In 1991 in response to increased involvement of state entities, including state universities, in commercial enterprises, Congress enacted the Patent Remedy Act to abrogate the states' sovereign immunity with respect to patent infringement suits. Similar legislation (the Trademark Remedy Clarification Act) was enacted to remove sovereign immunity with respect to trademark causes of action, including acts of unfair competition covered by Section 43(a) of the Lanham Act.

In two extremely controversial 5-4 decisions, the United States Supreme Court has addressed the constitutionality of such legislation and held that 1) the federal courts lack jurisdiction to hear actions brought against any of the individual states making up the United States for acts of misleading advertising and 2) that, at least in the way this was done in the Patent Remedy Act, the United States Congress lacked the power to make such states subject to the United States federal patent law. Both cases related to disputes between Florida Prepaid Postsecondary Education Expense Fund, a Florida state enterprise which administered a tuition prepayment program designed to cover future college expenses ("the Fund") and College Savings Bank, a commercial bank ("the Bank"). The Bank owned a patent on the methodology used to administer a tuition prepayment program which it claimed was infringed by the Fund and alleged that the Fund had issued misstatements about its college savings products that constituted an act of unfair competition in violation of Section 43(a) of the Lanham Act. These actions were the subject of two separate cases that came before the Supreme Court at the same time, largely as a result of the lower courts having come to different conclusions as to the application of the requirements of the United States Constitution to each of them.

In the misleading advertising case, Justice Scalia writing for the majority opened by pointing out that the Eleventh Amendment to the Constitution had been adopted specifically to overrule a 1793 decision of the Supreme Court upholding the rights of citizens of one state to sue another state in Federal Court. Although this did not mean that there were no circumstances in which a state could be sued in federal court, it did mean that the circumstances were limited to those in which either the state had in some way consented to the suit or, following the Supreme Court's 1996 decision in Seminole Tribe of Florida v. Florida, where Congress had validly exercised power under the Fourteenth Amendment.

The main issue before the Supreme Court in both cases therefore was the interaction of the Eleventh and Fourteenth Amendments to the Constitution of the United States. The relevant parts of the two amendments read as follows:


The basic question before the Supreme Court was whether Congress had the power under Section 5 of the Fourteenth Amendment to pass legislation as it had to abrogate the states' sovereign immunity provided for by the Eleventh Amendment from claims of patent infringement and to subject the states to suits under Section 43(a) of the Lanham Act. The Bank argued that the right to exclude others from using a patented invention and the right to be free of false advertising about one's own products were both property rights that could not be taken without due process under Section 1 of the Fourteenth Amendment so that Congress had the power to legislate to this effect under Section 5 of that Amendment. The majority of the Supreme Court disagreed in both cases. Although the court recognized that Congress had the right to abrogate states rights under the Fourteenth Amendment, the Court held that its prior decision in City of Boerne v. Flores had restricted this right to situations in which there "was a congruence and proportionality between the injury to be prevented or remedied and the means adopted for that end".

In the misleading advertising case, the court reached the conclusion that there was no property right that could be taken by the state so that the threshold for considering the application of the "taking of property" provision of the Fourteenth Amendment was not reached. In order to be considered as "property", the Court stated "the hallmark of a protected property interest is the right to exclude others". No cases had been cited recognizing any property right in freedom from a competitor's false advertising.

In the patent case, the Court had to recognize that patent rights were a form of property. However, Chief Justice Rehnquist, writing for the majority, held that Congress in passing the Patent Remedy Act had provided a remedy that was disproportionate to the injury it sought to cure and so failed to comply with the requirements of the City of Boerne decision. According to the Chief Justice there had been insufficient evidence before Congress that patent infringement by the states was such a serious problem as to justify removal of sovereign immunity from all of the states irrespective of whether they provided for some alternative means of relief or the type of infringement involved. The indiscriminate nature of the Patent Remedy Act offends against the principle of proportionality set out in City of Boerne.

In the misleading advertising case, the Court also considered the question of whether the Fund had in fact consented to a constructive waiver of its sovereign immunity by virtue of its engaging in commercial activities after the passage of the Trademark Remedy Clarification Act. The same issue was raised in the patent case but dismissed by simple reference to the decision in the misleading advertising case. The Court held that it did not and expressly overruled its 1964 decision in Parden v. Terminal R. Co. of Alabama Docks Dept which had held that, when states involved themselves in interstate commerce, Congress had the power to condition the states involvement in such activities on waiver of their sovereign immunity. Writing for the majority in the present case Justice Scalia held:


In reaching its conclusion the Court referred to the need to maintain a balance between the powers of Congress and the states and the importance of confining the actions of Congress within the bounds of the federal power established by the Constitution. Congress therefore had no right to provide that if a state carried out certain acts it was deemed to have waived its sovereign immunity. Any waiver had to be express.

Both opinions were the subject of vigorous dissent. In the misleading advertising case this focussed on the Parden decision which the dissenters believed should have been followed rather than overruled. In the patent case, the dissent focussed on the evidence that was before Congress to support the view that patent infringement by state entities was a significant and increasing problem so that Congress' action in passing the Patent Relief Act was appropriate.

The decisions, in particular in the patent case create serious practical difficulties. The remedies provided by the states for patent infringement by state entities, if they exist at all, vary from state to state and are in the most part cumbersome. Furthermore since any such actions will not be subject to review by the Federal Circuit, there is no guarantee that any law developed in such cases will have any degree of uniformity throughout the country.