The Federal Circuit , in an opinion authored by Judge Moore, affirmed the determination of the PTAB, holding that ‘tribal sovereign immunity cannot be asserted in IPRs.”
On Monday, June 4th, the Court of Appeals for the Federal Circuit heard oral arguments in St. Regis Mohawk Tribe v. Mylan Pharmaceuticals, a case appealed from the Patent Trial and Appeal Board (PTAB), which asks the appeals court to determine whether tribal sovereign immunity can be asserted to terminate inter partes review (IPR) proceedings at the PTAB. On February 26, 2018, the PTAB issued a decision denying the Motion to Dismiss filed by the Saint Regis Mohawk Tribe.
Earlier this morning, the Federal Circuit, in an opinion authored by Judge Moore, affirmed the determination of the PTAB, holding that “tribal sovereign immunity cannot be asserted in IPRs.”
I suspect the St. Regis Mohawk Tribe will file a petition for reconsideration and for en banc hearing. If that is not granted, I anticipate this case will be headed to the Supreme Court. As explained more fully below, the decision of the Federal Circuit is rather seriously flawed. The PTAB is simply not capable of exercising jurisdiction over a patent through in rem jurisdiction. The ruling of the PTAB only implicates the rights of certain persons, and because the patent and all patent claims remains open to challenge by others in the future. That truth means the PTAB acts, at best, quasi in rem, which thanks to Supreme Court jurisprudence should be extremely relevant when determining the applicability of tribal sovereign immunity.
Federal Circuit: No Tribal Sovereign Immunity in IPR
“[I]mmunity does not apply where the federal government acting through an agency engages in an investigative action or pursues an adjudicatory agency action,” wrote Judge Moore. “There is not, however, a blanket rule that immunity does not apply in federal agency proceedings.”
Much of the Federal Circuit’s analysis seems to track the analysis of the PTAB, and is based on the premise that “IPR is neither clearly a judicial proceeding instituted by a private party nor clearly an enforcement action brought by the federal government.” Rather, according to the Federal Circuit citing the Supreme Court’s decision in Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2143–44 (2016), it is a “hybrid proceeding” with “adjudicatory characteristics” similar to court proceedings, but in other respects it “is less like a judicial proceeding and more like a specialized agency proceeding.”
The Federal Circuit found IPR to be more like an agency action than a litigation where private parties initiate because “[t]he Director bears the political responsibility of determining which cases should proceed.” While that reads nice, and probably sounds good logically, it is not correct. While the statute gives the Director the authority and responsibility to determine whether to institute IPRs, that statutory responsibility and authority has always been delegated to the Administrative Patent Judges of the PTAB. Thus, the Director plays no role whatsoever in deciding what cases to institute, and in fact has never taken any action to exercise discretion to step in and end harassing filings even though such authority explicitly exists in the America Invents Act. Therefore, the first rationale provided by the Federal Circuit for why tribal sovereign immunity does not apply in IPRs is at least misleading.
But the PTAB Cannot Exercise Jurisdiction Over the Patent
The second rationale provided by the Federal Circuit relates to the fact that the PTAB may continue to decide petitions even if the patent owner does not participate. The PTAB explains this power because they have power over the patent. Sadly, the Federal Circuit made the same error the PTAB made, which I previously pointed out here.
If the PTAB is really exercising jurisdiction over the challenged patent and not the patent owner that by definition means the PTAB exercises only quasi in rem jurisdiction, not in personam jurisdiction, or even in rem jurisdiction as the panel incorrectly suggested in footnote 6 of its decision. As explained by the United States Supreme Court:
“A judgment in personam imposes a personal liability or obligation on one person in favor of another. A judgment in rem affects the interests of all persons in designated property. A judgment quasi in rem affects the interests of particular persons in designated property.”
Hanson v. Denckla, 357 U.S. 235, 246 n. 12 (1958).
The PTAB does not have power to impose an obligation, and by their own admission they did not act in personam. The PTAB also cannot act in rem because, as we know, a decision does not settle rights as to all persons in the designated property, but rather only at best extinguishes invalidity arguments available to the challenger and their privies. Because a decision of the PTAB only implicates the rights of certain persons, and because the patent and all patent claims remains open to challenge by others in the future, that must mean the PTAB is actually claiming they are asserting quasi in rem jurisdiction.
In Shaffer v. Heitner, 433 U.S. 186 (1977) the Supreme Court extended the notions of fundamental fairness expressed in International Shoe v. Washington326 U.S. 310, (1945) relating to in personam jurisdiction to the exercise of in rem jurisdiction. The Supreme Court in Shaffer explained the difference between in rem jurisdiction and in personam jurisdiction:
If jurisdiction is based on the court’s power over property within its territory, the action is called “in rem” or “quasi in rem.” The effect of a judgment in such a case is limited to the property that supports jurisdiction and does not impose a personal liability on the property owner, since he is not before the court. In Pennoyer‘s terms, the owner is affected only “indirectly” by an in rem judgment adverse to his interest in the property subject to the court’s disposition.
Shaffer, 433 U.S. at 199 (footnote omitted).
The Supreme Court in Shaffer went further to recognize the obvious: “[A]n adverse judgment in rem directly affects the property owner by divesting him of his rights in the property before the court.” Shaffer, 433 U.S. at 206.
The Supreme Court wasn’t finished, however, going one step further to conclude that modern practice demands abandonment of the fiction that in rem jurisdiction does not act as an assertion of jurisdiction over property owners. In their own words the Supreme Court, in a decision authored by Justice Thurgood Marshall, held: “The fiction that an assertion of jurisdiction over property is anything but an assertion of jurisdiction over the owner of the property supports an ancient form without substantial modern justification.”
Few things in law are as predictable as this: This case is headed for the Supreme Court. There is simply no chance this politically motivated Supreme Court will miss an opportunity to weigh in on an issue like this.