Tuesday, November 13, 2007

WSJ goes after Florida Prepaid

In an article titled Critics Take Aim at California's Patent Shield, WSJ online's PETER LATTMAN takes on the Supreme Court decision in Florida Prepaid without mentioning the case or fully understanding the holding.

Speaking of the University of California, he writes:

The school also aggressively uses the courts as a sword, and is unafraid to take on big companies. As a plaintiff alleging patent infringement, the school has settled a claim against Genentech Inc. for $200 million, secured a payment of $185 million from Monsanto Co., and won a $30 million settlement from Microsoft Corp.

Yet, when it comes to getting sued for patent infringement, the university, as well as the state of California, are Teflon. A legal doctrine known as sovereign immunity protects states and state institutions from legal liability. Courts have held that participating in the federal patent system doesn't cost a state its immunity. The upshot -- states can sue, but effectively can't be sued.

Consider how wikipedia describes the Florida Prepaid case: the court held – in a decision authored by Chief Justice William Rehnquist – that the [Patent] Act's abrogation of States' sovereign immunity was invalid. Congress may only abrogate sovereign immunity pursuant to its § 5 powers, not its Article I powers (see Fitzpatrick v. Bitzer; Seminole Tribe v. Florida), and the Act could not be sustained as legislation validly enacted pursuant to § 5 under the test set forth in City of Boerne v. Flores. [Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999)]

Hmmm, that gets to the legalities but doesn't address what the WSJ was talking about.
First, some background (from the Supreme Court decision):

Since 1987, respondent College Savings Bank, a New Jersey chartered savings bank located in Princeton, New Jersey, has marketed and sold certificates of deposit known as the CollegeSure CD, which are essentially annuity contracts for financing future college expenses. College Savings obtained a patent for its financing methodology, designed to guarantee investors sufficient funds to cover the costs of tuition for colleges. Petitioner Florida Prepaid Postsecondary Education Expenses Board (Florida Prepaid) is an entity created by the State of Florida that administers similar tuition prepayment contracts available to Florida residents and their children. See Fla. Stat. §240.551(1) (Supp. 1998). College Savings claims that, in the course of administering its tuition prepayment program, Florida Prepaid directly and indirectly infringed College Savings’ patent.

And the case was argued along the lines described in wikipedia:

After this Court decided Seminole Tribe of Fla v. Florida, 517 U.S. 44 (1996), Florida Prepaid moved to dismiss the action on the grounds of sovereign immunity.3 Florida Prepaid argued that the Patent Remedy Act was an unconstitutional attempt by Congress to use its Article I powers to abrogate state sovereign immunity. College Savings responded that Congress had properly exercised its power pursuant to §5 of the Fourteenth Amendment to enforce the guarantees of the Due Process Clause in §1 of the Amendment. The United States intervened to defend the constitutionality of the statute. Agreeing with College Savings, the District Court denied Florida Prepaid’s motion to dismiss, 948 F. Supp. 400 (N. J. 1996), and the Federal Circuit affirmed, 148 F.3d 1343 (1998).

Here is where the case gets interesting:

The Federal Circuit held that Congress had clearly expressed its intent to abrogate the States’ immunity from suit in federal court for patent infringement, and that Congress had the power under §5 of the Fourteenth Amendment to do so. Id., at 1347. The court reasoned that patents are property subject to the protections of the Due Process Clause and that Congress’ objective in enacting the Patent Remedy Act was permissible because it sought to prevent States from depriving patent owners of this property without due process. See id., at 1349—1350. The court rejected Florida Prepaid’s argument that it and other States had not deprived patent owners of their property without due process, and refused to “deny Congress the authority to subject all states to suit for patent infringement in the federal courts, regardless of the extent of procedural due process that may exist at any particular time.” Id., at 1351. Finally, the court held that the Patent Remedy Act was a proportionate response to state infringement and an appropriate measure to protect patent owners’ property under this Court’s decision in City of Boerne, 521 U.S., at 519. The court concluded that significant harm results from state infringement of patents, 148 F.3d, at 1353—1354, and “[t]here is no sound reason to hold that Congress cannot subject a state to the same civil consequences that face a private party infringer,” id., at 1355. We granted certiorari, 525 U.S. __ (1999), and now reverse.

And, here is the crux of Florida Prepaid:

In enacting the Patent Remedy Act, however, Congress identified no pattern of patent infringement by the States, let alone a pattern of constitutional violations. Unlike the undisputed record of racial discrimination confronting Congress in the voting rights cases, see City of Boerne, supra, at 525—527, Congress came up with little evidence of infringing conduct on the part of the States.


Though patents may be considered “property” for purposes of our analysis, the legislative record still provides little support for the proposition that Congress sought to remedy a Fourteenth Amendment violation in enacting the Patent Remedy Act. The Due Process Clause provides, “nor shall any State deprive any person of life, liberty, or property, without due process of law.” U.S. Const., Amdt. 14, §1 (emphasis added). This Court has accordingly held that “[i]n procedural due process claims, the deprivation by state action of a constitutionally protected interest . . . is not in itself unconstitutional; what is unconstitutional is the deprivation of such an interest without due process of law.” Zinermon v. Burch, 494 U.S. 113, 125 (1990) (emphasis deleted).

Thus, under the plain terms of the Clause and the clear import of our precedent, a State’s infringement of a patent, though interfering with a patent owner’s right to exclude others, does not by itself violate the Constitution. Instead, only where the State provides no remedy, or only inadequate remedies, to injured patent owners for its infringement of their patent could a deprivation of property without due process result. See Parratt v. Taylor, 451 U.S. 527, 539—531 (1981); Hudson v. Palmer, 468 U.S. 517, 532—533 (1984); id., at 539 (O’Connor, J., concurring) (“[I]n challenging a property deprivation, the claimant must either avail himself of the remedies guaranteed by state law or prove that the available remedies are inadequate … . When adequate remedies are provided and followed, no … deprivation of property without due process can result”).


The legislative record thus suggests that the Patent Remedy Act does not respond to a history of “widespread and persisting deprivation of constitutional rights” of the sort Congress has faced in enacting proper prophylactic §5 legislation. City of Boerne, 521 U.S., at 526. Instead, Congress appears to have enacted this legislation in response to a handful of instances of state patent infringement that do not necessarily violate the Constitution. Though the lack of support in the legislative record is not determinative, see id., at 531, identifying the targeted constitutional wrong or evil is still a critical part of our §5 calculus because “[s]trong measures appropriate to address one harm may be an unwarranted response to another, lesser one,” id., at 530. Here, the record at best offers scant support for Congress’ conclusion that States were depriving patent owners of property without due process of law by pleading sovereign immunity in federal- court patent actions.


The examples of States avoiding liability for patent infringement by pleading sovereign immunity in a federal-court patent action are scarce enough, but any plausible argument that such action on the part of the State deprived patentees of property and left them without a remedy under state law is scarcer still.

Lattman, in writing in the Wall Street Journal, simply did not understand what Florida Prepaid was about.

The holding of Florida Prepaid concerned not being sued in federal court (by virtue of the 11th Amendment) and did not foreclose being sued in state court. Further, if states (such as California) denied due process in state court, Congress would have the power under section 5 to abrogate sovereign immunity.

Lattman discussed a recent case: Biomedical Patent Management Corp. sued the state of California for refusing to pay royalties on a patented method of screening birth defects in fetuses. Owned primarily by an inventor, San Diego-based BPMC has as its only asset the patent at issue in the case. [IPBiz: someone might call BPMC a patent troll, tho someone might also consider UCal a patent troll.]

Lattman writes: Since Congress passed legislation in 1980 [IPBiz: the Bayh-Dole Act] giving universities ownership over their federally funded inventions, schools have collectively earned billions of dollars in revenue by licensing their patents to private companies. IPBiz notes that Lattman might clue in Roger Noll of Stanford about the billions of dollars.

Mark Lemley appears in the article: Mark Lemley, a Stanford Law School professor specializing in patents, thinks the Supreme Court got it wrong. "The underlying problem is that the Supreme Court is applying an antiquated doctrine -- the 11th Amendment -- to circumstances in which it was never intended to apply," he says. "The Framers never contemplated states suing people for patent infringement." The issue of course is people suing states for patent infringement, AND the Florida Prepaid doctrine arose out of broader states rights issues than 11th Amendment doctrine. The same 5-4 vote appears in cases NOT involving patent rights.

Lattman talks of lobbyists and Howard Berman, an appropriate combination in view of Berman's strong links to the IT industry:

Lobbyists for California's university system appeared to play a role in derailing the bills, according to court filings. In a 2003 email, a UC lobbyist updated colleagues on the proposed legislation. The email said that Congress viewed the position of states and state universities as "particularly self serving ... since they see the states and state universities as wanting to maintain an unfair advantage in the intellectual property arena where they can infringe on others IP rights, but not have to suffer the same consequences as a private party." She added: "It's also hard to make the argument that a school like UC should be treated any differently than a [a private university] for purposes of IP enforcement."

Rep. Howard Berman, a California Democrat, co-sponsored the legislation despite the potential effects on his home state. "While we want to protect our intellectual property, we certainly don't want to give ourselves or any other state a safe haven from infringing on someone else's intellectual property," said Rep. Berman. "You could make an argument that walling off and protecting some group from infringing conduct is bad for our economy."

**Note also


Text of Florida Prepaid is available on the internet.


Blogger David Woycechowsky said...

Patent troll: any patentee who does not advertise in the popular media. There might be a loophole for patentees like University of California who can give the media access to people and/or information they desire.

11:27 AM  

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