WASHINGTON — After striking out recently in the U.S. Supreme Court, business patent holders face narrowing options for fighting what one calls the “risk-free windfall” of states suing without being sued for patent and copyright infringement.

Nearly a decade has passed since the Rehnquist Court’s federalism revolution landed like a bomb on private patent holders, wiping out their ability to sue state entities for infringement by shielding those entities with 11th Amendment sovereign immunity.

In the ensuing years, the U.S. Chamber of Commerce and others contend, the states — and state-funded universities in particular — have moved aggressively into the intellectual property market, bringing infringement lawsuits and infringing the IP rights of others.

The imbalance, according to the business community, now affects all aspects of intellectual property relationships between states and the private sector. In licensing negotiations, they say, states and state entities, knowing they are immune from suit, sometimes even decline to negotiate for the right to use intellectual property they concededly are using. And, they add, businesses concerned about being victims of a state’s infringement suit cannot seek declaratory judgments to determine the legality of their conduct, because those actions are met with claims of sovereign immunity.

Less than two weeks ago, the Supreme Court denied review in a case that the business and IP communities were closely watching to see whether the justices were willing to consider a new avenue of holding states accountable for alleged patent infringement.

Q. Todd Dickinson, executive director of the American Intellectual Property Law Association, said that the denial of review in Biomedical Patent Management Corp. v. California Department of Human Services, No. 07-956, may give “a little bit of impetus” to a renewed effort in what may be the business community’s last best option — Congress.

“We have traditionally supported a [legislative] fix in this area and efforts by [Senate Judiciary Committee] Chairman Patrick Leahy to try to come up with one,” said Dickinson.

Past support for several bills dealing with the issue was “pretty broad,” he added. “But states and state-funded universities in particular carry considerable political clout and that creates a challenge, a somewhat outsize challenge.”

Taking the challenge

Many people have been thinking about legislative solutions to the sovereign immunity issue since the Supreme Court rulings in 1999, said Professor Paul Bender of Arizona State University Sandra Day O’Connor College of Law.

“Is it possible to craft something constitutional in this area? I think it must be possible, but it’s hard to think of exactly how because it’s hard to predict how the [Supreme] Court is going to react,” added Bender, who was involved in early legislative efforts.

Congress explicitly subjected states to suit for patent infringement in the Patent and Plant Variety Protection Remedy Clarification Act (Patent Remedy Act) based on its powers under the commerce clause, the patent clause and the 14th Amendment. But in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999), the court held that Congress’ power under neither the commerce clause nor the patent clause was sufficient to deprive a state of its sovereign immunity without explicit waiver by the state.

In examining the 14th Amendment argument, the court examined the legislative history of the Patent Remedy Act and found that Congress’ reliance on a small number of patent infringement cases by the states did not demonstrate the necessary pattern of constitutional violations.

And in a second ruling involving the same parties, College Savings Bank v. Florida Prepaid, 527 U.S. 666 (1999), the court held that a state’s participation in market activities regulated by the Lanham Act does not constructively waive a state’s sovereign immunity from suits under that act.

The waiver of sovereign immunity was the issue at the heart of the Biomedical case, the most recent challenge to reach the high court. Biomedical, backed by the Chamber of Commerce and the Software Information Industry Association, made two arguments: first, that a state’s initial waiver of immunity, when it intervened in an earlier, related action that was dismissed on venue grounds, constituted waiver in a later case involving the same parties; and, second, that a state’s continuous use of the federal courts in pursuing other patent suits constitutes implied waiver of its immunity from all patent suits.

The state of California, supported by the United States, argued against review, saying that Biomedical’s arguments could not be squared with the high court’s two Florida Prepaid decisions. On the second issue of an implied general waiver, both said it would be very difficult to determine at what point a state had voluntarily participated in enough federal court patent suits to have waived its 11th Amendment immunity from all such suits. And, they added, Biomedical did not make clear how a state would know in advance when it was poised to cross the waiver threshold.

But the United States did express sympathy for the plight of private patent holders, saying: “As the United States explained in its brief in Florida Prepaid, state entities are increasingly involved in the intellectual property marketplace. Private inventors need a remedy to protect their patent rights against infringement by state entities . . . and . . . such remedies should be available in federal court.”

Seeking remedies

Bender, Dickinson and others said that some of the remedies discussed after the 1999 rulings, which are still being discussed today, include:

• Conditioning a state’s ability to obtain damages awards when it seeks to enforce its own intellectual property rights upon its waiver of sovereign immunity in infringement actions.

• Abrogating a state’s sovereign immunity when it can be demonstrated on a case-by-case basis that a state has violated the 14th Amendment.

• Codifying the judge-made rule that, notwithstanding the state’s immunity, state employees may be enjoined by federal courts from engaging in illegal activity, such as patent and copyright infringement. This doctrine was first articulated by the Supreme Court in Ex Parte Young, 209 U.S. 123 (1908).

Bender said he believes that “tempting” the states into waiving their immunity by providing such “incentives” as not permitting them to use the patent or copyright systems unless they waive immunity is the better and constitutional approach to the problem.

“It seems to me that Congress can limit the patent and copyright systems in that way,” he said, but added, “While it has a better chance of being upheld, I think there would be a big political problem of getting that through Congress.”

Opponents, such as the public universities, counter that such a proposal raises all kinds of problems, both practical and constitutional. Who waives immunity — the legislature, the governor, the attorney general? States vary in approach. State-funded entities do not have the power to make a state legislature or other official waive immunity, they say, and so it would generally be the state-funded entity that is harmed by a state’s refusal to waive.

State officers not immune

Intellectual property scholar John Duffy of George Washington University Law School agreed that some proposed remedies raise difficult legal questions, but he said, “There is a standard answer to sovereign immunity problems: Sue the state’s officers. You can sue them very easily for injunctive relief, and injunctions to stop the infringement are clearly available.”

Suing state officers may be more cumbersome, said Duffy, but that is the traditional way to hold states accountable. “Sue the officers and then seek discovery as to who’s participating in the infringement and start suing all of them. At some point, the state will say, ‘No one will want to work for us if they’re personally on the hook,’ ” he said. Duffy said he does not know why more patent holders do not take that approach to the problem.

Injunctions offer no monetary relief and could be found to be against the public interest, said Biomedical’s counsel, Andrew J. Dhuey of Berkeley, Calif. Biomedical sued the state Department of Human Services for infringement of a patent on a medical procedure for detecting birth defects, he said, adding, “A court would ask, ‘Should we shut down this service?’ “

Dhuey also said suing individual officers and other theories, such as one based on the takings clause, are “unrealistic, daunting, time-consuming and very expensive.”

The sovereign immunity issue is not exactly on Congress’ front burner right now. Even major patent reform legislation, which became a priority for some members in the last session, has stalled repeatedly. Whatever Congress does on the sovereign immunity issue — if it does anything — likely would be challenged and would end at the Supreme Court, whose membership has changed since those two 5-4 rulings in 1999.

“If we have a court still very protective of sovereign immunity, maybe you can’t do anything,” said Bender. “On the other hand, if the attitude has changed a little and they realize the tremendous amount of unfairness in this particular aspect — a state in a competitive situation taking advantage of laws for its own benefit — the court could see that as an exception and might be willing to be more generous.”