Patent Owner is Not Always Indispensable

In Gensetix,Inc. v. Baylor College of Medicine, [2019-1424] (July 24, 2020), the Federal Circuit affirmed-in-part, reversed-in-part, and remanded  the dismissal of the suit for failure to join an indispensable party.

Gensetix, Inc. , exclusively licensed U.S. Patent Nos. 8,728,806 and 9,333,248 from the University of Texas, an arm of the state of Texas. Gensetix brought suit, naming the University of Texas as an involuntary plaintiff. The district court determined that the Eleventh Amendment barred joinder of UT as an involuntary plaintiff, and concluded that the suit could not proceed in UT’s absence.

The Federal Circuit agreed that sovereign immunity prevented UT from being joined as an involuntary plaintiff, noting that sovereign immunity is reflected in (rather than created by) the Eleventh Amendment, and transcends the narrow text of the Amendment itself. Sovereign immunity serves to avoid the indignity of subjecting a State to the coercive process of judicial tribunals at the instance of private parties. The Federal Circuit distinguished cases where the state is the plaintiff, noting that the Eleventh Amendment applies to suits against a state, not suits by a state. Thus, the fact that UT did not voluntarily invoke federal court jurisdiction was dispositive. Accordingly, Rule 19(a)(2) cannot be used to drag an unwilling UT into federal court.

However, the Federal Circuit found that the district court abused its discretion when it dismissed the suit because of the absence of UT. Rule 19(b) provides that, where joinder of a required party is not feasible, “the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19(b). This inquiry involves consideration of four factors: (1) the extent to which a judgment rendered might prejudice the missing required party or the existing par-ties; (2) the extent to which any prejudice could be lessened or avoided (3) whether a judgment rendered in the required party’s absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.

The district court found that three out of the four Rule 19(b) factors weighed in favor of dismissing the case. However, the Federal Circuit concluded that the district court abused its discretion by collapsing the multi-factorial Rule 19(b) inquiry into one dispositive fact: UT’s status as a sovereign.

The Federal Circuit said that the proper analysis of the Rule 19(b) factors is far more nuanced than the district court’s. As to the prejudice to UT, the interests of UT and Gensetix are aligned. Despite UT’s sovereign status, given Gensetix’s identical interest in the validity of the patents-in-suit, any prejudice to UT is greatly reduced. There is also no risk of multiple suits be-cause, under the express terms of the parties’ agreement, UT may not sue Baylor once Gensetix has commenced liti-gation. And, as an exclusive licensee with less than all sub-stantial rights in the patents-in-suit, Gensetix cannot enforce its patent rights without the court allowing the suit to proceed in UT’s absence. Given this clear factual record, we conclude that it was an abuse of discretion to find that the suit may not proceed in UT’s absence. Accordingly, we reverse the district court on this point.

Gensetix provides some guidance when licensing from an arm of the state government. To be able to suit without joint the patent owner, the licensee should make sure that their license is exclusive, in all fields, and that the licensee can enforce the patent, and patent owner cannot bring suit once the licensee does. This should tip the balance of the FRCP 19(b) factors in favor of the licensee enforcing the patent.