Split CAFC Holds That a State Asserting Sovereign Immunity May Not Be Joined as Involuntary Plaintiff

On July 24, the United States Court of Appeals for the Federal Circuit (CAFC) affirmed a decision of the United States District Court for the Southern District of Texas that a State asserting sovereign immunity could not be joined as an involuntary plaintiff, but dissented from the district court’s holding that the case could not proceed in the State’s absence. Gensetix, Inc. v. Baylor College of Medicine. Judges Newman and Taranto each wrote separately in partially dissenting from different aspects of the majority’s opinion.

District Court Analysis

The patents-in-suit, U.S. Patent Nos. 8,728,806 and 9,333,248, were directed to methods for inducing an immunologic response to a tumor. In 2014, Gensetix entered into a License Agreement for the patents-in-suit with the University of Texas (UT), which is an arm of the state of Texas. The License Agreement included provisions specifying that Gensetix “must enforce any patent ‘covered by the license,’” that UT retained a secondary right to sue if Gensetix failed to sue an infringer within 6 months of learning of the infringement, and the “parties agreed to fully cooperate with each other in any infringement suit.” The agreement also specified that nothing in the agreement constituted a waiver of UT’s sovereign immunity.

In 2017, Gensetix filed an infringement suit against Baylor College of Medicine and requested that UT join as a co-plaintiff. UT refused to voluntarily join the suit; thus, Gensetix named UT as an involuntary plaintiff pursuant to Rule 19(a). UT filed a motion to dismiss itself from the suit, arguing that the district court lacked jurisdiction because UT was a sovereign state entity under Texas law. The district court granted UT’s motion to dismiss because UT did not waive its immunity pursuant to the agreement and the Eleventh Amendment prohibited involuntary joinder. The district court also held that UT was an “necessary” and “indispensable” party to the suit “under Rule 19(a) because it retained substantial rights in the patents-in-suit” and the suit could not proceed in UT’s absence. Gensetix appealed to the CAFC.

Sovereign Immunity

On appeal, the CAFC initially considered Gensetix’s argument that the district court erred in holding that sovereign immunity barred the coercive joinder of UT under Rule 19(a)(2). Gensetix reasoned that the Eleventh Amendment only “bars suits brought by private citizens against the state,” rather than suits where the state is an involuntary plaintiff. The CAFC disagreed, noting that sovereign immunity should not be limited to “the face of its text” because its purpose is to “avoid the indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties.”

Gensetix relied on the Supreme Court’s holding in Regents of the Univ. of Cal. v. Eli Lilly & Co. (Regents of UC) for its assertion that Eleventh Amendment immunity does not apply in cases where the state is a plaintiff and there are no counterclaims against the state. The CAFC rejected Gensetix’s argument, noting that the state voluntarily submitted itself to federal court jurisdiction as a plaintiff in Regents of UC, while UT was an involuntary plaintiff. Thus, since UT did not voluntarily invoke jurisdiction before the district court or expressly waive its sovereign immunity, the CAFC concluded that UT may not be joined as an involuntary plaintiff due to its assertion of sovereign immunity.

Rule 19(b)

The CAFC also considered whether the district court erred in concluding that the case could not proceed in UT’s absence. The CAFC noted that the district court failed to properly analyze whether the Rule 19(a) factors weighed in favor of dismissing the case. The four Rule 19(a) factors are:

• the extent to which a UT could be prejudiced by a judgment,
• the extent to which any such prejudice to UT may be reduced,
• whether a judgment rendered in UT’s absence would be adequate so as to reduce the risk of multiple suits, and
• whether Gensetix would have an adequate remedy if the action were dismissed.

With respect to the first two factors, the CAFC noted that the prejudice to UT was minimal or could be mitigated because Gensetix and UT’s had identical interests in the patents-in-suit and Gensetix would adequately protect UT’s interests, along with its own, in the litigation. In arguing that the case should not proceed, UT relied on Pimentel for the premise “where sovereign immunity is asserted, and the claims of the sovereign are not frivolous, dismissal of the action must be ordered where there is a potential for injury to the interests of the absent sovereign.” The CAFC distinguished Pimentel from the present case on the bases that Pimentel related to foreign sovereign immunity rather than state sovereign immunity, it was undisputed that the absence of the Philippines in Pimentel would result in the Philippine’s interests going unprotected, and the claim in Pimentel “was not extinguished for lack of an alternative forum.” The CAFC further explained that Pimentel did not declare a bright line rule, but rather clarified that a proper Rule 19(b) inquiry required the court to examine “the claims presented and the interests likely to be asserted both by the joined parties and the absent entities or persons.”

The CAFC noted that the district court also failed to properly analyze the third factor to determine whether UT would be barred from filing a later suit against Baylor. The CAFC explained that, pursuant to the agreement, UT’s right to sue was secondary right to Gensetix’s right to sue. In concluding that UT does not have the right to initiate another suit against Baylor, the CAFC noted that allowing the litigation to proceed in UT’s absence did not pose a substantial risk of multiple suits.

The CAFC touched on the fourth factor by stating “as an exclusive licensee with less than all substantial rights in the patents-in-suit, Gensetix cannot enforce its patent rights without the court allowing the suit to proceed in UT’s absence.” Thus, based on its analysis of the factors, the CAFC concluded that the district court abused its discretion in holding that the suit could not proceed in UT’s absence.

Judge Newman: UT Has No Immunity from Joinder

Judge Newman dissented from the majority’s holding on sovereign immunity but agreed that the suit could proceed in UT’s absence. Newman emphasized UT’s commercial and contractual obligations stemming from the License Agreement with Gensetix and noted that the Eleventh Amendment is not an authorization by which a State may violate such obligations. Newman referred to sections of the License Agreement, stating that Gensetix “must enforce any patent exclusively licensed hereunder against infringement by third parties,” and in any infringement action “the parties agree to cooperate fully with each other.” Newman reasoned that UT both violated its agreement to “fully cooperate” in an infringement action and deprived Gensetix of its exclusivity under the License Agreement.

In agreeing with the majority, Newman opined that the district court incorrectly held that UT retained substantial patent rights such that the suit could not proceed in UT’s absence. Newman explained that the License Agreement was essentially an assignment of exclusive patent rights to Gensetix and noted that neither UT’s secondary right to sue nor UT’s right to publish scientific or technological information contained within the patents-in-suit constituted a reservation of patent rights by UT. Thus, Newman disagreed with the majority’s holding that the University had Eleventh Amendment immunity but agreed that the action may proceed in UT’s absence.

Judge Taranto: The Suit Should Not Proceed

Judge Taranto also wrote separately, agreeing with the majority that UT could not be joined as an involuntary plaintiff, but dissenting with the majority opinion that the suit could proceed in UT’s absence. In his dissent, Taranto reasoned that the majority misapplied Pimentel, which stood for the “bright-line rule” that a dismissal of the action “must be ordered” when a sovereign makes a non-frivolous claim of sovereign immunity and there is a potential for injury to the sovereign. Taranto was not persuaded by the majority’s reasons for distinguishing Pimentel, noting that the holding in Pimentel is equally applicable to states and foreign sovereigns. In addition, Taranto agreed with the district court that UT retained substantial rights in the patents-in-suit by retaining a broad rights to sue and control litigation, to publish general findings for academic purposes, and by way of a termination provision in the License Agreement. Concluding that UT made a “non-frivolous claim that its interests as patent owner could easily be harmed—by, e.g., narrow-scope rulings or invalidation—if the suit proceeds in its absence”, Taranto opined that the district court was correct in dismissing the suit in UT’s absence