College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board (06/23/1999)

By: Katie Moore, Medill News Service

Questions presented

(1) Did Congress have the power to enact a portion of the Trademark Remedy Clarification Act of 1992 that abrogated states' 11th Amendment immunity for unfair competition suits alleging that a state engaged in false and misleading advertising of a product? (2) Did the Florida Prepaid Postsecondary Education Expense Board waive its 11th Amendment immunity by continuing to engage in interstate marketing of its products after enactment of the TRCA? (3) Did Congress have power to abrogate the 11th Amendment immunity of states and make them amenable to suit in federal court for patent infringement by enacting Section 2 of the Patent and Plant Variety Protection Remedy Clarification Act?

Brief

College Savings Bank, based in Princeton, NJ, offers parents a guaranteed way to plan for their childrens futures with the CollegeSure CD, an investment strategy that allows parents to save the exact amount of money their children will need for their future college education.

But in the 12 years the bank has marketed its patented investment formula to parents, another company, Florida Prepaid College Board, has allegedly started marketing the same strategy to Florida parents, infringing on the patent rights of College Savings Bank.

So, College Savings Bank filed suit against Florida Prepaid, a state-funded agency, in federal court in 1994.

Under the 11th amendment, states have immunity from lawsuits brought by some private citizens, or, in this case, companies.

But what happens when a state deprives a person of their property?

The first claim, filed November 7, 1994, said Florida Prepaid had infringed on the banks patent for the CollegeSure CD in violation of the Patent Act, a federal law that guarantees people registered patent rights.

College Savings Bank filed a second claim in August 1995 under the Lanham Act, alleging that Florida Prepaid practiced unfair competition and false advertising because of tax and disclosure advantages guaranteed to Florida Prepaid as a state agency.

For jurisdictional reasons, the district court's refusal to dismiss the patent claim was appealed to the Court of Appeals for the Federal Circuit, whereas the dismissal of the Lanham Act claim was appealed to the 3rd Circuit Court of Appeals. In December 1997, the 3rd Circuit agreedwith the district court that Congress unconstitutionally abrogated statesovereign immunity for false advertising under the Lanham Act. In June 1998, the Federal Circuit also affirmed the district court's ruling on the patent claim.

But according to Floridas Assistant Attorney General, Louis Hubener, the courts cant decide if there was a patent violation until they settle the Constitutional conflict of whether a private business can file suit against a state in federal court.

In Seminole Tribe v. Florida, the U.S. Supreme Court found in 1996 that even if Congress specifically wrote a waiver of states 11th amendment immunity into a law, the legislature can only waive states immunity if it is attempting to carry out one of its designated powers.

Florida Prepaid argued that despite Congress attempt to expressly waive states immunity in the Trademark Remedy Clarification Act of 1992 and Section 2 of the Patent and Plant Variety Protection Remedy Clarification Act, the waiver itself is an unconstitutional abuse of Congress authority to make the laws.

College Savings Bank countered before the district court that the 14th amendments due process clause gives Congress the right to waive states immunity from lawsuits to protect peoples right to property.

Both the district court and the Court of Appeals for the Federal Circuit agreed with the banks argument.

""Protecting a privately-held patent from infringement by a state is certainly a legitimate congressional objective under the 14th amendment, which É empowers Congress to prevent state-sponsored deprivation of private property,"" said Appeals Judge Garrett E. Brown, Jr.

But the district court and the 3rd Circuit Court of Appeals dismissed College Savings Banks unfair competition claim, saying that the right to fair competition is not a property right. Because the court ruled it is not a property right, the 14th amendment did not apply, and Congress did not have the power to waive the states immunity.

In the patent case, the Court of Appeals for the Federal Circuit found the abrogation of state immunity proper because patents are property. In the Lanham Act case, however, the 3rd Circuit Court of Appeals found the abrogation improper because the Lanham Act claim at issue -- false advertising -- does not implicate a property interest.

In a friend-of-the-court brief, the U.S. Solicitor General argued the 14th amendment limits the scope of the 11th amendment, because it was adopted to protect the rights of citizens from state violation.

The American Intellectual Property Law Association and Northwestern University Law School Professor Martin Redish are also filing amicus briefs in support of College Savings Banks position that Floridas sovereign immunity was waived in these cases.

The U.S. Supreme Court granted certiorari on Jan. 8, 1999 in this case and in 98-531, Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank.

Oral argument focused on the legislative authority under Section 5 of the 14th Amendment to prevent states from depriving any person of property without due process of law.

On June 23, 1999, a 5-4 Court, divided along ideological lines, held that the federal courts had no jurisdiction over the cases because Florida had not waived its privilege of sovereign immunity. Writing for the majority, Justice Antonin Scalia rejected the argument that the 1992 federal trademark act specifically abrogated a state sovereign immunity because Congress wanted to prevent state deprivations of a property interests in being free from misrepresentations and false advertising that might intrude on their property interests. The majority also rejected that argument that Florida's sovereign immunity was voluntarily waived by its activities in interstate commerce.

Justices Stephen Breyer, Ruth Bader Ginsburg, David Souter and John Paul Stevens dissented.

In the patent case (98-531), Chief Justice William Rehnquist wrote for the same 5-4 majority that federal patent act's abrogation of states' sovereign immunity was invalid because it cannot be sustained as legislation enactedto enforce the guarantees of the 14th Amendment's Due Process Clause. The majority conceded that Congress clearly made known its intent to abrogate in the patent act, but questioned whether Congress had the power to do so.It also conceded that although patents may be considered property withinthe meaning of the Due Process Clause, the legislative record provides little support for the proposition that Congress sought to remedy a 14th Amendment violation in enacting the act. In fact, the majority found, the legislative record suggests that the act does not respond to a history of widespread and persisting deprivation of constitutional rights of the sort Congress had faced in enacting proper legislation.

The Court concluded the legislative purposes of presenting a uniform remedy for patent infringement and placing states on the same footing as private parties under the act are proper Article I concerns, but also concluded that Article I does not give Congress the power to enact such legislation that abrogates the sovereign immunity of states.