Bill Encourages States to Waive Immunity in IP Cases

The U.S. Constitution sets forth a federal system of sovereign states. It is common for states, through their universities and other agencies, to obtain federal intellectual property rights, such as patents and trademarks. However, the status of states as sovereign entities insulates them from intellectual-property claims that others might bring against them.

Since the U.S. Supreme Court decided the Florida Prepaid cases in 1999, lawmakers have attempted to address the intersection of state sovereignty and intellectual-property rights in a way that is respectful to both states and intellectual-property owners. See College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666 (1999); Florida Prepaid Postsecondary Educ. Expense Bd. v. College Sav. Bank, 527 U.S. 627 (1999).

The most recent attempt at a solution is the Intellectual Property Protection Restoration Act of 2003, introduced this term by Sen. Patrick Leahy of Vermont. It aims to encourage states to waive voluntarily their immunity to suits for damages for infringement in exchange for maintaining the opportunity to receive damages from infringers of their own intellectual property.

This parity tries to increase the equity between states and other competitors in the marketplace.

The legislation clarifies that remedies are available against state officers and employees for infringing acts. Finally, the bill contains some relief for plaintiffs against states that have not waived immunity but persist in a pattern of infringement that is unconstitutional under the 14th Amendment.

These provisions represent a careful balance of the competing interests of sovereigns and other intellectual-property owners, crafted to comport with guidance from the courts gained since this issue rose to prominence in the late 1990s.

The 11th Amendment explicitly provides that "the Judicial Power of the United States shall not be construed to extend to any suit ... commenced or prosecuted against any one of the United States."

The Supreme Court has explained that the 11th Amendment goes beyond restricting federal jurisdiction and extends generally to the notion that each state is a sovereign entity and that, as such, a state cannot be made amenable to suits brought without its consent. Seminole Tribe of Fla. v. Florida, 517 U.S. 44 (1996); Hans v. Louisiana, 134 U.S. 1 (1890).

However, a state's 11th Amendment immunity is not absolute. As sovereigns, states have the implicit power to waive their immunity by consenting to suit.

In order to address the resulting inequities, Congress passed the Patent Remedy Act of 1992 to "clarify that States, instrumentalities of States, and officers and employees of States acting in their official capacity, are subject to suit in Federal court by any person for infringement of patents."

The Trademark Remedy Clarification Act likewise amended the Lanham Act to permit actions against states. A similar Copyright Remedy Clarification Act had been passed in 1990.

It took little time for the remedy acts to be tested. In 1994, a New Jersey bank, College Savings, brought a patent-infringement action and a separate Lanham Act false-advertising action against Florida Prepaid Postsecondary Education Expenses Board, an entity created by the state of Florida.

College Savings had a patent on a method of financing future college expenses. It alleged that tuition prepayment contracts, which Florida Prepaid made available to Florida residents and their children, infringed its patent. College Savings alleged that Florida Prepaid made misstatements about its plans in its brochures and annual reports. Florida Prepaid moved to dismiss both actions on the grounds of sovereign immunity.

As to the patent action, the District Court and Federal Circuit sided with College Savings, which argued that Congress properly had exercised its enforcement authority under the 14th Amendment. But as to the false-advertising action, both courts sided with Florida Prepaid, finding no property protectable under the 14th Amendment or waiver of immunity by the state.

The Supreme Court granted the petition of Florida Prepaid in the patent case and the petition of College Savings in the Lanham Act case. In a bitterly divided decision issued June 23, 1999, the court held that Florida Prepaid was immune in both actions. The court accepted the fact that patents are property and, therefore, amenable to protection under the 14th Amendment.

However, the majority held that Congress is empowered to abrogate a state's sovereign immunity only to remedy a 14th Amendment violation but that Congress, in this case, had not identified conduct transgressing the substantive provisions of the 14th Amendment.

Justice Antonin Scalia wrote the majority opinion in the Lanham Act case. He identified two circumstances in which an individual may sue a state: where Congress properly has exercised its power to enforce the 14th Amendment and where the state has waived its sovereign immunity by consenting to suit.

The majority asserted that neither situation pertained to this case, because there was no protected property interest in the right to be free from a business-competitor's false advertising or to be secure in one's business interests and because no such doctrine as implied or constructive waiver of immunity existed.

The majority explicitly overruled Parden v. Terminal Railway of the Alabama State Docks Department, 377 U.S. 184 (1964), which allowed for such an implied or constructive waiver.

In the wake of Florida Prepaid, a significant amount of judicial, administrative and legislative activity has taken place. Many responses have viewed the Supreme Court decisions with a critical eye. Sen. Arlen Specter remarked in a floor statement that the Florida Prepaid decisions "leave us with an absurd and untenable state of affairs," in which "States will enjoy an enormous advantage over their private-sector competitors."

Leahy introduced legislation to remedy the situation four months after Florida Prepaid. As he observed during a hearing on the legislation, there is a "huge loophole in our federal intellectual property laws."

"If we truly believe in fairness," he said, "we cannot tolerate a situation in which some participants in the intellectual-property system get legal protection but need not adhere to the law themselves."

The Intellectual Property Protection Restoration Act of 2003 builds on Leahy's earlier proposals. It is structured around three main provisions.

The first provision is aimed at encouraging states to waive their sovereign immunity by providing incentives. The bill would amend the damages provisions of the federal intellectual-property statutes to prohibit any state from receiving damages for infringement of its intellectual-property rights unless, by Jan. 1, 2006, it has waived its 11th Amendment immunity from damages suits for infringing the intellectual-property rights of others.

The second provision would make the full set of remedies under the federal patent, copyright, trademark and Plant Variety Protection statutes available against state officers or employees "in the same manner and to the same extent as such remedies are available in an action against a private individual under like circumstances."

The federal statutes describe these remedies, which include monetary damages, declaratory and injunctive relief, destruction of infringing articles, costs and attorney fees.

The third provision provides limited abrogation of state sovereign immunity for constitutional violations involving intellectual property. Intellectual property owners may recover damages and costs for due process and takings violations, but compensation may not include an award of treble or enhanced damages.

Supporters of the legislation believe that this bill is poised to succeed where previous attempted solutions have failed because it was fashioned to be consistent with recent judicial opinions on state sovereignty issues. They point out that the incentive system is designed to avoid being unconstitutionally coercive by conditioning a "gift" from the federal government (intellectual-property protection, enforceable by suits for damages) on a state waiving immunity to such suits.

Considerable disagreement exists in the intellectual-property community as to the extent of the problem created by state sovereign immunity to damages for infringement.

As a byproduct of the lack of agreement on the extent of state infringement, some representatives of state institutions are concerned that the proposed bill will end up harming state institutions without an adequate rationale.

With the proposed bill, lawmakers are attempting to balance several competing interests. Congress has attempted to balance these issues in the past. Undoubtedly, as in the past, the courts will have the final say as to whether the balance struck this time will stand.