The Court in Florida
Prepaid also mentioned potential recourse to the doctrine of Ex parte Young, 209 U.S. 123 (1908), which held that a
state employee is not shielded by Eleventh Amendment immunity if the employee
has acted in violation of federal law.
The Court held that although state immunity barred suit in federal court
against Mr. Young in his capacity as attorney general of
Putting aside the acts of state
officials which are plainly ultra vires under state law itself, there are, in general,
two instances where Young has been applied. The first is where there is no state forum
available to vindicate federal interests, thereby placing upon Article III
courts the special obligation to ensure the supremacy of federal statutory and
constitutional law.
Even if there is a prompt and
effective remedy in a state forum, a second instance in which Young may
serve an important interest is when the case calls for the interpretation of
federal law. This reasoning, which is
described as the interest in having federal rights vindicated in federal
courts, can lead to expansive application of the Young exception.
Whether the Commission waived its
immunity is another question we need not decide, because . . . even absent waiver,
Verizon may proceed against the individual
commissioners in their official capacities pursuant to the doctrine of Ex parte Young, . . .
In determining whether the doctrine of Ex parte
Young avoids an Eleventh Amendment bar to suit, a court need only conduct a
"straightforward inquiry into whether [the] complaint alleges an ongoing
violation of federal law and seeks relief properly characterized as
prospective."
The applicability
of Ex parte Young to Xechem's claim of incorrect inventorship
was not raised on this appeal. Although Xechem states that Dr. Andersson
violated federal law in averring that he is the sole inventor, neither he nor
any other employee or agent of the state was sued individually in his official
capacity. I express no view as to
whether Young offers a path to relief on the issue here presented; this
aspect is not resolved by this dismissal on the pleadings.
A Continuing Concern
The circumstances
of this case illustrate that when a state is charged with contravention of
federal law in a way that directly affects private property, and if no remedy
is indeed available within the state's tribunals -- whether by the state's
invocation of immunity or by federal preemption of the cause of action -- there
can arise an affront to the fundamentals
of due process. Respect for the
principles of federalism does not automatically immunize the state from due
process considerations. The Court in Florida
Prepaid kept this door ajar. I write
to the same purpose, for there is an increasing urgency, as the states enter
the private competitive arena governed by the laws of intellectual property, to
establish fair relationships and just recourse.
[1] Xechem Int'l, Inc. v.
[2] Amendment
XI. The Judicial power of the
[3] Amendment
XIV. Section 1. . . . nor shall any State deprive any person
of life, liberty, or property, without due process of law; nor deny to any
person within its jurisdiction the equal protection of the laws.
Section 5. The Congress shall have power to enforce, by
appropriate legislation, the provisions of this article.
[4] In
Florida Prepaid Postsecondary Education Expense Board v. College Savings
Bank, 527 U.S. 627 (1999) and College Savings Bank v. Florida Prepaid
Postsecondary Education Expense Board, 527