Court Revisits Ruling on State School Immunity

CHICAGO (CN) - The University of Wisconsin cannot use sovereign immunity to dodge counterclaims in a trademark infringement lawsuit, the 7th Circuit ruled, reversing an earlier decision.

Phoenix International Software trademarked Condor in 1997 as "computer software for online programming development, library management and system utilities functioning on mainframe systems." It had used mark unregistered since 1978.

In 2001, the Board of Regents of the University of Wisconsin System registered the same name for software that "delivers a large amount of computational power by utilizing idle computing resources in a network of individual computer workstations."

Phoenix applied for cancellation of the board's mark, saying consumers would confuse the two products. The Trademark Trial and Appeal Board granted the request.

Rather than appealing the decision to a federal circuit court, Wisconsin filed a fresh lawsuit in Madison, Wis., winning a reversal from U.S. District Judge Barbara Crabb, who ruled that the trademark board should have made its decision exclusively on the descriptions of the products in their trademark registrations. Crabb also dismissed Phoenix's requests for damages, finding the school was protected by sovereign immunity.

On Dec. 28, 2010, the 7th Circuit voted 2-1 to reverse in part, finding that the board had correctly applied a likelihood-of-confusion balancing test and remanding for trial on the confusion issue. The court upheld Crabb's decision as to sovereign immunity.

But the court later set aside the verdict and agreed to a panel rehearing.

On Friday, the court reversed in part, finding that Wisconsin had waived sovereign immunity when it filed suit in federal court to overturn to board's decision.

"To maximize its chances of reversing the agency's decision, the state availed itself of the advantages of a fresh lawsuit, choosing that path over a number of others available," Judge Diane Wood wrote for the court. "It would be anomalous if, after invoking federal jurisdiction, the state could declare that the federal court has no authority to consider related aspects of the case."

Citing the Supreme Court's decision in Lapides v. Board of Regents of the University System of Georgia, the court reasoned that Wisconsin chose to pursue an appellate route that left it open to counterclaims. Sovereign immunity could have been preserved if the university let the board decision stand, or brought action in state court before the board ruled, or appealed the decision directly.

But the university thought a fresh lawsuit offered the best chance of winning a reversal, the panel found.

"Wisconsin enjoyed a number of advantages when it selected the district court to challenge an adverse agency decision ... and it would be manifestly unfair if Wisconsin were allowed to enjoy the advantages of the district court while using sovereign immunity to avoid the disadvantages," Wood wrote.

The case will return to the District Court for a trial on whether the identically marked products are overly confusing. Phoenix can proceed with claims for damages.

Wood spent the final 10 pages of the 63-page opinion contemplating the history of sovereign immunity and its modern-day applications.

It is dangerous to extend the concept of sovereign immunity from states themselves to state-owned entities, she argued. Such extensions, not contemplated by the framers, give state entities a competitive edge by relieving them of potentially high litigation costs faced by private businesses.

"There is no apparent reason, for example, why the University of Wisconsin should be immune from lawsuits that Marquette University, a Catholic Jesuit institution located in Milwaukee, would have to defend," Wood wrote.

But, she concluded, "far from doing violence to the policies behind the immunity doctrines, the outcome in this case is fully consistent with them."

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