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Waiver of immunity in earlier case does not operate as waiver in later case involving same patent
October 25, 2007

In a decision Tuesday, the Federal Circuit affirmed a district court's decision that a state had not waived its Eleventh Amendment sovereign immunity. The state had intervened in an earlier, related action, but that action was subsequently dismissed for improper venue. The court held that while the state waived its immunity in the first suit by intervening, the waiver did not apply to the subsequent lawsuit, even though it involved the same patent.

This was because there was insufficient unfairness to the non-state party to warrant applying the waiver to the second suit, and, while the state's position was arguably contrary to its earlier position, an intervening change in the law (the Supreme Court's Florida Prepaid decision that held the Patent and Plant Variety Protection Remedy Clarification Act could not constitutionally abrogate states' immunity from patent infringement lawsuits) prevented it from being "clearly inconsistent," preventing application of judicial estoppel.

More detail of Biomedical Patent Mgmt. Corp, v. California Dep't of Health Servs. after the jump.Biomedical Patent Management Corporation ("BPMC") filed suit against the Department of Health Services of the State of California ("DHS"), alleging that DHS performs services that infringe U.S. Patent No. 4,874,693. In 1997, a subcontractor of DHS filed a declaratory judgment action in against BPMC in the Northern District of California, seeking a declaratory judgment that it did not infringe the '693 patent and that the '693 patent was invalid ("the 1997 lawsuit"). DHS filed a motion to intervene, attaching a complaint which also sought a declaratory judgment of invalidity and noninfringement of the '693 patent. The lawsuit was eventually dismissed in its entirety, without prejudice, after the district court granted BPMC's motion to dismiss for improper venue.Five days after the case was dismissed, BPMC filed a lawsuit in the Southern District of California against DHS for infringement of the '693 patent. DHS answered the complaint and additionally asserted the defense of sovereign immunity. Shortly thereafter, the Supreme Court granted certiorari in the case of Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, dealing with whether states could assert sovereign immunity to patent infringement lawsuits. The district court granted BPMC's motioin to voluntarily dismiss the lawsuit without prejudice to await the Supreme Court's decision in that case. The Court eventually decided that Congress's abrogation of immunity was invalid, and that states could assert immunity to patent infringement suits absent waiver of the immunity.In 2006, BPMC once again sued DHS for infringement. BPMC argued that while DHS is an arm of the State of California and therefore generally accorded Eleventh Amendment immunity, that immunity was waived. Specifically, BPMC asserted that waiver applied because (1) DHS intervened in the 1997 lawsuit, and that waiver applied to this case because it dealt with the same subject matter, (2) DHS was judicially estopped from asserting immunity in this case based on its earlier position, (3) California's conduct in the patent system, specifically in patent litigation (in which it is a frequent plaintiff) constitutes a general waiver for all California state defendants in patent suits, and (4) the Supreme Court implicitly overruled Florida Prepaid in a 2006 case, Central Virginia Community College v. Katz. The court addressed each of these arguments in turn.The Federal Circuit initially noted that a waiver may be found where "either if the State voluntarily invokes our jurisdiction, or else if the State makes a clear declaration that it intends to submit itself to our jurisdiction." Further, the Federal Circuit noted "a state waives its Eleventh Amendment immunity when it consents to federal court jurisdiction by voluntarily appearing in federal court" and, quoting the Supreme Court in Clark v. Barnard, that "'the voluntary appearance of [a] state in intervening as a claimant [in an interpleader action]' constitutes a waiver of Eleventh Amendment immunity." Thus, the Federal Circuit concluded that DHS had waived its sovereign immunity in the 1997 lawsuit. The Federal Circuit next noted that "[h]aving found that DHS's intervention in the 1997 lawsuit constituted a waiver of its sovereign immunity in that suit, the question we must resolve in this case is when, if ever, a waiver of immunity in an earlier lawsuit prevents a State from asserting sovereign immunity in a later lawsuit between the same parties." The court noted "a State's waiver of immunity as to the subject matter of a lawsuit does not, by itself, constitute a waiver of immunity in any future lawsuit involving that subject matter." However, the court qualified its statement, noting that:

we do not mean to draw a bright-line rule whereby a State's waiver of sovereign immunity can never extend to a re-filed separate lawsuit. We note only that the case law relied upon by BPMC does not support its contention that waiver of immunity in one suit should extend to a separate action simply because the action involves the same parties and same subject matter.
The Federal Circuit concluded that there was insufficient unfairness in this case in permitting the state to assert immunity "to cause us to diverge from the general principles of waiver that we have laid out in this opinion: that a waiver generally does not extend to a separate lawsuit, and that any waiver, including one effected by litigation conduct, must be 'clear.'"Regarding BPMC's argument that DHS was judicially estopped from arguing sovereign immunity, the Federal Circuit noted that the Supreme Court has identified three factors in determining whether estoppel applies:
(1) whether a party's later position is "clearly inconsistent" with its earlier position; (2) whether the party succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create "the perception that either the first or second court was misled"; and (3) whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.

The Federal Circuit concluded that the district court had not abused its discretion in finding that DHS was not estopped, because "although DHS's positions were inconsistent, the inconsitency is excused by an intervening change in the law." The court noted that after Florida Prepaid, DHS could be confident that if sued, it could assert sovereign immunity.

The court quickly dispensed with BPMC's other arguments that waiver existed. First, it noted that Florida Prepaid eliminated its argument that California's conduct in patent litigation could constructively waive its immunity. Second, it found no implied overruling of Florida Prepaid in the Katz case, as Katz dealt with the bankruptcy clause, and "cannot be read to extend to actions for patent infringement." As a result, the district court's dismissal of the case on immunity grounds was affirmed.To read the full decision in Biomedical Patent Mgmt. Corp, v. California Dep't of Health Servs., click here.

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