United States: Interlocutory Denial of Sovereign Immunity Is Not an Appealable Issue For Compulsory Counterclaims

The U.S. Court of Appeals for the Federal Circuit has decided that a denial of a motion to dismiss compulsory counterclaims based on sovereign immunity is not a collateral order that is appealable where the district court has yet to determine the legal sufficiency of the counterclaims. Competitive Technologies, Inc. v. Fujitsu Ltd., No. 03-1380 (Fed. Cir. June 30, 2004 ) (Dyk, J.).

Along with its licensee, Competitive Technologies, Inc. (CTI), the University of Illinois filed suit against Fujitsu and other parties, alleging patent infringement. The defendants asserted state-law counterclaims of, among other things, unfair competition and abuse of process in connection with the allegedly baseless filing by the University and CTI of an International Trade Commission (ITC) action based on the same patents, previously dismissed by the ITC. The district court denied the University’s motion to dismiss the defendants’ state law counterclaims under the Eleventh Amendment, on the grounds that the University waived its sovereign immunity by filing a patent infringement suit based on the same transaction or occurrence as the University’s asserted patent claims, i.e., the counterclaims were compulsory.

The Federal Circuit sua sponte dismissed the appeal, finding that it lacked jurisdiction under 28 U.S.C. §1291 because the judgment was not final and not a collateral order. Applying the U.S. Supreme Court collateral order doctrine test found in Cohen v. Beneficial Industrial Loan Corp., the Federal Circuit reasoned that the first requirement of the Cohen test was not satisfied because the district court’s decision did not "conclusively determine the disputed question." As noted by the Federal Circuit, the district court’s decision itself indicated it was subject to reconsideration based on the legal sufficiency of the counterclaims, and therefore, its order did not conclusively determine the issue of waiver of sovereign immunity.

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