Federal Circuit Reduces Licensor Control of Infringement Suits

August 20, 2020
Marshall Gerstein Alert

Gensetix, Inc. v. The Board of Regents of the University of Texas System, (Fed. Cir. July 24, 2020) is of interest to any patent licensor, but particularly state institutions, because it weakened the control licensors have over enforcement of licensed patents. The case might also be a vehicle in further appeals to reduce the scope of sovereign immunity in patent matters. 

Gensetix is an exclusive licensee of University of Texas (UT) and sued Baylor College of Medicine (Baylor) for patent infringement. UT refused to join the suit, so Gensetix named UT as an involuntary plaintiff. UT successfully moved the district court to dismiss UT from the litigation because it is immune from suit under the 11th Amendment and had not waived this immunity. Baylor then successfully moved to dismiss the entire case because UT, as the owner of the patents, was a necessary party to the suit. Gensetix appealed to the Court of Appeals for the Federal Circuit.

The Federal Circuit provided a fractured decision in which:

  • Judge O’Malley held that UT was immune from suit under the 11th Amendment, but that the case could proceed without UT because Gensetix, as an exclusive licensee with a license that was not field-limited, could adequately protect UT's interests.
  • Judge Newman concurred in the result that the case could proceed without UT, but would have also held that sovereign immunity was inapplicable because UT granted Gensetix the right to enforce the patents and agreed to cooperate in that enforcement. Interestingly, in a footnote, Judge O’Malley expressed sympathy for Judge Newman’s position on sovereign immunity, but stated that Supreme Court precedent prevented her from joining Judge Newman on that issue. 
  • Judge Taranto agreed with Judge O’Malley on sovereign immunity (though not her footnote sympathizing with Judge Newman’s position), but dissented because he thought that the entire case must be dismissed without UT’s participation. 

Many non-profit institutions have policies against provisions in their license agreements requiring them to join infringement lawsuits, or at least they try to avoid including those provisions. In many cases those policies are simply meant to avoid participating in lawsuits, but they may also be an indirect attempt to prevent licensees from pursing weak or politically fraught litigation. For those institutions trying to exercise control over what litigation can be filed, Gensetix may require additional strategies to keep that control. For example, Gensetix relies on the fact that the license was not field limited to find that the case could proceed without UT, so institutions may want to consider adding field limitations to more of their licenses. Other strategies for maintaining control over litigation, aside from requiring explicit consent, might include restricting sublicensing and requiring the licensor’s permission to settle a lawsuit. 

Given the fractured nature of the opinion and the recent interest in sovereign immunity in patent cases, it seems likely the full Federal Circuit will rehear the appeal, probably to consider whether the case can proceed without UT. It would not be surprising to see the Supreme Court take the case up in the next year or two, in which case a broader rethinking of sovereign immunity is possible.

Questions or comments regarding the information above may be directed to Robert Gerstein.

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