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Sovereign immunity shields university from inventorship dispute

26 April 2017

In a case involving medical methods invented by two Nobel laureates, the U.S. Court of Appeals for the Federal Circuit has ruled that sovereign immunity prevents a third researcher from pursuing his claim of  co-inventorship against the research institutions who own the patents.  Ali v. Carnegie Institution of Washington, No. 2016-2320, per curiam, (Fed. Cir. April 12, 2017). The case holds some noteworthy lessons for state-affiliated research institutions and their technology transfer offices.

Dr. Andrew Z. Fire of the Carnegie Institution of Washington and Dr. Craig C. Mello of the University of Massachusetts were awarded the 2006 Nobel Prize in Medicine for their work in discovering a fundamental mechanism for controlling the flow of genetic information. They are named co-inventors (among others) of five U.S. patents for methods of gene-specific inhibition through the use of double-stranded ribonucleic acid. Those patents are jointly owned by their respective institutions, in accordance with their respective institutional patent policies.

Mussa Ali worked in Mello’s University of Massachusetts lab and claimed to have made a critical contribution to the inventions in 1997. Now an Oregon resident, he brought suit pro se against the patent owners in the federal district court in Oregon, seeking to be added to the patents as a named co-inventor, as well as a share in royalties. While states are generally not immune from property disputes raised in their own state courts, a federal statute provides that suits relating to patents—including inventorship disputes—may only be brought in federal court.  See 28 U.S.C. 1338(a).

However, as a state institution, UMass benefits from sovereign immunity against suits in federal court under the Eleventh Amendment to the Constitution. The district court ruled that sovereign immunity required the dismissal of UMass from the proceeding. Lacking jurisdiction over the remaining defendant, the Carnegie Institution, the Oregon court transferred the case to the D.C. district court. That court ruled that the case could not proceed against the Institution either, because UMass is an indispensable party under Federal Rule of Civil Procedure 19(b). In other words, rights relating to those patents could not be adjudicated without joining both co-owners in the suit. In a per curiam opinion, the Federal Circuit affirmed the rulings of both lower courts. Accordingly, Mr. Ali is left in the unusual and unfortunate position of having no forum to consider his legal claim.

In filing the patents, the owners had acknowledged that they were “subject inventions” under federal grants. On appeal, Ali argued that the Bayh-Dole Act makes waiver of sovereign immunity for patent matters a condition of federal research funding, and that UMass had waived sovereign immunity by accepting federal funding for research. The Federal Circuit rejected this theory, upholding the district court’s conclusion that " ‘[t]here is nothing in the Bayh-Dole Act that suggests waiver of sovereign immunity in federal court is a prerequisite to accepting funding under the [Bayh-Dole] Act, thereby permitting suit against a state in a § 256 action.’"

It is interesting to note that, although only one stakeholder had immunity, the others—the Carnegie Institution and the named inventors—also benefitted from it. In fact, it may be that the inventors had more at stake in terms of royalty income than UMass, since each inventor’s share of royalty income would have been reduced if an additional inventor were recognized. Under UMass’s patent policy, various University entities receive a combined 70 percent share of net royalties, regardless of the number of inventors, while the 30 percent inventor share is divided among them. See The University of Massachusetts Amherst Intellectual Property Policy, § III.G.1.b (https://www.umass.edu/research/policy/intellectual-property-policy).

On appeal, Ali pointed out that the University share is fixed, arguing that UMass had no financial stake in the outcome and thereby should not be considered an indispensable party. The Court rejected that notion. The fact that Ali sought monetary damages from UMass (a future share of royalties and reimbursement of his share of royalties already disbursed) was sufficient, regardless of whether overpayments to other inventors might be recovered. Notably, one member of the three-judge panel, Judge Dyk, filed a concurring opinion stating that the court would have to re-visit the “indispensable party” issue in a future case in which only inventorship, not damages, is claimed. Judge Dyk was clearly concerned with the unfairness of denying a putative inventor any opportunity to assert his inventorship.

In this case, the fact that UMass had not transferred exclusive control of patent litigation to a licensee may have been key to the outcome. In an earlier case involving different patents and inventors, UMass was held not to be an indispensable party where it had entered an agreement handing sole and exclusive control of the patent litigation to Alnylam Pharmaceuticals, Inc., which participated in the case. See University of Utah v. Max-Planck-Gesellschaft zur Forderung der Wissenshaften E.V., 734 F.3d 1315, 1327-28 (Fed. Cir. 2013).

The Ali decision marks the second time in less than a week in which a state institution has avoided a federal suit due to its sovereign immunity. On April 11, the district court in Oregon dismissed a False Claims Act suit against the Oregon Health and Science University on sovereign immunity grounds. That suit alleged overcharging of costs to grants. See U.S. et al. v. Oregon Health & Sciences University, No. 3:13-cv-01306, (D. Ore.). Hogan Lovells represents the university in that case.  [1]/

Because the per curiam decision in Ali v. The Carnegie Institution of Washington is non-precedential, it is theoretically possible for another district court to reach a different conclusion in a similar case. That seems highly unlikely, but Judge Dyk’s concurring opinion leaves the door open to another outcome if the plaintiff seeks only injunctive relief (amendment of the patent to reflect his inventorship). The decision will be welcomed by state-affiliated institutions because it means that inventorship disputes among their researchers do not generally risk becoming court cases, provided the institution retains ownership and has not ceded sole control of patent defense to a third party. If a particular patent is the subject of an inventorship dispute, the university must understand that assignment to a third party, or even delegation of patent defense to a licensee, could result in a loss of immunity. The case also underscores the importance of having an internal inventorship dispute resolution mechanism that offers some due process and is perceived as unbiased by faculty and research staff.



[1]/ See previous client alert on this case here. http://www.hoganlovells.com/en/publications/the-district-of-oregon-rules-that-the-united-states-may-not-pursue-false-claims-act-litigation-against-state-entities

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