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Daniel B. Ravicher

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Could State Transportation Agencies Accused of Patent Infringement Use Constitution as Defense?

Posted: 04/18/2012 10:39 am

There has been much reporting lately of a small patent holding company named Arrivalstar accusing public transit authorities of patent infringement if they provide commuters with real time information about train, bus or subway schedules. Riders in New York, Boston, Chicago, Seattle, Portland, Cleveland and other cities throughout the country have all been put at risk of either having to subsidize royalty payments to Arrivalstar by their local transit agency or having a court shut down the valuable informational service being provided to them. It's possible, though, that the Constitution prohibits any such accusations from even being made in the first place, regardless of whether Arrivalstar's patents are valid and infringed (both hotly contestable issues in their own right).

The 11th Amendment to the Constitution says, "The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state, or by citizens or subjects of any foreign state." What that generally means is that states cannot be sued in federal courts by private parties. Since patent law is exclusively federal law, patent infringement lawsuits can only be brought in federal courts. Thus, a state cannot be sued for patent infringement at all, because the only way such a suit can occur is by a private party suing a state in a federal court, something prohibited by the 11th Amendment.

There are two general exceptions to this rule. First, a state can waive its 11th Amendment immunity. For example, if a state sues a private party in federal court, then it has waived its 11th Amendment immunity from being counter-sued by that party for related claims. Second, Congress can use its power under the 14th Amendment to the Constitution to abrogate a state's 11th Amendment immunity if the state is violating the 14th Amendment's guarantee of due process. (For you history buffs, the 14th Amendment was one of the amendments made after the Civil War during Reconstruction.)

After heavy lobbying by patent holders, Congress in 1992 passed a law called the Patent Remedy Act to eliminate the 11th Amendment immunity for states regarding claims of patent infringement. States obviously didn't like that, so they brought suit challenging the law and in 1999 a divided 5-4 Supreme Court ruled in Florida Prepaid v. College Savings Bank that the 1992 statute was not an acceptable act under the 14th Amendment because there was not sufficient evidence states were violating patent holder's due process rights. Speaking for the court, then Chief Justice Rehnquist said, "In enacting the Patent Remedy Act, however, Congress identified no pattern of patent infringement by the states, let alone a pattern of constitutional violations." Congress hasn't tried to abrogate states' 11th Amendment immunity from patent infringement claims since Florida Prepaid, probably because they still can't prove the pattern of Constitutional violations the Supreme Court said were necessary to comply with the 14th Amendment. As a result, states are still to this day immune from being sued for patent infringement.

In fact, not only are states themselves protected from patent infringement accusations by the 11th Amendment, so too are any other governmental entities that are considered "arms of the state." For transit authorities specifically, the Supreme Court in 2002 in Federal Maritime Commission v. South Carolina State Ports Authority upheld the determination of the lower Court of Appeals that the South Carolina State Ports Authority (SCSPA) was an arm of the state and, therefore, protected by the 11th Amendment. Outside the transit authority context, the Supreme Court's 1997 decision in Regents of Univ. of Cal. v. Doe may also support transit authorities being considered arms of the state, because state universities have similar structural relationships to their states that transit authorities do. State universities are separate entities, often times merely regional, and provide a specific service to a subset of citizens. State universities charge their own fees and fund themselves from the fees they charge, much like many transit authorities do. So, if state universities are protected by the 11th Amendment, then it makes sense that transit authorities should be, too. Indeed, several lower courts have held transit authorities to be arms of the state. For example, the Court of Appeals for the District of Columbia in 1986 in Morris v. Washington Metro. Area Transit Authority specifically held that the Washington Metropolitan Transit Authority, an entity created by Maryland, Virginia, and the District of Columbia to operate a mass transit system for the District of Columbia and the surrounding suburban areas of Maryland and Virginia, was an arm of the state. One interesting side note is that now-Supreme Court Justice Scalia was at the time a Circuit Judge on the DC Circuit and he was in fact on the panel that ruled in favor of WMATA.

To be completely fair, there is an older 1994 case called Hess v. Port Authority Trans-Hudson Corporation in which a divided 5-4 Supreme Court held that the Port Authority Trans-Hudson Corporation (PATH), a wholly owned subsidiary of the Port Authority of New York and New Jersey, was not an arm of the state and therefore was not eligible for 11th Amendment immunity. The five justices in the majority in Hess (Ginsburg, Stevens, Kennedy, Souter and Breyer) found the fact that the entity was a "bistate entity" to be important to the analysis, because "Bistate entities occupy a significantly different position in our federal system than do the States themselves," while the four dissenting votes (O'Connor, Rehnquist, Scalia and Thomas) said that being a creation of more than one state shouldn't preclude 11th Amendment immunity and that indeed PATH should be considered an arm of the state.

Interestingly, in 1994 in Hess the more conservative justices were in the dissent, but then in the later 2002 South Carolina State Ports Authority case discussed above the Supreme Court was again divided 5-4, this time with the conservative judges in the majority (Thomas, Rehnquist, O'Connor, Scalia and Kennedy) and the liberal judges (Breyer, Stevens, Souter and Ginsburg) in the dissent. If you notice, the swing vote was Kennedy, who was the only justice to be in the majority in both Hess and SCSPA. If you substitute in Rogers and Alito for Rehnquist and O'Connor (conservatives for conservatives) and then Sotomayor and Kagan for Souter and Stevens (liberals for liberals), you still get Kennedy being the swing vote on the issue. It seems to him, perhaps, being within one state (as in SCSPA) made a difference, as compared to being an entity created by multiple states (Hess). For transit authorities that exist within one state, that seems to bode very well for them. For multi-state transit authorities, the argument may be tougher, although Kennedy may also have changed his mind on the "bistate" issue in the roughly 20 years since Hess.

As you can see, I am in no way saying that it is absolutely certain 11th Amendment immunity would apply to any and all transit authorities. It would heavily depend on the specific circumstances of each case. However, I do strongly believe this is at least a defense that most transit authorities (and indeed any state related entity) should consider if/when Arrivalstar, or any other patent holder, comes knocking on their door.

Finally, as a footnote for the hard core litigators out there, one interesting thing about 11th Amendment sovereign immunity issues is that they are subject to interlocutory appeal. See Puerto Rico Aqueduct and Sewer Authority v. Metcalf & Eddy, Inc.. For you non-lawyers, that means if a transit authority makes a motion to dismiss a patent infringement case based on 11th Amendment immunity and the motion is somehow denied by the District Court because it thinks the transit authority is not an arm of the state, the defendant transit authority can immediately appeal that decision to the Court of Appeals and even the Supreme Court without having to wait and go through the entire burden, expense and time of a trial first. This is a huge advantage for defendants, as it at minimum prevents the case in chief from even starting for about two or three years while the 11th Amendment issue winds its way through the court system.

 
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