In summary, the University agreed not to sue Tegic, and suggested various alternatives other than being sued in Washington state, including XI Amendment exemption, which is what the court settled on as a basis of decision. To have any hope of butting in, Tegic should have filed in the Western District of Texas.

The University filed with the district court in Washington a covenant not to sue Tegic for past, present, or future acts of infringement, and thereafter filed a motion to dismiss on the ground that the district court lacked subject matter jurisdiction, see Fed. R. Civ. P. 12(b)(1), because there was no case or controversy between the University and Tegic. The University also stated that it, as an arm of the State of Texas, is not subject to the jurisdiction of the federal courts and is protected from Tegic's suit by the immunity granted pursuant to the Eleventh Amendment to the Constitution.3 The University also moved for dismissal for lack of personal jurisdiction in Washington. See Fed. R. Civ. P. 12(b)(2). In the alternative, the University requested transfer of Tegic's action to the Western District of Texas. See 28 U.S.C. §1404(a) ("for the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it may have been brought"). The University also asked the court to exercise its discretion to decline declaratory judgment jurisdiction, see Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995) (federal courts have "discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites"). Tegic opposed all of the grounds of dismissal and transfer.

The district court considered whether it should transfer the case to the Western District of Texas in accordance with §1404(a), rather than dismiss it, but held that the appropriate course was to dismiss the case. The court expressed "serious doubts" as to whether Tegic could have brought this declaratory action in Texas, since Tegic was not a party to the suit filed by the University. The district court also noted Tegic's objection to transfer of the suit. The court reasoned that Tegic's proper recourse, if any, is to seek intervention in the Texas action. The court did not discuss the University's other grounds for dismissal.

The district court observed that the University has not used its Eleventh Amendment immunity adversely against Tegic, but instead the University has committed itself not to sue Tegic. And to the extent that Tegic's interests may be impaired by the Texas litigation, Tegic may seek to intervene in that litigation.

The Supreme Court has explained that the Eleventh Amendment enacts a waivable immunity from suit, not "a nonwaivable limit on the federal judiciary's subject-matter jurisdiction." Idaho v. Coeur D'Alene Tribe, 521 U.S. 261, 267 (1997). That is, a federal court has subject matter jurisdiction to hear cases involving federal law, but the Eleventh Amendment gives the state "a sovereign immunity from suit." Id. Therefore a federal court is not permanently barred from hearing cases brought against the state itself. "Rather, a State can waive its Eleventh Amendment protection and allow a federal court to hear and decide a case commenced or prosecuted against it." Id. The issue is not whether the federal court has subject matter jurisdiction, but whether the state has sovereign immunity and whether that immunity has been waived.

The Court has confirmed the applicability of Eleventh Amendment immunity to suits pertaining to violations of federal patent and trademark laws. See Florida Prepaid Postsecondary Education Expense Bd. v. College Savings Bank, 527 U.S. 627 (1999) (the Patent and Plant Variety Protection Remedy Clarification Act of 1992 did not abrogate Florida’s Eleventh Amendment immunity); College Savings Bank, 527 U.S. at 673 (the Trademark Remedy Clarification Act of 1992 did not abrogate the State of Florida’s Eleventh Amendment immunity).

Tegic argues that the University explicitly waived its immunity with respect to its '112 patent when it brought suit for infringement. The Court "has long recognized" that a state's Eleventh Amendment immunity may be waived. College Savings Bank, 527 U.S. at 675. Waiver is generally found either when the state makes a "clear declaration" that it intends to waive immunity, such as by statute, see Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299 (1990) (immunity with respect to suits against the Port of New York Authority waived by statute), or when the state voluntarily invokes federal jurisdiction, see Gunter v. Atlantic Coast Line R.R. Co., 200 U.S. 273 (1906) (immunity waived by voluntarily becoming a party to a suit). The University argues that waiver is not established solely by the state's participation in federally regulated conduct, even when the state acts as a market participant in a field traditionally occupied by private corporations. See College Savings Bank, 527 U.S. at 680 (overruling the "constructive waiver" holding of Parden v. Terminal Ry. of Ala. State Docks Dep’t., 377 U.S. 184 (1964)). The parties do not dispute that the University’s immunity has not been waived by statute. Tegic argues that waiver is established by the University's invocation of federal jurisdiction by filing suit against Tegic's customers/licensees in the Western District of Texas.

Applying these principles, the Federal Circuit in Regents of the University of New Mexico, 321 F.3d at 1126, held that "when a state files suit in federal court to enforce its claims to certain patents, the state shall be considered to have consented to have litigated in the same forum all compulsory counterclaims, i.e., those arising from the same transaction or occurrence that gave rise to the state's asserted claims." The court observed that "seriously unfair results" could result if a state were permitted to file suit in a federal court and at the same time claim immunity against the defendant's claims arising from the same conduct. Id. at 1125. "Moreover, because a state can surely anticipate that a defendant will have to file any compulsory counterclaim or be forever barred from doing so, it is not unreasonable to view the state as having consented to such counterclaims." Id. at 1126.

The University, in suing the telephone companies in Texas, voluntarily invoked federal jurisdiction, and waived any immunity respecting the adjudication of its claims, Gardner, 329 U.S. at 574, and any counterclaims asserted "in the same forum," Regents of New Mexico, 321 F.3d at 1126. The University argues that this waiver does not extend to the declaratory judgment action brought by Tegic in the Western District of Washington.

A declaratory action does not provide any substantive rights; it provides a procedure for a declaration of legal rights and relations. See Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937) (the declaratory action is procedural only). To determine immunity under the Eleventh Amendment it is necessary to look to the substantive charge, not to the procedure for obtaining relief. Tegic seeks a declaration of noninfringement and patent invalidity and unenforceability. The University does not deny that it waived immunity as to defenses and counterclaims in the Texas district court, but argues that it did not waive immunity as to Tegic, or in the Washington forum.

The Court has stressed that a "State's constitutional interest in immunity encompasses not merely whether it may be sued, but where it may be sued," Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 99 (1984) (emphases in original), the Court holding that a state's waiver of suit in its own courts is not readily extended to include waiver of suit in federal courts, even for the same cause of action. Id. The Court explained the "problems of federalism inherent in making one sovereign appear against its will in the courts of the other." Id. at 100. Again in Port Authority Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 307 (1990), the Court reiterated that a state may control where it may be sued, stating that "issues of venue are closely related to those concerning sovereign immunity." The Court in Port Authority held that the state's waiver could be properly limited by state statute to suits "laid within a county or judicial district" that is "situated wholly or partially within the Port of New York District." Id. at 303.

The University stresses that Tegic brought a new action, by a new party, in a new forum. We agree with the University that its filing of the Texas action did not establish waiver as to this separate action. While waiver in the litigation context focuses on the litigation act, the waiver must nonetheless be "clear." Lapides, 535 U.S. at 620. In Clark, 108 U.S. at 448, waiver to the "complete determination" of the litigation was clear from the state's voluntary intervention in that litigation; in Gardner, 329 U.S. at 574, waiver respecting the "adjudication" of a claim was clear from the state's filing of that claim; in Lapides, 535 U.S. at 619, waiver as to the resolution of the "case at hand" was clear from its voluntary removal of that case to a federal court. And in Regents of New Mexico, 321 F.3d at 1126, waiver as to compulsory counterclaims filed by the defending party "in the same forum" was clear from the state's filing of the suit in that forum, for the state could "surely anticipate" that such counterclaims, which would otherwise be forever barred, would be asserted. We discern no similar clear waiver in this case. Although here the University obviously "made itself a party to the litigation to the full extent required for its complete determination," Clark, 108 U.S. at 448, it did not thereby voluntarily submit itself to a new action brought by a different party in a different state and a different district court.

Tegic argues that under the "customer suit exception" a manufacturer's action to resolve patent infringement charges against its customers not only receives preferential treatment over a patent owner's earlier filed suit against the customers, but benefits from any waiver accompanying the earlier suit. The customer suit exception is an exception to the general rule that favors the forum of the first-filed action, Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 185 (1952); see Kahn v. Gen. Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989) (holding, on the facts of that case, that it was error to favor the manufacturer's second-filed suit), but does not override the immunity provided by the Eleventh Amendment.