Bd. of Regents, Univ. of Wis. v. Phoenix Intern.

In the

United States Court of Appeals

For the Seventh Circuit

No. 08-4164

B OARD OF R EGENTS OF THE

U NIVERSITY OF W ISCONSIN S YSTEM,

Plaintiff-Appellee,

v.

P HOENIX INTERNATIONAL S OFTWARE, INC.,

Defendant-Appellant.

Appeal from the United States District Court

for the Western District of Wisconsin.

No. 07 C 665—Barbara B. Crabb, Judge.

A RGUED JUNE 4, 2009—D ECIDED D ECEMBER 28, 2010

Before F LAUM, W OOD , and T INDER, Circuit Judges.

T INDER, Circuit Judge. Phoenix International Software

created software that it called Condor and registered

the CONDOR mark with the Patent and Trademark Office

(PTO) for “computer software for on-line programming

development, library management and system utilities

functioning on mainframe systems.” Phoenix used this

mark since June 1978 and registered it in January 1997.

2 No. 08-4164

The delay in registration was due to a prior, separate

registered CONDOR mark not at issue here. (We are

capitalizing CONDOR when we refer to the mark, as the

parties have in their briefs.)

The Board of Regents of the University of Wisconsin

System (to whom we will refer simply as Wisconsin,

because it is an arm of the state) registered its own CON-

DOR mark with the PTO in 2001 for “computer network

operating system software, downloadable from a global

computer network, that delivers large amounts of compu-

tational power by utilizing idle computing resources

in a network of individual computer workstations . . . .”

The question in this case is whether Wisconsin’s

CONDOR mark is likely to be confused with Phoenix’s.

Phoenix filed a petition before the Trademark Trial and

Appeal Board (TTAB) to cancel Wisconsin’s registration

on the grounds that Wisconsin’s registration would create

confusion in trade. See 15 U.S.C. § 1064 (“A petition to

cancel a registration of a mark . . . may . . . be filed . . . by

any person who believes that he is or will be dam-

aged . . . by the registration of a mark on the principal

register . . . . ”). The confusion in trade allegation refers

to 15 U.S.C. § 1052(d), which forbids the registration of

a trademark that “[c]onsists of or comprises a mark which

so resembles a mark registered in the [PTO] . . . as to

be likely, when used on or in connection with the goods

of the applicant, to cause confusion, or to cause mistake,

or to deceive . . . .”

The TTAB granted the petition and cancelled Wis-

consin’s registration, finding that

No. 08-4164 3

the marks are identical in every aspect. In such

cases, even when goods or services are not com-

petitive or intrinsically related, the use of iden-

tical marks can lead to an assumption that there

is a common source . . . . In addition, the parties’

software performs similar functions and, there-

fore, we cannot find that they are used in

unrelated fields. Even sophisticated purchasers

would likely believe that there is some relation-

ship or association between the sources of the

goods under these circumstances.

Phoenix Software Int’l v. Bd. of Regents of the Univ. of Wis.

Sys., Cancellation No. 92042881, at 19 (T.T.A.B. Sept. 26,

2007) (quotations and citations omitted).

Wisconsin brought a civil action in federal district

court pursuant to 15 U.S.C. § 1071(b) challenging the

TTAB’s decision. Phoenix counterclaimed, seeking dam-

ages from Wisconsin for trademark infringement and

false designation of origin under the Lanham Act (15

U.S.C. §§ 1114, 1125(a)); it also raised state law claims

that it later voluntarily dismissed with prejudice. The

district court dismissed Phoenix’s federal counterclaims

on sovereign immunity grounds and granted Wisconsin’s

motion for summary judgment, reversing the TTAB’s

determination. Phoenix appeals.

I. Standard of Review

The standard of review in this case is complicated by

its initial status as a matter before the TTAB. After losing

4 No. 08-4164

there, Wisconsin had two options: take an appeal directly

to the Court of Appeals for the Federal Circuit or

institute an action in a district court. See 15 U.S.C. § 1071.

The procedure for appeal to the Federal Circuit con-

forms to the familiar standard for administrative appeals.

The parties present their case based on the closed

record developed before the TTAB and the circuit

court determines whether substantial evidence before

the TTAB supported the decision. CAE, Inc. v. Clean Air

Eng’g, Inc., 267 F.3d 660, 673, 675 & n.9 (7th Cir. 2001).

The choice to institute an action in the district court

allows Wisconsin the benefit of expanding the record

by offering new evidence to fend off Phoenix’s cancel-

lation claim. We have described the district court option

as “both an appeal and a new action, which allows the

parties to request additional relief and to submit new

evidence.” Id. at 673; see also Aktieselskabet AF 21. November

2001 v. Fame Jeans Inc., 525 F.3d 8, 12-13 (D.C. Cir. 2008)

(“[T]he court may consider both new issues and new

evidence that were not before the TTAB.”). But a court’s

posture when considering an appeal and new issues is

different, particularly in terms of issues of fact, which

we will see are the key issues in this case. There is

tension between the level of deference an appellate

court pays to the fact-finder (in this case, an administra-

tive body) and the parties’ opportunity to present new

evidence. See CAE, 267 F.3d at 674 (“[T]he district court

is an appellate reviewer of facts found by the TTAB and

is also a fact-finder based on new evidence introduced

to the court.”).

No. 08-4164 5

The district court, relying on CAE, adopted a defer-

ential substantial evidence standard to review the

TTAB’s findings. See id. at 676. The court described its

role as one that “affords deference to the findings of

fact made by the board but considers the board’s deci-

sion de novo to the extent the parties present new evi-

dence. The board’s findings of fact are properly reviewed

under the standard set forth in [the Administrative Pro-

cedure Act (APA)] which requires the court to set aside

findings and conclusions ‘unsupported by substantial

evidence.’ ” Bd. of Regents of the Univ. of Wis. Sys. v. Phoenix

Software Int’l, Inc., No. 07 C 665, 2008 WL 4950016, at *8

(W.D. Wis. Nov. 18, 2008) (citing CAE, 267 F.3d at 674, 675-

76). The district court’s formulation of the interplay

between both sets of evidence matches ours. “Although

the district court’s review of the TTAB’s decision is con-

sidered de novo when the parties present new evidence

and assert additional claims, the district court also

must afford deference to the fact findings of the TTAB.”

CAE, 267 F.3d at 674. (We note, however, that the D.C.

Circuit has recently held that because the Lanham Act,

15 U.S.C. § 1071(b), provides for judicial review of TTAB

decisions, the APA is not directly applicable. See

Aktieselskabet, 525 F.3d at 14. The D.C. Circuit did not

address how this would affect its deference to the

TTAB’s fact-finding, except to note that courts have

interpreted Dickinson v. Zurko, 527 U.S. 150 (1999), as

requiring the application of the APA’s substantial evi-

dence standard to TTAB decisions. Aktieselskabet, 525

F.3d at 14 & n.2. We are one such court, CAE, 267 F.3d

at 675, and neither party has made an issue of our

standard of review.)

6 No. 08-4164

So an important part of this case should be to

delineate the specific factual findings of the TTAB to

which we owe deference and the new evidence, which

we view in favor of the nonmoving party on a motion

for summary judgment, and assess the impact of each

on the summary judgment standard. Given that Phoenix

was the prevailing party before the TTAB and that it was

the nonmoving party on the summary judgment motion

that was granted, we must say at the outset that the

state of the facts presents a real obstacle to summary

judgment in Wisconsin’s favor. A party is entitled to

summary judgment only if there exists “no genuine

issue of material fact” and the moving party “is entitled

to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2).

The entire issue in this case—the likelihood of confu-

sion—is an issue of fact. AutoZone, Inc. v. Strick, 543

F.3d 923, 929 (7th Cir. 2008); CAE, 267 F.3d at 677;

Barbecue Marx, Inc. v. 551 Ogden, Inc., 235 F.3d 1041, 1044

(7th Cir. 2000); Reed-Union Corp. v. Turtle Wax, Inc., 77

F.3d 909, 912 (7th Cir. 1996); McGraw-Edison Co. v. Walt

Disney Prods., 787 F.2d 1163, 1167 (7th Cir. 1986).

To overturn the TTAB’s decision, therefore, the

district court (and this court, on de novo review) must

find that substantial evidence did not support the

TTAB’s determination, or that a legal error clouded its

understanding of the likelihood of confusion issue. If

the TTAB’s determination is supported by substantial

evidence and there is no undermining legal error, Wis-

consin must show that there is a killer set of facts, that

Wisconsin neglected to bring to the TTAB’s attention,

that resolves the case in its favor even if we credit all the

No. 08-4164 7

facts the TTAB found during its proceedings. To win on

summary judgment, Wisconsin must show that the

TTAB was not merely wrong, but wrong as a matter of

law, and that the evidence was not only not substantial

enough to support its decision but that the evidence

compelled, without a new hearing by a fact-finder, the

conclusion opposite to the TTAB’s determination. (We

ordinarily do not allow a party to hold evidence in

reserve for appeal, but our standard of review is pre-

scribed by the Lanham Act, 15 U.S.C. § 1071(b)(1). As the

D.C. Circuit noted, the Lanham Act “does not require

exhaustion of the administrative procedures itself” and

therefore does not impose the traditional waiver rules

on parties appealing TTAB decisions to the district

court. Aktieselskabet, 525 F.3d at 14.)

We now proceed to the analysis. Only if the record, as

credited by the TTAB and supplemented by the parties

in the district court, reveals no genuine issue of mate-

rial fact may we affirm the district court’s decision.

II. Relevant Findings

A. Trademark Trial and Appeal Board

The TTAB found that Wisconsin’s software “involve[s]

using individual workstations in a network to better

utilize idle computing resources,” while Phoenix’s soft-

ware “functions on a mainframe system and . . . provides

online programming development, library management

and systems development.” Phoenix Software Int’l, Can-

cellation No. 92042881, at 10. Before the TTAB was testi-

8 No. 08-4164

mony from Wisconsin’s mainframe coordinator that “an

organization that did not have a mainframe or is not

involved in developing software application[s] for main-

frame computers” would have no use for Phoenix’s

software and testimony from Wisconsin’s software

creator that established that its software was not used

on mainframe computers. (“[N]one of the [Wisconsin]

Condor users that came back to us and asked any ques-

tion told us that it’s installed on a mainframe.”)

But Phoenix presented evidence that its software, at

least, was usable beyond the mainframe environment.

Its sole shareholder, Fred Hoschett, testified in a dep-

osition that “effectively we can run our software, un-

changed, unaltered on a workstation, on someone’s

desktop, as if it were on a mainframe” and that the soft-

ware “often” operates on a network of workstations,

which he defined as a “LAN, WAN or some other net-

work that allows the interconnection of these work-

stations.” (LAN is an acronym for Local Area Network;

WAN is an acronym for Wide Area Network.) He also

testified that he has “many customers that use Condor

that do not have mainframes.”

In his deposition, Hoschett also read Wisconsin’s de-

scription of its software from the University’s web site:

Condor is a specialized workload manage-

ment system for computer-intensive jobs. Like

other full-featured batch systems, Condor provides

a job queuing mechanism, scheduling policy,

priority scheme, resource monitoring, and resource

management. Users submit their serial and

No. 08-4164 9

parallel jobs to Condor. Condor places them into

a queue, chooses when and where to run the

jobs based upon a policy, carefully monitors their

progress, and ultimately informs the user upon

completion.

Hoschett testified that this language “very much” con-

cerned him because when he first read Wisconsin’s de-

scription of its software he initially thought it was de-

scribing his product. Before the TTAB, Phoenix described

its software as “a toolbox of functionality to be used

essentially by anyone who uses a computer to assist

them in doing their jobs, whether it be programming

software, submitted batch jobs and queuing batch jobs,

or managing the environment or managing the resources.”

Based on this evidence, the TTAB found that there was

“at least some evidence in the record that the parties’

respective software performs the same general functions

and the evidence does not demonstrate the goods are

used in distinctly different fields,” and that “there is no

clear division between the parties’ software that would

cause us to conclude that these products are not re-

lated.” The biggest difference between the products the

TTAB found was that Phoenix’s software was “used in a

mainframe environment while [Wisconsin’s] goods are

used in a network of individual computer workstations.”

That distinction was “not necessarily” significant, be-

cause as one of Wisconsin’s witnesses conceded, “there

might be some incentive” to operate “in both environ-

ments.”

The TTAB further found that both programs were

“downloadable” and nothing in Phoenix’s registration

10 No. 08-4164

indicated otherwise, that consumers of either program

were not ordinary consumers and had “some level of

skill and sophistication to the extent that they are pro-

gramming mainframe computers or networking com-

puter workstations to increase computational resources,”

and that their “purchases would be made with some

care.” (The TTAB classified consumers of both programs

as purchasers, even though Wisconsin distributes its

software under an open source, free license. This differ-

ence is irrelevant to our analysis.) The TTAB also

found that there was no evidence that any consumer

was actually confused as to the source of either product

despite evidence that Phoenix offered to support its

claim to the contrary (including Internet searches for

“Condor Software” that returned results for both prod-

ucts and a Wikipedia entry for Wisconsin’s product,

with no entry for Phoenix’s).

The TTAB found that both parties’ marketing prac-

tices were “relatively limited.” A Wisconsin witness

testified that “[w]e don’t do any advertising with Condor”

and Phoenix’s controller estimated that Phoenix spent

approximately $65,000 in marketing, focused on

attending trade shows and printing brochures and other

marketing materials. But Wisconsin told the TTAB that

it was expanding its operations, which the TTAB

found made the chances of confusion more likely.

Based on these factual findings and inferences

drawn therefrom, and applying relevant law, the TTAB

found that Phoenix had met its burden of proving the

likelihood of confusion and granted Phoenix’s petition to

No. 08-4164 11

cancel Wisconsin’s registration of the CONDOR mark. It

noted that “the marks are identical in every aspect” and

that both products perform similar functions. The TTAB

concluded that “we cannot find that they are used in

unrelated fields” and that “[e]ven sophisticated pur-

chasers would likely believe that there is some relation-

ship or association between the sources of the goods

under these circumstances.”

B. District Court

At the district court, Phoenix attempted to further

supplement the record with evidence that bolstered its

case that the Condor software products performed over-

lapping functions. Wisconsin, according to Phoenix’s

sole shareholder Fred Hoschett, had struck deals with

IBM to make Wisconsin’s version of Condor available

on PC-based mainframes. Hoschett also provided a list of

customers operating Phoenix’s version of Condor on PC-

based mainframes. But the district court rejected the

proffered evidence on the grounds that it was filed with

Phoenix’s reply brief instead of in its initial proposed

findings of fact, in violation of a local rule. Phoenix does

not argue that it did, in fact, comply with the local rule.

Based on the evidence it did consider, the district

court found that it was undisputed that Phoenix’s soft-

ware cannot run on a network of workstations that

are not connected to a mainframe system, but that the

software may be run on non-mainframe computers

through the use of emulation software. The court found

that the Phoenix software allows “its users to submit

12 No. 08-4164

batch jobs to local and remote computers through a

network of computers to more effectively utilize and

balance the available computing cycles,” that Phoenix had

100 or fewer active licensees of its software, but that

licenses cost anywhere from $30,000 to $300,000 a year

(so that 100 licenses can be very profitable), and that

Phoenix advertises at trade shows, on the Internet, and

through brochures.

Phoenix’s customers, the court found, must be special-

ized because mainframe computer systems “are gen-

erally expensive computing systems that are extremely

reliable and secure and capable of enormous through-

put,” they are “centrally managed and maintained,” and

a choice of software for use on a mainframe “requires

careful consideration.” In other words, customers don’t

buy mainframe software on a lark. The end-users

of software like Phoenix’s are “mainframe systems ad-

ministrators and mainframe systems application devel-

opers.” The community of mainframe administrators

and developers is a tight-knit one (in the words of the

district court, a “niche”) that learns about products

through word-of-mouth advertising, mainframe trade

shows and conferences, and the advice of consulting

firms. Phoenix spent approximately $65,000 on mar-

keting in 2000; that number was virtually unchanged

in 2003. Phoenix’s competitors are IBM and Computer

Associates.

As for distribution and customer overlap, the district

court found that Wisconsin distributes its software

under an open software license and links together “a

No. 08-4164 13

network of individually owned computer resources”

to create a system wherein those computers trade oper-

ating capacities. The court determined that Wis-

consin’s software does not run in mainframe environ-

ments, but did not resolve whether a mainframe could

be part of the grid on which Wisconsin’s software oper-

ates. The court found that users of Wisconsin’s software

are generally systems operators of scientific research

groups, but since the software is free and available for

download others may use it. Because of this, the court

found that users of Wisconsin’s software are tough to

identify; Wisconsin’s estimates place the total number

of users in the tens of thousands. They generally must

have a “systems-level understanding” of computers in

order to make Wisconsin’s Condor program work. Users

include the “high energy physics community, the DOE

[Department of Energy] National labs, biology and com-

puter science departments, and industrial groups.” Ac-

cording to the district court, 3738 copies of Wisconsin’s

software were downloaded in 2000; by 2004, the number

of downloads grew to 15,155, an increase of more than

400 percent. A promotional program offered by the Uni-

versity of Wisconsin, “Condor Week,” showed similar

growth from a one-day event attracting twenty partic-

ipants (presumably it was then called “Condor Day”) to

a four-day event with more than 150 participants.

III. Likelihood of Confusion

The question here is whether consumers were likely to

be confused by Wisconsin’s and Phoenix’s concurrent

14 No. 08-4164

use of the CONDOR marks. As the district court framed

it, “the only question is whether the identical marks used

in the general field of computing create a likelihood of

confusion for consumers . . . or whether the differences

in the computer products for which the software is sold,

in the trade channels, in the conditions under which

sales of products are made and other factors eliminate

the possibility of confusion . . . .” Bd. of Regents of the

Univ. of Wis. Sys., 2008 WL 4950016, at *1. The district

court found that the TTAB “erred when it considered the

actual nature of the parties’ goods and misapplied the

burden of proof to its determination of a likelihood of

confusion.” Id. Because it determined that the TTAB

opinion was erroneous, and Phoenix’s evidence before

the district court was relevant only to the analysis

adopted by the TTAB, the district court found for Wis-

consin.

We agree that the key issue in this case is the likelihood

of confusion between the products described by the

two marks. We are not considering whether the

products themselves perform the same functions, but

whether consumers, and specifically consumers who

would use either product, would be likely to attribute

them to a single source. AutoZone, 543 F.3d at 931.

“[D]issimilarity is not dispositive of the likelihood of

confusion inquiry. A likelihood of confusion may exist

even if the parties are not in direct competition or their

products and services are not identical. Rather, because

the rights of an owner of a registered trademark extend

to any goods that might be, in the minds of con-

sumers, ‘related,’ i.e., put out by a single producer, the

No. 08-4164 15

more accurate inquiry is whether the public is likely to

attribute the products to a single source.” CAE, 267 F.3d

at 679 (citations omitted). This, as we shall see, is a key

point of divergence between our analysis and that of

the district court.

There are a series of multiple-factor tests that are used

across the circuits to determine the likelihood of confu-

sion. We use this one:

1. Similarity between the marks in appearance

and suggestion.

2. Similarity of the products.

3. The area and manner of concurrent use.

4. The degree of care likely to be exercised by

consumers.

5. The strength of the plaintiff’s mark.

6. Whether actual confusion exists.

7. Whether the defendant intended to “palm off”

his product as that of the plaintiff.

See AutoZone, 543 F.3d at 929. The Federal Circuit uses

a different set of factors (referred to by the TTAB in its

opinion). See In re E. I. DuPont DeNemours & Co., 476

F.2d 1357, 1361 (C.C.P.A. 1973). They essentially cover

the same ground as our factors, and neither party

suggests that the differences between the factors affect

the outcome of the case. As noted above, likelihood of

confusion is a question of fact for the jury to determine.

AutoZone, 543 F.3d at 929. “The question of fact may be

resolved on summary judgment only if the evidence is

16 No. 08-4164

so one-sided that there can be no doubt about how the

question should be answered.” Id. (quotations omitted).

The district court overruled the TTAB in two key re-

spects. First, it found that the TTAB erred when it con-

sidered the “actual nature of the parties’ goods” rather

than the goods as they were described in their respec-

tive registrations. This error, the court found, combined

with the lack of evidence that the products were suf-

ficiently related to cause confusion, removed a key ratio-

nale that supported the TTAB’s decision. The district

court also found that the TTAB erred in placing the

burden on Wisconsin to prove that the parties’ goods

are distinct when it considered the way the products

were used or sold. The district court found that the

burden should have been placed on Phoenix, who sought

to cancel a presumptively valid registered mark, and

found that Phoenix did not present sufficient evidence

to meet this burden (because the district court rejected

all the TTAB’s findings on the products’ similarities as

irrelevant).

The district court’s analysis addressed several factors

outlined in our test, but focused mainly on the similarity

of the products and the area and manner of their use.

Wisconsin does not (and cannot) dispute that the marks

are identical and Phoenix has not been able to press

the argument that actual confusion existed between the

two marks—the TTAB found otherwise and evidence to

the contrary was excluded by the district court. Funda-

mentally, then, the district court’s rejection of the

TTAB’s decision rested on a disagreement with its

No. 08-4164 17

analysis of the products’ similarity and their manner of

use.

The district court examined the manner in which

both products were described in their registrations,

disregarded most evidence of their actual use, and

focused on whether a sophisticated consumer would be

likely to confuse the product described as “computer

software for on-line programming development, library

management and system utilities functioning on main-

frame systems” with a product described as “computer

network operating system software, downloadable from

a global computer network, that delivers large amounts

of computational power by utilizing idle computing

resources in a network of individual computer work-

stations.” It appears that the district court mistakenly

assumed that the similarity of the products’ functions

was the dispositive issue in the case; this misapprehen-

sion was magnified by the district court’s error in

confining its examination to the registration of the par-

ties’ products. Instead of a focus on the description of the

goods in the trademark registry, the proper analytical

framework, according to our cases, is “whether the par-

ties’ products are the kind the public might very well

attribute to a single source.” AutoZone, 543 F.3d at 931

(citations omitted); McGraw-Edison Co., 787 F.2d at 1169.

“The rights of an owner of a registered trademark

extend to any goods or services that, in the minds of

consumers, might be put out by a single producer. Thus,

a likelihood of confusion may exist even if the parties

are not in direct competition, or their products and

services are not identical.” AutoZone, 543 F.3d at 931

(quotation and citation omitted).

18 No. 08-4164

This is a proposition we have repeatedly laid out in the

many cases in which we’ve considered the likelihood

of confusion between goods described by similar or

identical marks. See id. at 931; CAE, 267 F.3d at 679; Eli

Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456, 463

(7th Cir. 2000); McGraw-Edison Co., 787 F.2d at 1169. It

was also recognized by the TTAB. “[I]t is not necessary

that the goods and/or services be similar or competitive,

or even that they move in the same channels of trade

to support a holding of likelihood of confusion.”

Phoenix Software Int’l, Cancellation No. 92042881, at 9

(citing Hilson Research Inc. v. Soc’y for Human Res. Mgmt., 27

U.S.P.Q. 2d 1423, 1432 (T.T.A.B. 1993)). “It is sufficient

that the respective goods and/or services are related in

some manner, and/or that the conditions and activities

surrounding the marketing of the goods and/or services

are such that they would or could be encountered by

the same persons under circumstances that could,

because of the similarities of the marks used therewith,

give rise to the mistaken belief that they originate from

or are in some way associated with the same producer.”

Hilson Research Inc., 27 U.S.P.Q. 2d at 1432.

Once we accept this proposition, we see that Wis-

consin’s focus on the descriptions in the registry, adopted

by the district court, is a bit of a red herring. Our cases

make clear that products don’t even have to perform

similar functions, much less be described identically, for

a likelihood of confusion to exist. In McGraw-Edison we

found that a likelihood of confusion could exist between

a mark for electrical fuses and the mark on Disney’s

merchandise for the movie Tron. McGraw-Edison Co., 787

No. 08-4164 19

F.2d at 1169. In CAE, we found that a likelihood of con-

fusion could exist between a mark registered by a

company that designed and manufactured sophisticated

measuring equipment and a mark registered by a

company that tested facilities for compliance with pol-

lution laws. CAE, 267 F.3d at 679. In AutoZone, we

found that a likelihood of confusion could exist

between an auto-parts retailer’s mark and the mark of a

oil change and carwash operator. AutoZone, 543 F.3d at

931. All of these cases featured products with a far

more tenuous similarity than that at issue here. We

note that in these cases, the products had identical

marks (with the exception of AutoZone, which featured

two marks with identical “zone” suffixes). It is possible

that we, as a circuit, have historically assigned too

much weight to the fact that marks are identical. Cf. M2

Software, Inc. v. M2 Commc’ns, Inc. 450 F.3d 1378, 1385

(Fed. Cir. 2006). But, perhaps that is because the issue

is fact-bound and identical marks often create triable

issues of fact regarding the various ways a product is

marketed. Regardless, neither party attacks our trade-

mark standard as inconsistent with the Lanham Act.

Furthermore, the identical nature of the marks weighed

heavily in the TTAB’s analysis. Phoenix Software Int’l,

Cancellation No. 92042881, at 19 (citing In re Shell Oil

Co., 992 F.2d 1204 (Fed. Cir. 1993)). The TTAB also cited

Amcor, Inc. v. Amcor Indus., Inc., 210 U.S.P.Q. 70, 78

(T.T.A.B. 1981), for the proposition that when con-

sidering identical marks, “the relationship between the

goods on which the parties use their marks need not be

as great or as close as in the situation where the marks

are not identical or strikingly similar.”

20 No. 08-4164

The approach adopted by the district court limiting

its consideration to the products as they are described

is too formalistic and ignores the requirement that the

products are to be examined as they appear to the con-

sumer. “[O]ur inquiry in comparing the two products

is not whether they are interchangeable, but whether

the parties’ products are the kind the public might very

well attribute to a single source.” Eli Lilly & Co., 233 F.3d

at 463 (emphasis added) (quotation omitted); see also

AutoZone, 543 F.3d at 931; McGraw-Edison, 787 F.2d at

1169 (“In finding the parties’ product lines to be

‘entirely unrelated’ the district court apparently ignored

the question of whether the purchasing public might

believe a single source could produce both [products].”).

Octocom Systems, Inc. v. Houston Computer Services, Inc.,

918 F.2d 937, 942 (Fed. Cir. 1990), the Federal Circuit case

that the district court relied on, is not to the contrary. In

that case, the registrant whose mark was challenged

tried to supplement the registration by showing that the

registrant really intended its mark to cover a narrow

class of goods, rather than the unlimited coverage that

the actual mark sought. The Federal Circuit found that

the subsequent attempt to limit the registration was

improper and the court was required to consider only the

goods as described in the registration. The court then

found that there was a likelihood of confusion between

the products because the registrant’s original applica-

tion “encompassed modems and computer programs” and

thus conflicted with the petitioner’s registration of a

similar mark for computer programs. Furthermore, “the

record supports no other factual findings but that

No. 08-4164 21

modems and computer programs are commonly used

together in networking, could come from a single

source, and be identified with the same mark. Thus,

[the attempted registrant’s] elimination of ‘computer

programs’ from its application leaving only ‘modems’

was pointless maneuvering.” Octocom Sys., 918 F.2d at 943.

The likelihood of confusion in Octocom stemmed not

from the fact that the registrations were identical, but

from the registrations’ coverage of similar products. In

fact, in Octocom, the Federal Circuit recognized that the

similarity of the products described in the registration

may be “expressly or inherently” reflected. Id. at 942.

The Federal Circuit noted that “[e]vidence that the

goods of the applicant and opposer, as identified in the

respective application and registration, are the types of

goods that would be expected to move in different

trade channels or be sold to different classes of pur-

chasers may be material and relevant.” Id. at 943. So, the

relevant question for us is whether a product that runs

on a mainframe and a product that runs on a network

of computers are the types of goods that are similar

enough to be attributed to a single source by consumers

likely to use one of those products. While we must con-

sider the marks as they are described, it would be a

mistake to bar any evidence of their actual use as irrele-

vant. After all, one of the factors in the test is the “area

and manner of concurrent use.” See AutoZone, 543 F.3d

at 929. And, as noted, the actual use of the product is

relevant to explain the meaning of the terms used in the

registration. See Octocom Sys., 918 F.2d at 943; see also

CAE, 267 F.3d at 681-82; Forum Corp. of N. Am. v. Forum,

22 No. 08-4164

Ltd., 903 F.2d 434, 442 (7th Cir. 1990). Indeed, the

TTAB explicitly declared that it was considering the

nature of the parties’ goods “[t]o the extent that these

facts provide some information about the market and

purchasers of these goods.” Phoenix Software Int’l, Can-

cellation No. 92042881, at 9.

Rejecting the district court’s approach, however, does

not dispose of the case. “Because confusion is a factual

matter, the plaintiff must produce proof; a theory about

how consumers might be confused will not do, unless

evidence supports the theory.” Reed-Union Corp., 77 F.3d

at 912. Even as we consider the products’ actual uses

to determine the meaning of the marks’ registrations,

or more specifically to determine whether there is a

possibility of confusion between the two products as

described in their registrations, Wisconsin would still

prevail if there is no evidence to support the idea that a

supplier of software to a mainframe system (the manner

of use specified in Phoenix’s registration) can be con-

fused with a supplier of software to a network of indi-

vidual computer workstations (the manner of use

specified in Wisconsin’s registration).

The TTAB relied on three key factors in its order to

cancel Wisconsin’s registration. First, and most impor-

tantly, it relied on the fact that the marks are identical.

Wisconsin does not challenge this finding (and as noted,

this seems to be a compelling factor in our circuit).

Second, the TTAB found that the parties’ software per-

forms similar functions, which precluded a finding that

they were used in unrelated fields. Third, it found that

No. 08-4164 23

“sophisticated purchasers would likely believe that there

is some relationship or association between the sources

of the goods under these circumstances.” Phoenix Software

Int’l, Cancellation No. 92042881, at 19. Ultimately, the

TTAB concluded that sophisticated purchasers would

associate the two products. Mapping the TTAB’s findings

onto our factors, we see that the TTAB’s finding of a

likelihood of confusion was based on the identical

nature of the marks, the manner in which both parties’

products are used, and the similarity of the products.

The district court dismissed these findings on the

basis that all analysis of the products should have

been confined to the terms in the registries. As we’ve

explained, this was an error. Moreover, because the

TTAB was using the correct factor-based balancing test,

the district court was incorrect to dismiss the TTAB’s

findings on the area and manner of use factor by

declaring that the TTAB had misallocated the burden of

proof. Because the TTAB found that the similarity of

the marks and products weighed in Phoenix’s favor, the

area and manner of use tipped the balance in favor of

Phoenix. The TTAB noted specifically in its holding that

“a presumption of validity attaches to a service mark

registration, and the party seeking cancellation must

rebut this presumption by a preponderance of evidence.”

Id. at 18. “We hold that petitioner has met its burden.”

Id. at 19.

Once we reinstate the TTAB’s findings, we see that

Phoenix has offered sufficient evidence to survive sum-

mary judgment on the issue of confusion. The TTAB

24 No. 08-4164

credited Phoenix’s evidence that its mainframe soft-

ware can operate unaltered on a network of workstations.

The TTAB found that both programs perform similar

functions to the extent that Phoenix’s representative

was himself confused by Wisconsin’s public description

of its product; he thought it was Phoenix’s own. The

TTAB further found that, as conceded by Wisconsin’s

witness, there was “some incentive” to operate in both

the mainframe and network environments. The TTAB

also found that both products were delivered in the

same manner, and that the same customers are likely

to encounter both products, particularly since Wis-

consin indicated that it had been and would be

expanding its marketing efforts. For the TTAB, these

findings justified the cancellation of Wisconsin’s mark.

Wisconsin does offer new evidence to rebut these

findings and argues that the facts should be interpreted

differently. Most significantly, Wisconsin argues that the

sophistication of consumers cuts in the state’s favor. We

note that this factor was considered at length by the

TTAB, who found in Phoenix’s favor. But as we dis-

cussed above, the question is not whether purchasers of

Phoenix’s Condor product would accidentally buy Wis-

consin’s product but whether those consumers would

likely attribute them to a single source. In re Total Quality

Group Inc., 51 U.S.P.Q. 2d 1474, 1477 (T.T.A.B. 1999)

(“[E]ven careful purchasers are not immune from source

confusion. We find this to be especially the case here

where the marks are substantially identical and the

goods are related.”). Much of the evidence Wisconsin

offers is designed to show that mainframe purchasers

No. 08-4164 25

take care when choosing to purchase a product; this is

relevant to, but not dispositive of the likelihood of con-

fusion issue. 4 McCarthy on Trademarks and Unfair

Competition § 23:103 (“When there is a strong likelihood

of confusion created by other factors, even a high level

of care exercised by a professional buyer may not be

sufficient to tip the scales in the direction of no confu-

sion.”)

The TTAB credited Phoenix’s sole shareholder, who

testified that he was confused by Wisconsin’s descrip-

tion of its product; we are bound to give this finding

deference. This is a key piece of evidence supporting

the finding. The TTAB’s consideration of other factors,

namely the fact that the marks are identical and that the

products are similar (as determined by the TTAB) both

reinforced the TTAB’s judgment. There was also

evidence admitted at the district court that the lines

between mainframe operations and network systems

are disappearing and that Wisconsin was broadening

the scope of its operations. Wisconsin’s evidence of so-

phistication, much of it considered by the TTAB, is not

so compelling that we believe no issue of fact exists.

Wisconsin runs through the other factors, focusing

mainly on the DuPont analysis, and makes good points.

There was no actual confusion; the “downloadability”

of both programs is not dispositive of whether the prod-

ucts were sold in similar trade channels; Phoenix may

not have been diligent about protecting its mark; and

any confusion is likely to be quickly rectified. Considering

this evidence is appropriate, but none of this evidence

26 No. 08-4164

is sufficient to render the facts found by the TTAB im-

material and compel summary judgment. Weighing all

of the parties’ evidence is a task for a finder of fact and

we are required to defer to the TTAB’s determination

on the issues it considered. Accordingly, we must

reverse the district court and remand for a trial on the

likelihood of confusion issue.

IV. Phoenix’s Counterclaims

Phoenix also asks us to reinstate the counterclaims it

brought under 15 U.S.C. §§ 1114 and 1125 for infringe-

ment and false designation of origin; both sections an-

nounce Congress’s intent to make states liable in a

civil action to anyone damaged by the state’s acts. But,

Phoenix’s counterclaims were dismissed on sovereign

immunity grounds. We review the district court’s grant

of a motion to dismiss de novo. Thompson v. Ill. Dep’t

of Prof’l Regulation, 300 F.3d 750, 753 (7th Cir. 2002).

The Eleventh Amendment bars suits against states

and restores “the sovereign immunity that the States

possessed before entering the Union.” Coll. Sav. Bank

v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S.

666, 669 (1999). There are two relevant exceptions to the

sovereign immunity guarantee. See id. at 670. The first

occurs when Congress acts pursuant to the Fourteenth

Amendment to regulate state behavior. Id. (citing

Fitzpatrick v. Bitzer, 427 U.S. 445 (1976)). The second

occurs when a state waives its sovereign immunity

by consenting to suit. Id. (citing Clark v. Barnard, 108

No. 08-4164 27

U.S. 436 (1883)). Phoenix argues that its counterclaims

should be reinstated under either theory.

A. Was the Trademark Remedy Clarification Act a

valid exercise of Congress’s Fourteenth Amendment

power?

The Trademark Remedy Clarification Act (TRCA), Pub.

L. 102-542, 106 Stat. 3567, established state liability for

trademark violations. A portion of the TRCA has

already been deemed unconstitutional by the Supreme

Court. Coll. Sav. Bank, 527 U.S. at 691. This portion pro-

vided for state liability for false advertising, which is

one form a 15 U.S.C. § 1125(a) claim can take; the false

designation of origin claim at issue here is another.

We’ll assume for purposes of our discussion that the

claim we are considering is different from the provision

at issue in College Savings Bank; in any event, the

Supreme Court has not spoken clearly on the other coun-

terclaim: trademark infringement under 15 U.S.C. § 1114.

The TRCA’s sister statute, the Patent and Plant Variety

Protection Remedy Clarification Act (Patent Remedy

Act), established state liability for patent infringement

and was similarly found unconstitutional. See Fla. Prepaid

Postsecondary Educ. Expense Bd. v. Coll. Sav. Bank, 527

U.S. 627, 647-48 (1999). Phoenix’s argument that it

should be able to pursue a trademark infringement

remedy against Wisconsin depends largely on its ability

to convince us that its claims are different from patent

enforcement and false advertising claims. The Supreme

Court found that states were protected by the Eleventh

28 No. 08-4164

Amendment against claims for money damages under

either of those causes of action. Id.; Coll. Sav. Bank, 527

U.S. at 691.

To preserve its claims against Wisconsin, Phoenix needs

to show that Congress expressly intended to abrogate

state sovereign immunity, that it did so under Section 5

of the Fourteenth Amendment, that the trademark in

question was a property interest cognizable under the

Fourteenth Amendment, and that the abrogation of

state immunity was an appropriate exercise of Congress’s

Section 5 power. See Fla. Prepaid, 527 U.S. at 635. It is

undisputed that Phoenix can clear the first two hurdles

(Congress expressly intended to abrogate state sovereign

immunity and it acted under Section 5). Wisconsin con-

tends that the Fourteenth Amendment does not protect

trademarks, but Supreme Court dictum indicates the

opposite. “The Lanham Act may well contain provisions

that protect constitutionally cognizable property inter-

ests—notably, its provisions dealing with infringement

of trademarks, which are the ‘property’ of the owner

because he can exclude others from using them.” Coll.

Sav. Bank, 527 U.S. at 673. Wisconsin gives us no reason

to doubt that this would be the Court’s current position.

So the question is whether the TRCA is an “appro-

priate” law as the term is used in Section 5 of the Four-

teenth Amendment. (“The Congress shall have power

to enforce, by appropriate legislation, the provisions of

this article.”). In City of Boerne v. Flores, 521 U.S. 507,

519 (1997), the Supreme Court held that Congress’s

Section 5 power is inherently limited to remedial and

No. 08-4164 29

preventive laws. When legislating under Section 5, Con-

gress must achieve “a congruence between the means

used and the ends to be achieved.” Id. at 530. Further-

more, the law must be a proportional response to the

problem Congress seeks to solve through legislation. Id.

at 532; see also Fla. Prepaid, 527 U.S. at 639 (discussing

Boerne). Thus, for Congress to invoke Section 5, it must

identify conduct transgressing the Fourteenth Amend-

ment’s substantive provisions, and must tailor its legisla-

tive scheme to remedying or preventing such conduct.

As we’ve noted, the Supreme Court found that the

Patent Remedy Act, which is to patents what the TRCA

is to trademarks, was not a proportional or congruent

exercise of Congress’s Section 5 powers. That act was

designed to remedy patent infringement by a state, just

as the TRCA is designed to remedy trademark infringe-

ment, by providing for money damages against a state.

In Florida Prepaid, the Supreme Court found that

Congress identified little evidence of pervasive state

infringement of patents. Instead, the harm Congress

identified was speculative. Id. at 641. College Savings’

alternative argument, joined by the United States, was

that when a state infringes a patent without paying a

fee, the state has denied the patent-holder of a property

interest without due process of law. But, the Supreme

Court rejected this argument because Congress “barely

considered the availability of state remedies for patent

infringement” and thus did not sufficiently consider

whether existing state remedies might already provide

constitutionally sufficient due process for patent infringe-

ment. Id. at 643. The Court also noted that states are not

30 No. 08-4164

liable for constitutional violations when they negligently

cause injuries and that Congress made no distinc-

tion between negligent infringement (which would not

be a proper subject of Congress’s Section 5 power) and

reckless and intentional infringement which would

trigger the Fourteenth Amendment’s protection. Id. at

645. For all these reasons, the Court found that the

Patent Remedy Act did not abrogate a state’s Eleventh

Amendment immunity.

Wisconsin argues, and the district court found, that

the same reasons support a decision to preserve state

immunity against damages under the TRCA. We agree

that the TRCA is not materially different from the

Patent Remedy Act found unconstitutional in Florida

Prepaid. Both acts, for instance, share the same Senate

Report (S. Rep. No. 102-280) which identifies only one

case of state trademark infringement where the state was

protected from federal suit, and suffers from all the

infirmities identified by the Supreme Court in Florida

Prepaid, 527 U.S. at 643-45 (rejecting the idea that the

legislative history of the Patent Remedy Act satisfies

requirements for Congress’s action under Section 5 of

the Fourteenth Amendment).

As for whether trademarks are different than patents,

Phoenix argues that trademarks are of permanent dura-

tion and that the creation of trademarks protects the

public from confusion and thus they must be analyzed

under a separate rubric than patents. We agree that

the two rights are different, but the Supreme Court in

Florida Prepaid treated patents as a serious property

No. 08-4164 31

right and its holding in that case did not turn on the

nature of the property right, but on the insufficiently

narrow tailoring of Congress’s remedy to the harms it

sought to remedy and the insufficient findings that a

national remedy was necessary. Given the similarity

between the laws here, we are compelled to find that

Florida Prepaid controls the outcome of this issue. Unless

Wisconsin waived its immunity from suit, it is pro-

tected from Phoenix’s counterclaims.

B. Did Wisconsin waive its immunity from suit?

One problem Congress identified when enacting the

TRCA (and its sister patent statute) was the uneven

playing field created by a trademark regime without

remedies against states. In the patent context, it ex-

plained: “A public school such as UCLA can sue a

private school for patent infringement, yet USC cannot

sue UCLA for the same act. The status of an infringing

party should have no relation to the amount of invest-

ment made in a product. State universities should

not have an unjustified advantage in the commercial

arena over private universities for funding because of

the potential for immunity from patent infringement

actions.” S. Rep. No. 102-280, at 9 (1992) reprinted in 1992

U.S.C.C.A.N. 3568, 3094. The level-playing-field issue

is particularly pertinent in the context of scientific

research and patents, but this case exemplifies that

similar concerns arise in the trademark arena.

Phoenix contends that we can fix this problem by

finding that Wisconsin waived its sovereign immunity

32 No. 08-4164

by choosing to participate in the federally regulated

trademark process. After all, Wisconsin could have

chosen to use the CONDOR mark without registering

it, and without concern for damages because of its sover-

eign immunity guarantee. Wisconsin, however, chose to

register the mark, and actively participated in the

system by which it gained benefits (i.e., clearing the

field of other CONDOR marks). Wisconsin’s gain of

benefits from its participation in the system should,

Phoenix argues, subject it to responsibilities arising from

its participation—namely a suit for damages if it

infringes on other marks in the system.

Unfortunately for Phoenix, the Supreme Court rejected

a similar argument in the TRCA case, College Savings

Bank, where it found that a state’s decision to engage “in

the interstate marketing and administration of its pro-

gram,” 527 U.S. at 671, is not a constructive waiver of

immunity, id. at 687.

Wisconsin is in a bit of a different situation than was

the state of Florida: it formally registered its mark with

the PTO. It entered the federal trademark system not by

simply possessing a trademark that it marketed in com-

merce, as Florida did, but by actively availing itself of

the benefits of federal trademark registration. But

College Savings Bank sweeps more broadly than merely

rejecting a “market-entry” waiver of sovereign immu-

nity. College Savings Bank rejected the entire notion of

a constructive waiver of sovereign immunity, id. at 680,

and limited the inquiry of waiver to whether “the State

made an altogether voluntary decision to waive its im-

No. 08-4164 33

munity,” id. at 681 (quotation omitted). A law that

merely alerts the state to the federal government’s inten-

tion to abrogate the state’s immunity is insufficient to

create a waiver if the state is engaging in otherwise

lawful activity. Id. at 687. The state’s choice to register

its mark was otherwise lawful activity, and Phoenix

does not and cannot suggest that the receipt of trade-

mark registration is specifically conditioned on a waiver

of immunity. In fact, Phoenix’s counterclaims do not

depend at all on whether Wisconsin registered its

mark; the statutory infringement and false designation

of origin claims are ordinarily available against any

actor who infringes a registered mark.

After College Savings Bank, the doctrine of constructive

waiver is no longer available. Wisconsin is entitled to

assert its immunity from suit notwithstanding its volun-

tary participation in the federal trademark registration

system.

But Wisconsin’s participation in the trademark system

is not the only conduct that Phoenix identifies as trig-

gering a waiver of Wisconsin’s Eleventh Amendment

privileges. Phoenix also argues that Wisconsin waived

its sovereign immunity the moment it invoked the juris-

diction of the district court pursuant to 15 U.S.C. § 1071(b).

Phoenix cites Lapides v. Board of Regents of the University

System of Georgia, 535 U.S. 613, 619 (2002), in support of

this proposition. There, the state of Georgia was subject

to state law claims against it in state court. It removed

the case to federal court, and then argued that the

Eleventh Amendment barred the federal court from

34 No. 08-4164

hearing the state law claims against it. In rejecting Geor-

gia’s immunity argument, the Supreme Court “focus[ed]

on the litigation act” Georgia performed and concluded

that removal was an insufficiently “special” act, Lapides,

535 U.S. at 620, to warrant departure from the long-

standing general principle that “where a State volun-

tarily becomes a party to a cause and submits its rights

for judicial determination, it will be bound thereby and

cannot escape the result of its own voluntary act by

invoking the prohibitions of the Eleventh Amendment.”

Id. at 619 (quoting Gunter v. Atl. Coast Line R.R., 200

U.S. 273, 284 (1906)). It also necessarily implied that by

removing the case to federal court, Georgia affirma-

tively changed the character of its participation in the

litigation, for the Supreme Court recognized that Georgia

had been “brought involuntarily into the case as a defen-

dant in the original state court proceedings.” Id. at 620.

Phoenix contends that Wisconsin’s litigation status

was similarly changed—and its sovereign immunity

similarly waived—when it made the decision to file an

action in district court pursuant to 15 U.S.C. § 1071(b)

rather than appealing the TTAB’s decision to the

Federal Circuit pursuant to § 1071(a). In choosing to

proceed under § 1071(b) rather than § 1071(a), Phoenix

asserts, Wisconsin gained the benefit of additional evi-

dence and so should face the cost of Phoenix’s infringe-

ment and false designation of origin counterclaims.

But the simple cost-benefit analysis Phoenix proposes

overlooks the true nature of the proceedings here. Wis-

consin, like Georgia in Lapides, was originally haled into

No. 08-4164 35

litigation with Phoenix involuntarily. Its status was that

of a defendant. See 37 C.F.R. § 2.116(b). Wisconsin’s elec-

tion to pursue an appeal in the district court rather than

the appellate court—which it, like private parties to

cancellation proceedings, was statutorily entitled to

do—gave it the official title of plaintiff, but title is not

what matters for sovereign immunity purposes. If the

character of the litigation act turned on title, Georgia

would have been able to assert its sovereign immunity

claims in Lapides.

The technically voluntary nature of Wisconsin’s appeal

is not determinative either. Our dissenting colleague

makes a thoughtful presentation on this front, but the

mere fact that Wisconsin exercised its option to chal-

lenge an adverse decision against it does not necessarily

result in a waiver of its sovereign immunity. Indeed, our

colleague concedes that Wisconsin could have appealed

in the Federal Circuit—another federal forum reached

wholly voluntarily—and still retained its ability to

mount a sovereign immunity defense to the very claims

Phoenix brings here. See Dissent at 58.

What is crucial is the nature of Wisconsin’s litigation

act. Unlike Georgia’s removal in Lapides, Wisconsin’s

pursuit of judicial review in the wake of the adverse

agency decision it did not initiate is “special.” Despite

its formal characterization as a standalone civil action,

see 15 U.S.C. § 1071(b); 37 C.F.R. § 2.145, at its heart Wis-

consin’s pursuit of redress in the district court is

simply a continuation of Phoenix’s original cancellation

action. Cf. Vas-Cath, Inc. v. Curators of the Univ. of Mo., 473

36 No. 08-4164

F.3d 1376, 1382 (Fed. Cir. 2007) (stating that an appeal

brought in the district court pursuant to 35 U.S.C. § 146,

which is roughly analogous to 15 U.S.C. § 1071(b), “is not

a new claim, but an authorized phase of the interference

proceeding that is conducted by the PTO and is subject

to judicial review”). “[T]he mere seeking of judicial

review of an agency decision . . . by a state that was a

defendant before the agency [is] insufficient alone to

infer a waiver of immunity,” Taylor v. U.S. Dep’t of

Labor, 440 F.3d 1, 5 (1st Cir. 2004) (quotation omitted),

and Phoenix has not identified for our consideration

any other relevant affirmative litigation acts undertaken

by Wisconsin.

We are mindful of the concerns about unfair litiga-

tion gameplay that animated the Court’s holding in

Lapides, 535 U.S. at 620-22; we recognize that while

the Eleventh Amendment gives states an upper hand,

it cannot be massaged to create unfair litigation advan-

tages. Attempts to assert sovereign immunity under

circumstances that create “inconsistency, anomaly, and

unfairness” in the litigation context, id. at 620, implicate

those concerns and cannot be permitted to go forward.

But there is no indication that Wisconsin used—

or even could use, for the potential exploitation of the

sovereign immunity privilege is an imperative consider-

ation as well, see Lapides, 535 U.S. at 621—its district court

action as an opportunity to gain any sort of unfair or

inconsistent litigation advantage over Phoenix here. See

Taylor, 440 F.3d at 8 (“The Lapides-[New Hampshire v.]

Ramsey[, 366 F.3d 1 (1st Cir. 2004)] line of cases does

not prevent a litigant from obtaining any sort of

No. 08-4164 37

advantage relating to immunity in pursuing his case.

They only condemn those litigation advantages that are

‘inconsistent’ or ‘unfair.’ ” (quoting Lapides, 535 U.S. at

622)). To the contrary, Wisconsin did not employ the

hybrid appellate vehicle to raise any new claims; it

simply appealed the adverse TTAB ruling. Had it

brought new claims against Phoenix, the nature of its

litigation act, and the outcome of our analysis, would

plainly be different; the assertion of previously unlitigated

claims in a federal forum is undoubtedly “a form of

voluntary invocation of a federal court’s jurisdiction

sufficient to waive the State’s otherwise valid objection

to litigation of a matter . . . in a federal forum.” Lapides,

535 U.S. at 624.

Wisconsin made a choice to proceed in the district

court, and there were undeniably some litigation advan-

tages to be had as a result of that decision. But these

advantages are equally available to all participants in

trademark cancellation proceedings; they simply cannot

be considered “unfair” or “inconsistent.” It would be

both unfair and unrealistic to require states to passively

accept—or even pre-empt, see Dissent at 61—adverse

TTAB decisions so as to keep their sovereign im-

munity privilege intact. It was at Phoenix’s behest that

Wisconsin was “brought involuntarily into the case as

a defendant,” Lapides, 535 U.S. at 620, and Wisconsin’s

election to proceed in district court rather than before

the Federal Circuit does nothing to fundamentally alter

the nature of the proceedings or its participation in them.

Wisconsin’s assertion of sovereign immunity in re-

sponse to claims distinct from those raised in the

38 No. 08-4164

original administrative action does not implicate the

fairness concerns identifed by the Supreme Court. Wis-

consin immediately and unfalteringly asserted a

sovereign immunity defense when the federal counter-

claims were filed. Contra Johnson v. Rancho Santiago Cmty.

Coll. Dist., 623 F.3d 1011, 1021-22 (9th Cir. 2010). It was

generally entitled to defend against Phoenix’s claims

in such a manner, see Dissent at 58, and did not use any

litigation sleight of hand to invoke the Eleventh Amend-

ment, see, e.g., Lapides, 535 U.S. at 621; Ind. Prot. &

Advocacy Servs. v. Ind. Family & Soc. Servs. Admin., 603

F.3d 365, 373 (7th Cir. 2010) (en banc), petition for cert.

filed, 79 U.S.L.W. 3063 (July 21, 2010) (No. 10-131); New

Hampshire v. Ramsey, 366 F.3d 1, 16-17 (1st Cir. 2004).

We therefore conclude that Wisconsin has not through

its appeal from the TTAB’s decision waived its sovereign

immunity defense to Phoenix’s counterclaims.

V. Conclusion

The district court misapplied the likelihood of confu-

sion test and improperly rejected the TTAB’s factual

findings. For that reason, Phoenix is entitled to a trial on

the likelihood of confusion issue. However, Wisconsin is

protected by the Eleventh Amendment from Phoenix’s

counterclaims. Accordingly, we reverse the district

court’s decision only with respect to its grant of sum-

mary judgment to Wisconsin on the likelihood of confu-

sion issue and remand for a trial on that issue only.

No. 08-4164 39

W OOD , Circuit Judge, dissenting in part. Behind the

details of the trademark dispute between appellant Phoe-

nix International Software (“Phoenix”) and the University

of Wisconsin (“Wisconsin”) is a difficult question of

constitutional law: are Phoenix’s compulsory counter-

claims against Wisconsin barred by the sovereign im-

munity doctrine that the Supreme Court has found re-

flected in the Eleventh Amendment to the U.S. Constitu-

tion? My colleagues conclude that the answer to that

question is yes, based primarily on their understanding

of the decisions in Florida Prepaid Postsecondary Educa-

tion Expense Board v. College Savings Bank, 527 U.S. 627

(1999) (“Florida Prepaid”), and City of Boerne v. Flores, 521

U.S. 507 (1997). With respect, I do not agree with them.

I am willing to assume for the sake of argument that

Wisconsin would have been entitled to assert sovereign

immunity if Phoenix had sued it directly in federal

court, although even that proposition is contestable

given more recent developments in the law of sovereign

immunity. But that is not how this case arose. Instead, it

was Wisconsin that chose unrestricted litigation in the

federal forum, when it decided to challenge the decision

of the Trademark Trial and Appeal Board (“TTAB”) in

the federal district court instead of taking an appeal to

the Federal Circuit. See 15 U.S.C. § 1071(b) (providing

that a party “dissatisfied with the decision of the

[TTAB]” may “have remedy by a civil action”). Having

elected the district court, which was not limited to the

record created in the administrative proceeding, it has

effectively waived its sovereign immunity for all mat-

ters that might arise in that particular case, including

40 No. 08-4164

counterclaims that arise out of the same transaction or

occurrence. See Lapides v. Board of Regents of the University

System of Georgia, 535 U.S. 613 (2002). Thus, while

I agree with the majority that the case must be

remanded for a trial on the question whether there is a

likelihood of confusion between Phoenix’s CONDOR

mark and Wisconsin’s CONDOR mark, I would also

reinstate Phoenix’s counterclaims for damages based on

trademark infringement and false designation of origin.

I

Phoenix’s right to pursue its counterclaims turns on

whether Wisconsin waived its sovereign immunity when

it decided to pursue a challenge to the decision of the

TTAB in federal district court, rather than to take ad-

vantage of an appeal to the Federal Circuit. Ante, at 31-

38. The majority concludes that we should not find

waiver, but I do not agree with them. Even if the district

court were the only forum available to the state—which

it was not, as I explain later—nothing requires anyone

to pursue an appeal from an administrative agency’s

ruling. To the contrary, sometimes Congress provides

that no appeal is possible, and courts have regularly

upheld such jurisdiction-stripping provisions. See, e.g.,

Kucana v. Holder, 130 S. Ct. 827, 831 (2010) (reaffirming

that the jurisdiction-stripping provision in 8 U.S.C.

§ 1252(a)(2)(b) prevents review of removal decisions of

the Attorney General in the immigration area when

those decisions are made discretionary by statute);

No. 08-4164 41

Czerkies v. U.S. Dep’t of Labor, 73 F.3d 1435, 1437-39 (1996)

(en banc) (recognizing that a federal court may not

review a challenge to a benefits determination of the

Office of Workers’ Compensation Programs in the De-

partment of Labor); Marozsan v. United States, 852 F.2d

1469, 1473 n.10 (7th Cir. 1988) (en banc) (discussing

how veterans may not obtain federal-court review of an

individual claims determination by the Veterans Ad-

ministration). Wisconsin’s choice here to contest the

decision of the TTAB by filing an action in the federal

district court is thus litigation conduct that is incon-

sistent with an assertion of sovereign immunity. This

is especially the case because Wisconsin wants to enjoy

the litigation advantages of the federal forum, in which

it is seeking judicial action to overturn the TTAB’s deci-

sion, while at the same time it is maneuvering to

block Phoenix’s effort to litigate claims in that court that

arise out of the same transaction. (The majority suggests

otherwise, see ante, at 36-37, but there is nothing in the

record to support its assumption that Wisconsin has

decided to forego the extra litigation advantages offered

in the federal district court.) The waiver doctrines that

the Supreme Court has endorsed do not permit this kind

of selective litigation strategy, particularly given the

fact that the trademark laws offered Wisconsin a

different option—appeal to the Federal Circuit—that

would have allowed it to challenge the agency’s action

based on the record created before the agency in a way

that did not permit counterclaims.

42 No. 08-4164

A

The Supreme Court has interpreted the Eleventh

Amendment to guarantee that “an unconsenting State

is immune from suits brought in federal courts by her

own citizens as well as by citizens of another State.”

Edelman v. Jordan, 415 U.S. 651, 662-63 (1974). The Court has

long recognized, however, that a state waives its sovereign

immunity when it consents to suit. E.g., Clark v. Barnard,

108 U.S. 436 (1883). “Generally, we will find a waiver

either if the State voluntarily invokes our jurisdiction, or

else if the State makes a clear declaration that it intends

to submit itself to our jurisdiction.” College Savings Bank

v. Florida Prepaid Postsecondary Education Expense Board,

527 U.S. 666, 675-76 (1999) (“College Savings”) (internal

quotation marks and citations omitted). The state’s

waiver must be “unequivocal [and] specifically ap-

plicable to federal-court jurisdiction.” Atascadero State

Hosp. v. Scanlon, 473 U.S. 234, 241 (1985).

For more than a century, the Supreme Court has recog-

nized that a state may voluntarily waive its immunity

through conduct during litigation. In 1883, it held that

when a state makes a “voluntary appearance” in federal

court as an intervenor, that participation amounts to a

wavier of the state’s sovereign immunity. Clark, 108 U.S. at

447. To the same effect, it held in Gunter v. Atlantic Coast

Line R.R. Co., 200 U.S. 273, 284 (1906), that “where a state

voluntarily become a party to a cause, and submits

its rights for judicial determination, it will be bound

thereby, and cannot escape the result of its own

voluntary act by invoking the prohibitions of the 11th

Amendment.” Later, it wrote in Gardner v. New Jersey

No. 08-4164 43

that, in the context of a bankruptcy dispute, a state that

voluntarily files in federal court “waives any immunity . . .

respecting the adjudication of the claim.” 329 U.S. 565,

574 (1947). Most recently, the Court confirmed in

Lapides that its recognition of this principle remains

unqualified: “The Court has long accepted this state-

ment of the law as valid, often citing with approval

the cases embodying that principle.” 535 U.S. at 619

(citing College Savings, 527 U.S. at 681 n.3; Employees

Dep’t of Pub. Health and Welfare of Mo. v. Department of

Pub. Health and Welfare of Mo., 411 U.S. 279, 294 & n.10

(1973) (Marshall, J., concurring); Petty v. Tennessee-Missouri

Bridge Comm’n, 359 U.S. 275, 276 (1959)).

Lapides confirms that the Court did not eliminate

the notion of waiver by conduct in litigation when it

issued its opinion in Ford Motor Co. v. Department of Trea-

sury of Indiana, 323 U.S. 459 (1945). Ford held that a

state could assert its sovereign immunity for the first

time in the Supreme Court, despite the state attorney

general’s defense on the merits in the lower courts. Id.

at 467-69. For a time, it seemed that Ford was in tension

with the view that voluntary invocation of federal juris-

diction waives any immunity defense. But the Court’s

decision in Wisconsin Department of Corrections v.

Schacht, 524 U.S. 381 (1998), showed that this was not the

case. There, the Court wrote that “[t]he Eleventh Amend-

ment . . . does not automatically destroy original juris-

diction. Rather, the Eleventh Amendment grants the

State a legal power to assert a sovereign immunity

defense should it choose to do so. The State can waive

the defense. . . . Nor need a court raise the defect on its

own. Unless the State raises the matter, a court can

44 No. 08-4164

ignore it.” Id. at 389 (citations omitted). The year after

Schacht was decided, the Court reaffirmed “the unre-

markable proposition that a State waives its sovereign

immunity by voluntarily invoking the jurisdiction of

the federal courts.” College Savings, 527 U.S. at 681 n.3.

The question on which the Court granted review

in Lapides was “whether a state waive[s] its Eleventh

Amendment immunity by its affirmative litigation

conduct when it removes a case to federal court . . . .” 535

U.S. at 617 (internal quotation marks omitted). Lapides,

a professor employed by the Georgia state university

system, had sued the Board of Regents in state court,

in both their personal and official capacities. He asserted

that they had violated both state law and his federal

constitutional rights by placing allegations of sexual

harassment in his personnel file. The state defendants

removed the case to federal court, where they promptly

sought dismissal of the official-action claims on state

sovereign immunity grounds. Although the Court found

it necessary to limit the strict reach of its ruling to state-

law claims (noting that a state is not a “person” for pur-

poses of 42 U.S.C. § 1983 and thus that the federal

claims could not be sustained on that ground alone), its

discussion of waiver by litigation conduct was a

general one. The Court concluded that it would adhere

to the rule in Gunter, quoted above, and stressed that

a state cannot use the Eleventh Amendment as a get-out-

of-court-free card when it voluntarily submits to a

federal tribunal for a judicial determination of its rights.

Id. at 619 (quoting Gunter, 200 U.S. at 284). It offered a

number of reasons for its endorsement of waiver by

litigation conduct:

No. 08-4164 45

[A]n interpretation of the Eleventh Amendment

that finds waiver in the litigation context rests

upon the Amendment’s presumed recognition of

the judicial need to avoid inconsistency, anomaly,

and unfairness, and not upon a State’s actual

preference or desire, which might, after all, favor

selective use of “immunity” to achieve litigation

advantages. . . . The relevant “clarity” here must

focus on the litigation act the State takes that

creates the waiver. And that act—removal—is

clear.

Id. at 620. Central to the holding in Ford, the Court said,

was the fact that it “involved a State that a private

plaintiff had involuntarily made a defendant in federal

court.” Id. at 622. Concluding “that Clark, Gunter, and

Gardner represent the sounder line of authority,” the

Court “[found] Ford inconsistent with the basic rationale

of that line of cases” and “overrule[d] Ford insofar as

it would otherwise apply.” Id. at 623.

As I see it, the Court could not have expressed itself

more plainly. Ford has been limited to its facts; states

can waive their sovereign immunity by voluntary

conduct in particular cases; and the potential sovereign

immunity of a state does not implicate the federal

court’s subject-matter jurisdiction. The only question

remaining is how to apply these broad principles to

the case before us.

46 No. 08-4164

B

It is important, in considering that problem, to be

precise about what aspect of Wisconsin’s conduct we

are talking about. One possibility is Wisconsin’s decision

to participate in the federal trademark system at all.

The majority holds that this is not enough to support a

conclusion of waiver, ante, at 31-33, and I agree with

them. College Savings, which rejected the same argument

in the patent context, rules out any possibility that Wis-

consin constructively waived its immunity by reg-

istering its trademark. See 527 U.S. at 680-84. Neverthe-

less, the Court took care in Lapides to recall that “College

Savings Bank distinguished the kind of constructive

waivers repudiated there from waivers effected by litiga-

tion conduct.” Lapides, 535 U.S. at 620.

Here, Wisconsin engaged in litigation conduct that

must be evaluated. My colleagues believe that Wis-

consin’s actions in court were not enough to support a

finding of waiver. They begin by comparing Wisconsin’s

conduct to that at issue in Lapides, highlighting the fact

that in Lapides the state of Georgia was sued initially in a

Georgia court under a state law that explicitly waived

Georgia’s immunity to damages in state court. Id. at 617.

After that suit was filed, Georgia removed the action

to federal court and asserted its sovereign immunity

from suit. According to my colleagues, it was the use of

the removal power in this context that demonstrated

that Georgia had voluntarily invoked federal jurisdic-

tion and waived its sovereign immunity. Ante, at 33-35.

No. 08-4164 47

The majority does not say whether it reads Lapides as

limited to cases in which a state removes a particular

type of state-law claim to federal court, but it suggests

that litigation acts comparable in “nature” to removal

may fall within the general rule of Lapides. See ante, at 35.

Before moving forward, however, it is important to

consider how broadly the Supreme Court’s decision in

Lapides ought to apply. In addition to a state-law claim

based on a statute that waived Georgia’s immunity in

state court, the plaintiff in Lapides asserted a claim

against Georgia under § 1983; the latter claim could not

go forward against the state because a state is not a

“person” for purposes of § 1983. Lapides, 535 U.S. at 617

(citing Will v. Michigan Dep’t of State Police, 491 U.S. 58,

66 (1989)). Accordingly, the Court was careful to say

that its conclusion that the state’s act of removing the

case to federal court led to a waiver of its sovereign

immunity was reached in “the context of state-law

claims, in respect to which the State has explicitly

waived immunity from state-court proceedings.” Id. at

617. At the same time, however, the Court offered a

broader rationale for its ruling:

It would seem anomalous or inconsistent for a

State both (1) to invoke federal jurisdiction, thereby

contending that the “Judicial power of the

United States” extends to the case at hand, and

(2) to claim Eleventh Amendment immunity,

thereby denying that the “Judicial power of the

United States” extends to the case at hand. And a

Constitution that permitted States to follow their

litigation interests by freely asserting both claims

48 No. 08-4164

in the same case could generate seriously unfair

results.

Id. at 619. The Court added that “[a] benign motive [for

removing to federal court] . . . cannot make the critical

difference for which Georgia hopes. Motives are difficult

to evaluate, while jurisdictional rules should be clear. . . .

To adopt the State’s Eleventh Amendment position

would permit States to achieve unfair tactical advantages,

if not in this case, in others.” Id. at 621 (internal citations

omitted). We recently observed in our en banc decision

in United States v. Skoien that “[t]his is the sort of message

that, whether or not technically dictum, a court of

appeals must respect, given the Supreme Court’s entitle-

ment to speak through its opinions as well as through

its technical holdings.” 614 F.3d 638, 641 (7th Cir. 2010)

(en banc). That message applies with equal force to the

logic applied by the Court in Lapides.

Reflecting that spirit, most courts of appeals have

applied the rule of Lapides to all instances of removal

initiated by a state. The Fifth Circuit’s decision in Meyers

ex rel. Benzing v. Texas explains why this is the proper

result:

[I]n formulating its rationale, the Court did not

restrict itself to facts, rules, or reasons peculiar to

the Lapides case. Rather, throughout its opinion, the

Court’s reasoning, rule-making, and choice of

precepts were derived from generally applicable

principles serving “the judicial need to avoid

inconsistency, anomaly, and unfairness” in states’

claims of immunity in all types of federal litigation.

No. 08-4164 49

410 F.3d 236, 244 (5th Cir. 2005) (quoting Lapides, 535

U.S. at 620). While this court has had the opportunity to

apply Lapides only in circumstances functionally equiva-

lent to those at issue in Lapides itself, see Omosegbon v.

Wells, 335 F.3d 668 (7th Cir. 2003) (considering a claim

based on a state law waiving immunity that was re-

moved to federal court by a defendant state), other

courts have given Lapides a broader reading, see, e.g.,

Lombardo v. Pennsylvania Dep’t of Public Welfare, 540 F.3d

190, 198 (3d Cir. 2008) (“We hold that the [State]’s removal

of federal-law claims to federal court effected a waiver

of immunity from suit in federal court.”); Embury v. King,

361 F.3d 562, 564 (9th Cir. 2004) (finding that Lapides

applies to action removed by the state to federal court

based on either state or federal law); Estes v. Wyoming

Dep’t of Transp., 302 F.3d 1200, 1206 (10th Cir. 2002) (same).

Only the Fourth Circuit has understood Lapides as limited

to its facts. Stewart v. North Carolina, 393 F.3d 484, 488-90

(4th Cir. 2005). I agree with the Fifth Circuit’s view that

the Fourth Circuit’s Stewart decision is an outlier that

“misconstrues important principles animating Lapides.”

Meyers, 410 F.3d at 249.

As the Lapides Court explained, “In large part the

rule governing voluntary invocations of federal juris-

diction has rested upon the problems of inconsistency

and unfairness that a contrary rule of law would create.”

535 U.S. at 622. “[R]emoval is a form of voluntary in-

vocation of a federal court’s jurisdiction sufficient to

waive the State’s otherwise valid objection to litigation

of the matter (here of state law) in a federal forum.” Id.

at 624. But it is, in the end, just a mechanism for

50 No. 08-4164

invoking the federal court’s jurisdiction. There is no

reason to think that the state’s use of any other mecha-

nism—such as filing an original action in federal

court—carries less force, for waiver purposes.

The majority stresses that what was critical in Lapides

was that “Georgia affirmatively changed the character

of its participation in the litigation” by removing the

case to federal court. Ante, at 34 (citing Lapides, 535 U.S.

at 620). Indeed, the Supreme Court took care to point out

that “the State was brought involuntarily into the case as

a defendant” but then “voluntarily agreed to remove

the case to federal court.” Lapides, 535 U.S. at 620. I have

no quarrel with my colleagues’ view that a state waives

its immunity only when it exhibits a voluntary change

in behavior that demonstrates that it is no longer

defending the lawsuit and is instead taking advantage

of the federal forum. I also agree with them that “title

is not what matters for sovereign immunity purposes.”

Ante, at 35. The waiver-by-litigation-conduct analysis

should not turn on whether the state is a defendant, as

in Lapides, an intervening claimant, as in Clark, 108 U.S.

at 447, a plaintiff, as Wisconsin is here, or even an appel-

lant in this court, see Indiana Protection and Advocacy

Services v. Indiana Family and Social Servicing Admin., 603

F.3d 365, 370 (7th Cir. 2010) (en banc). Instead, the

crucial considerations are the voluntariness of the

state’s choice of forum and the functional consequences

of that choice.

The Federal Circuit has had occasion to consider how

the voluntary invocation principles in Lapides apply

No. 08-4164 51

outside of the removal context. Its conclusions can be

summarized as follows. First, a state that initiates and

prevails in a patent interference proceeding against a

competing applicant cannot block an appeal to federal

court of the agency’s decision by asserting its sovereign

immunity, because the statutory appeal is a later phase

of one integrated proceeding. See Vas-Cath, Inc. v.

Curators of University of Missouri, 473 F.3d 1376, 1385

(Fed. Cir. 2007) (“[T]he [state] University cannot both

retain the fruits of [the administrative action] and bar

the losing party from its statutory right of review[.]”).

Second (and of particular interest here), a state that files

suit in federal court to enforce a patent claim consents

to all compulsory counterclaims that arise from the

same transaction or occurrence. Regents of the University

of New Mexico v. Knight, 321 F.3d 1111, 1125-26 (Fed. Cir.

2003). The Federal Circuit has refused, however, to find

a waiver of state sovereign immunity when an initial

proceeding brought by a state is dismissed for improper

venue and the defendant in the initial proceeding later

refiles elsewhere, see Biomedical Patent Mgmt. v. California

Dep’t of Health Servs., 505 F.3d 1328, 1334-41 (Fed. Cir.

2007), or when a state that files suit in one district

court faces related lawsuits in another district court, at

least if the party that files suit in the other district

court could have intervened in the initial action filed by

the state, see Tegic Communications Corp. v. University of

Texas Board of Regents, 458 F.3d 1335 (Fed. Cir. 2006). Lastly,

the Federal Circuit has found no waiver when a state

simply defends against a Lanham Act claim in federal

court, see State Contracting & Eng’g Corp. v. Florida, 258

F.3d 1329, 1336 (Fed. Cir. 2001).

52 No. 08-4164

Phoenix’s case presents an additional wrinkle that

must be addressed: Wisconsin did not initiate the pro-

ceeding before the administrative agency, but it did

choose to go to court after Phoenix prevailed in the

TTAB. Several decisions of our sister circuits may help

to unravel this last complication. In New Hampshire v.

Ramsey, 366 F.3d 1, 16-17 (1st Cir. 2004), the First Circuit

held that when a state voluntarily participates in pro-

ceedings before a federal arbitration panel without

raising a sovereign immunity defense, the state cannot

attempt to challenge the panel’s decision in federal

district court by claiming it was entitled to immunity

from suit. The court reached this conclusion “even

though [the state] was not formally the plaintiff in the

administrative proceeding.” Id. at 16. Any other decision,

it reasoned, would allow the state to gain an unfair ad-

vantage. Id. at 16-17. Earlier, the same court had deter-

mined that the state’s participation as a defendant in

administrative proceedings did not waive a sovereign

immunity defense in federal court when the state had

“consistently asserted its sovereign immunity, both [in

federal court] and in the administrative proceeding.” Rhode

Island Dep’t of Envt’l Mgmt. v. United States, 304 F.3d 31,

49 (1st Cir. 2002). My colleagues rely on the First

Circuit’s most recent decision involving state sovereign

immunity and administrative proceedings, Taylor v.

U.S. Department of Labor, 440 F.3d 1 (1st Cir. 2005). That

case involved a situation “slightly different” from the

First Circuit’s earlier decisions, id. at 5, and its unique

circumstances provide little help in evaluating Wiscon-

sin’s litigation conduct here. The state in Taylor

No. 08-4164 53

requested adjudicative proceedings before an ALJ for

the very purpose of asserting its sovereign immunity

from suit. Id. at 7-8. The state’s request for an ALJ was

necessary because the sovereign immunity defense

“was not available at the investigatory stage of the ad-

ministrative proceedings.” Id. at 8.

The distinction that these courts have recognized,

between a voluntary, active decision by the state to

entrust a matter to federal court and involuntary,

defensive measures, is reflected in the Supreme Court

decisions I have discussed above. When a state chooses

to intervene in a federal case, it waives its immunity

for purposes of those proceedings. Clark, 108 U.S. at 447-

48. If a state voluntarily files a claim in federal court,

waiver once again occurs. Gardner, 329 U.S. at 574. More-

over, a waiver of immunity in an initial proceeding

extends to all ancillary proceedings that follow. Gunter,

200 U.S. at 281-82, 289-90. I conclude, both from the

Supreme Court’s many decisions in this area and from

the decisions in our sister circuits, that Lapides requires a

finding of waiver in the present case. Wisconsin’s decision

to challenge the TTAB’s unfavorable decision by

initiating a suit in federal court is precisely the affirma-

tive choice to move to federal district court that my

colleagues say that Lapides requires. A state’s deci-

sion to initiate an action in federal court challenging

an agency decision should bar a finding of sovereign

immunity as a defense to counterclaims arising out of

the same transaction or occurrence that the defendant

wishes to raise. (Sovereign immunity to one side, those

counterclaims are regarded as compulsory by Federal

Rule of Civil Procedure 13(a).)

54 No. 08-4164

C

Wisconsin has raised, or could raise, a number of objec-

tions to my position, but none of them withstands close

examination. First, it may complain that it was forced

to bring this lawsuit in the district court once the TTAB

ruled adversely to it. My colleagues describe Wiscon-

sin’s decision as “technically voluntary,” ante, at 35, but

they regard it as practically forced. I do not see it that

way, for the simple reason that Wisconsin was not com-

pelled to do anything. Just as Georgia in Lapides had

the option of litigating in its home court rather than

removing to federal court, Wisconsin here enjoyed a

number of options, and each option carried a different

implication for sovereign immunity. It is useful, in this

connection, to recall how the present lawsuit came

about. Phoenix filed a petition with the TTAB seeking

to cancel Wisconsin’s CONDOR mark, see 15 U.S.C. § 1064,

arguing that the University’s mark would be confused

with Phoenix’s own CONDOR mark, see 15 U.S.C.

§ 1052(d). The TTAB agreed with Phoenix and cancelled

Wisconsin’s mark. Phoenix Software Int’l v. Board of

Regents of the Univ. of Wis. Sys., Cancellation No. 92042881

(T.T.A.B. Sept. 26, 2007), app. at 46. At that point, Wis-

consin had three choices: (1) it could do nothing and let

the TTAB decision stand; (2) it could appeal the

TTAB decision to the Federal Circuit, 15 U.S.C. § 1071(a);

or (3) it could forego an appeal and initiate a civil

action challenging the cancellation in federal district

court, 15 U.S.C. § 1071(b). As we know, Wisconsin chose

the third of these paths. It is helpful to begin by com-

paring choice #3 to the other two.

No. 08-4164 55

1. Do Nothing. First, Wisconsin could have acquiesced

in the TTAB’s cancellation of its mark and found a new

trademark for its software. Nothing forced it to spend a

minute in federal court. The state may object that it is

unfair to force it to choose between maintaining its im-

munity and challenging an adverse agency decision,

but that is no more unfair than the present law, which

permits the state to enjoy the benefits of the trademark

system while exempting itself from certain forms of

accountability to others who use the same system. Al-

though College Savings forecloses a theory of construc-

tive waiver based solely on the fact of the state’s partic-

ipation in the trademark system, there is no reason

to expand this principle to its outer limits. (Indeed, as

I will explain shortly, the evolution of the sovereign

immunity doctrine illustrates that there is every reason

to be cautious about expansions when we are dealing

with commercial activities.) Administrative agencies

resolve the rights of parties before them every day, and

Congress does not always see fit to provide for recourse

to the courts. Indeed, I am not familiar with any admin-

istrative scheme in which the party who loses before

the agency is compelled to appeal the adverse decision.

An appeal or a new lawsuit is a privilege that is often

extended, but that privilege sometimes comes at a

certain price. Perhaps, as here, the new lawsuit in

district court will offer de novo review on an expanded

record—something the agency winner (in this case, Phoe-

nix) will dislike, but the loser (Wisconsin) will appreci-

ate. Supplemental claims and counterclaims might be

added once the case reaches the court. See, e.g., City of

56 No. 08-4164

Chicago v. International Coll. of Surgeons, 522 U.S. 156

(1997). Only if a challenge to the TTAB decision in

federal district court is a necessary facet of any party’s

participation in the trademark system would College

Savings dictate the conclusion that the state’s invocation

of federal jurisdiction is involuntary and thus does not

support a finding of waiver of sovereign immunity. If,

as I believe, a district court action is optional, then the

decision to enter federal court is properly understood

as a voluntary invocation of federal jurisdiction and a

waiver of sovereign immunity.

Another way to ask the question whether the state’s

appeal of a decision to the district court is a voluntary

move to a new tribunal is to ask whether requiring the

state to accept the TTAB’s decision without further re-

course would be offensive somehow. Not that I can see.

Other regimes that pass constitutional muster where

federal court review of agency adjudication is curtailed

concern rights at least as precious as a party’s interest in

a trademark. Just this past Term, the Court reaffirmed

that judicial review of the Attorney General’s immigra-

tion removal determinations may be limited, see Kucana,

130 S. Ct. at 831, and we have recognized in at least two

en banc decisions that review of an agency’s entitlement

determinations may be foreclosed, see Czerkies, 73 F.3d

1437-39; Marozsan, 852 F.3d at 1473 n.10. In many cir-

cumstances, Congress has seen fit to limit the role of

federal courts in disputes about important rights and

courts do not regard the limitation as impermissible or

offensive. See, e.g., the jurisdiction-limiting provisions

in the Prison Litigation Reform Act of 1996, Pub. L. No.

No. 08-4164 57

104-134, 110 Stat. 1321-66, and the Antiterrorism and

Effective Death Penalty Act of 1996, Pub. L. No. 104-132,

110 Stat. 1214. If there is nothing wrong with foreclosing

review of the TTAB’s decision altogether, then there is

nothing unfair about compelling a state to choose

between its sovereign immunity and a second bite at

the apple after the agency has spoken.

The Federal Circuit has considered and rejected an

argument quite similar to the one Wisconsin is making

here. In Vas-Cath, Inc., which I have already mentioned,

the Federal Circuit rejected a state’s attempt to avoid on

sovereign immunity grounds an appeal of a Patent

and Trademark Office (“PTO”) priority determination.

473 F.3d at 1383-84. The court held that the state’s par-

ticipation in the agency proceedings waived its im-

munity claim in federal court. The state had argued

“that it had no choice but to request the [patent] inter-

ference and participate in an adversarial proceeding, for

if it had not taken this action it would have lost its

rightful patent . . . .” Id. at 1384. The court responded

as follows:

[T]he question in this case is not whether the

University voluntarily participated in the PTO

interference, but whether the University can now

bar the appeal of the PTO’s decision in favor of

the University. This argument raises issues not

of federalism, but of litigation tactics . . . .

Id. at 1384. While our case concerns trademarks rather

than patents, the underlying issue is the same. Wisconsin

should not be permitted to wait and see whether it is

58 No. 08-4164

successful in the agency, and then challenge the agency’s

decision with a stacked deck, protected by sovereign

immunity from counterclaims filed by its adversary.

2. Appeal to the Federal Circuit. While the majority ex-

presses little concern about unfair litigation tactics on

the state’s part, I see matters differently. Wisconsin’s

sovereign immunity claim loses any remaining force

when one realizes that the state freely chose to chal-

lenge the TTAB decision in the federal district court

rather than the Federal Circuit. Had the University of

Wisconsin opted instead for the Federal Circuit,

Phoenix would not have been able to introduce counter-

claims into the litigation. (Like all of the federal courts

of appeals, the Federal Circuit operates under the

Federal Rules of Appellate Procedure, not the Federal

Rules of Civil Procedure, and there is no provision in

the Appellate Rules that would allow an appellee to

introduce a new counterclaim.) The Federal Circuit was

thus an available forum that would have been able to

focus exclusively on the TTAB’s decision, without any

threat to Wisconsin’s sovereign immunity. Finally, had

Phoenix responded to an appeal to the Federal Circuit

with an original action against Wisconsin in district

court, the state would naturally have been fully entitled

to assert its sovereign immunity. The majority recognizes

that this is the case. See ante, at 35. The question the

majority brushes over is why Wisconsin chose to

attack the agency decision in the district court rather

than the Federal Circuit, given that the latter forum

provided the state all the relief it sought with complete

insulation from Phoenix’s counterclaims.

No. 08-4164 59

An animating principle of Lapides is that a state

should not reap litigation advantages through its selec-

tion of a forum and subsequent assertion of sovereign

immunity as a defense. By choosing to institute a new

action in the federal district court, Wisconsin provided

itself better odds of reversing the agency’s cancellation

of its mark. As I have already noted, the standard of

review when a TTAB decision is examined by the

district court is de novo, and in the district court the state

is allowed to present new evidence that was not part of

the agency record. In comparison, review in the Federal

Circuit follows typical rules of administrative law,

with deference to the agency’s factual and legal conclu-

sions and limitation to the record that has already been

compiled. Along with the advantages to the state of

filing an action in the district court came the possibility

that the defending party (Phoenix) would assert counter-

claims in that forum—counterclaims that it risked losing

if it failed to raise them. See F ED. R. C IV. P. 13(a). Nothing

in Lapides supports the conclusion that Wisconsin could

take advantage of the benefits of the federal district

court while avoiding aspects of that forum that it found

less desirable.

As my colleagues note, the Court in Lapides remarked

that there was nothing “special” about removal that

warranted abandoning the general legal principle that

a state may waive its immunity through its litiga-

tion conduct. 535 U.S. at 620. Addressing this point, the

majority maintains that Wisconsin’s decision to file suit

in the district court here was “special” (unlike the

state’s decision in Lapides) and thus the general waiver

60 No. 08-4164

principles do not apply and Wisconsin’s immunity is

left intact. See ante, at 34-36. They explain that they see

Wisconsin’s lawsuit as “special” because it is merely an

appeal of an agency decision—a continuation of a pro-

ceeding in which Wisconsin was the defendant. Perhaps

this would be a different case if that were the only

option available to the state. But as I have already ex-

plained, it was not. Furthermore, to hang the entire sov-

ereign immunity analysis on the question whether a

particular litigation act is “special” is to adopt a rule

that will be nearly impossible to apply. All the Lapides

Court said was that removal is not “special”—it did not

provide any guidance about what litigation conduct

it might in the future consider “special” enough to

avoid waiver. See 535 U.S. at 620. The majority here has

not supplied the necessary guidance in this respect—

because, I believe, the task is impossible—for either

states or the parties with whom states litigate. For ex-

ample, why is filing a lawsuit challenging an agency

decision in the district court more “special” than inter-

vening to protect an interest that is at stake in ongoing

litigation in the district court?

Putting to one side the options Wisconsin chose not to

pursue, it is also worth noting that the system for

which Wisconsin is arguing creates serious inefficiencies

for the trademark system. It wants the district court to

reverse the agency decision but to stop before it reaches

the other litigant’s competing trademark claim. In effect,

it seeks an unnatural bifurcation of a single, integrated

problem: Who owns the mark CONDOR? How much

does that mark cover? And what payments might be

No. 08-4164 61

due if one party has encroached upon the other’s space?

The only efficient way—perhaps even the only possible

way—to resolve these questions is in one proceeding,

before one tribunal.

Finally, Wisconsin ignores the fact that at one point in

the history of this case it had yet another avenue

available to it. Before Phoenix initiated TTAB pro-

ceedings, Wisconsin could have filed a suit against

Phoenix in state court to resolve who had rights to the

CONDOR mark. Although the federal courts have juris-

diction over trademark claims brought under the Lanham

Act, that jurisdiction is not exclusive. See 28 U.S.C.

§ 1338(a); 15 U.S.C. § 1121; Alpharma, Inc. v. Pennfield Oil

Co., 411 F.3d 934, 938 (8th Cir. 2005); Aquatherm Industries,

Inc. v. Florida Power & Light Co., 84 F.3d 1388, 1394 (11th

Cir. 1996). (Note, in contrast, that federal jurisdiction is

exclusive in patent and copyright cases. See 28 U.S.C.

§ 1338(a) (“Such jurisdiction shall be exclusive of the

courts of the states in patent, plant variety protection

and copyright cases.”).) A party alleging a trademark

violation under the statute may litigate in state court if

it so chooses. Accordingly, if Wisconsin was concerned

about Phoenix’s competing CONDOR trademark and

wished to preserve its sovereign immunity, it had the

option of filing its own infringement action in Wiscon-

sin state court at the outset.

D

In summary, as I see it, Wisconsin’s effort to block

Phoenix’s compulsory counterclaims in federal court

62 No. 08-4164

while seeking relief from that court in the very same

lawsuit implicates the very same fairness concerns that

the Supreme Court identified in Lapides. Wisconsin

was not forced to litigate in the federal district court. Its

choice to do so was every bit as free as that of the Univer-

sity of Georgia in Lapides to remove its case from state

court to federal court. Neither Lapides nor any other

decision of the Supreme Court supports the idea that

waiver of immunity through litigation conduct occurs

only when a state files suit asserting new claims

against a defendant. See ante, at 37 (discussing how the

outcome would be different if Wisconsin “[h]ad . . .

brought new claims against Phoenix” in the district

court). Nor does that line of cases hold that a state

must defend a claim on the merits, participate in dis-

covery, and file a motion to dismiss and a motion for

summary judgment in order to waive immunity. See ante,

at 38 (referring to the Ninth Circuit’s recent decision

in Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d

1011, 1021-22 (9th Cir. 2010)). I would find that the Uni-

versity of Wisconsin waived its sovereign immunity

for purposes of claims associated with the CONDOR

trademark when it filed suit in the district court. Phoenix

was thus entitled to assert its compulsory counter-

claims, which by definition had to arise out of the

same transaction or occurrence. As the Supreme Court

acknowledged:

It would seem anomalous or inconsistent for a

State both (1) to invoke federal jurisdiction,

thereby contending that the “Judicial power of the

United States” extends to the case at hand, and

No. 08-4164 63

(2) to claim Eleventh Amendment immunity,

thereby denying that the “Judicial power of the

United States” extends to the case at hand. And a

Constitution that permitted States to follow their

litigation interests by freely asserting both claims

in the same case could generate seriously unfair

results.

Lapides, 535 U.S. at 619. I would reinstate Phoenix’s coun-

terclaims and remand for further appropriate proceedings.

II

Broader policy considerations surrounding the doctrine

of sovereign immunity also argue strongly for finding a

waiver in these circumstances, which involve ordinary

commercial activity being conducted by the state. Al-

though the Supreme Court has touched on this aspect of

sovereign immunity law in the past, a closer look at its

decisions reveals that there are still unresolved ques-

tions that would benefit from a closer look. And at a

minimum, these issues inform the question of how

broadly or narrowly we should construe the waiver

doctrines I have just been considering.

From the time of the Declaration of Independence

until the Constitution of 1787 took effect, the states were

fully sovereign in the international sense of the term:

they were States, just as modern-day France, Japan, or

India are States today. This fact is reflected in Articles II

and III of the Articles of Confederation. Article II

affirms that “[e]ach State retains its sovereignty, free-

64 No. 08-4164

dom and independence, and every power, jurisdiction

and right, which is not by this confederation expressly

delegated to the United States, in Congress assembled.”

A RTICLES OF C ONFEDERATION of 1781, art. II. Article III

reinforces the point by specifying, “The said States

hereby severally enter into a firm league of friendship with

each other,” for purposes including common defense

and general welfare. Id. art. III (emphasis added). It was

against this backdrop that the 1787 Constitution was

written. Although that Constitution greatly strengthened

the powers of the central, or “federal,” government, it

did not change the fundamental principle under which

the states remain sovereign entities to the extent that

the Constitution does not override their sovereignty.

Indeed, that is precisely the point of the Tenth Amend-

ment, which says, “The powers not delegated to the

United States by the Constitution, nor prohibited by it

to the States, are reserved to the States respectively, or to

the people.” U.S. C ONST. amend. X. This assurance, no

less than the remainder of the Bill of Rights, was

regarded as essential during the ratification debates.

A

Over the years, the Supreme Court has consistently

recognized the sovereign immunity of the states. Even

in Chisholm v. Georgia, 2 U.S. (2 Dall.) 419 (1793), better

known for its holding that the state of Georgia could

be sued than for the reasons offered by Justices Blair

and Wilson (over Justice Iredell’s dissent), all members

of the Court understood that they had to decide

No. 08-4164 65

whether the state’s sovereignty had been overridden by

the federal Constitution. Justice Blair thought that

Article III of the Constitution provided a clear answer

in the affirmative to that question; he pointedly noted

that he “thought it best to pass over all the strictures

which have been made on the various European con-

federations; . . . . The Constitution of the United States

is the only fountain from which I shall draw; the only

authority to which I shall appeal.” 2 U.S. at 450. Justice

Wilson allowed his gaze to cover more ground; he chose

to look at the principles of general jurisprudence, the

laws and practices of other States and Kingdoms, and

finally the constitutional text. After a philosophical dis-

cussion on the concept of sovereignty, he concluded that

precedents existed under which states could be brought

to account before tribunals and that the Constitution

permitted this suit. Id. at 453-66.

Justice Iredell, whose view was quickly vindicated by

the passage of the Eleventh Amendment, would have

found immunity for Georgia. Id. at 449-50. He em-

phasized the lack of federal legislation that would have

permitted the lawsuit before the Court, but he added

these words: “So much, however, has been said on the

Constitution, that it may not be improper to intimate

that my present opinion is strongly against any construc-

tion of it, which will admit, under any circumstances,

a compulsive suit against a State for the recovery

of money.” Id. at 449. Justice Iredell took this absolute

position because, as he had noted earlier, “in every State

in the Union, previous to the adoption of the Constitu-

tion, the only common law principles in regard to suits

66 No. 08-4164

that were in any manner admissible in respect to claims

against the State, were those which in England apply to

claims against the crown . . . .” Id. at 437. He drew a

direct link between the states’ immunity from suit

before the adoption of the Constitution—immunity

derived from principles of sovereign immunity em-

bodied in public international law—and the states’ con-

tinuing immunity afterwards:

[I]t is incumbent upon us to enquire, whether

previous to the adoption of the Constitution

(which period, or the period of passing the law, in

respect to the object of this enquiry, is perfectly

equal) an action of the nature like this before the

Court could have been maintained against one

of the States in the Union upon the principles of

the common law, which I have shown to be

alone applicable. If it could, I think it is now main-

tainable here; If it could not, I think, as the law

stands at present, it is not maintainable; what-

ever opinion may be entertained; upon the con-

struction of the Constitution, as to the power of

Congress to authorize such a one.

Id.

Throughout the nineteenth century, the Court com-

monly turned to the same principles of public interna-

tional law that it was using for foreign relations when

it had to decide issues involving interstate relations.

Thus, for example, in Bank of the United States v. Donnally,

33 U.S. 361 (1834), the Court had to decide whether a

promissory note in the Bank’s favor that was signed

No. 08-4164 67

in Kentucky could be enforced in Virginia, over an asser-

tion that the statute of limitations in Virginia had run.

In the course of upholding Virginia’s right to apply its

own limitations period (and thus defeat the Bank’s

action), Justice Story wrote that “whatever may be the

legislation of a state, as to the obligation or remedy on

contracts, its acts can have no binding authority beyond

its own territorial jurisdiction. Whatever authority they

have in other states, depends upon principles of inter-

national comity, and a sense of justice.” Id. at 372. More

than forty years later, Justice Field used almost the same

words in Pennoyer v. Neff, 95 U.S. 714 (1877), the decision

(now overruled) that for years was the wellspring of

the constitutional law of personal jurisdiction. There he

wrote that “[t]he several States of the Union are not, it

is true, in every respect independent, many of the right

and powers which originally belonged to them being

now vested in the government created by the Constitu-

tion. But, except as restrained and limited by that in-

strument, they possess and exercise the authority of

independent States, and the principles of public law to

which we have referred are applicable to them.” Id. at

722. He continued with the observation that “[t]he

several States are of equal dignity and authority, and

the independence of one implies the exclusion of power

from all others.” Id.

The Supreme Court has returned repeatedly to this

theme in the line of cases that began with Seminole Tribe

of Florida v. Florida, 517 U.S. 44 (1996), in which the

Court reinvigorated the doctrine of state sovereign im-

munity:

68 No. 08-4164

Although the text of the [Eleventh] Amendment

would appear to restrict only the Article III diver-

sity jurisdiction of the federal courts, we have

understood the Eleventh Amendment to stand

not so much for what it says, but for the presup-

position . . . which it confirms. . . . That presup-

position, first observed over a century ago in

Hans v. Louisiana, 134 U.S. 1 (1890), has two parts:

first, that each State is a sovereign entity in our

federal system; and second, that “ ‘[i]t is inherent

in the nature of sovereignty not to be amenable

to the suit of an individual without its consent,’ ”

id., at 13 (emphasis deleted), quoting The Fed-

eralist No. 81, p. 487 (C. Rossiter ed. 1961) (A.

Hamilton). . . . For over a century we have reaf-

firmed that federal jurisdiction over suits against

unconsenting States was not contemplated by

the Constitution when establishing the judicial

power of the United States.

517 U.S. at 54 (some internal quotation marks and cita-

tions deleted). The theme continues in Florida Prepaid,

527 U.S. at 634-35, College Savings, 527 U.S. at 669-

70 (referring to “the sovereign immunity that the

States possessed before entering the Union”), Alden

v. Maine, 527 U.S. 706, 713 (1999) (“[A]s the Constitu-

tion’s structure, its history, and the authoritative inter-

pretations by this Court make clear, the States’ immunity

from suit is a fundamental aspect of the sovereignty

which the States enjoyed before the ratification of the

Constitution, and which they retain today (either

literally or by virtue of their admission into the Union

No. 08-4164 69

upon an equal footing with the other States) except

as altered by the plan of the Convention or certain con-

stitutional Amendments.”), Kimel v. Florida Board of

Regents, 528 U.S. 62, 72-73 (2000), Board of Trustees of the

University of Alabama v. Garrett, 531 U.S. 356, 363-64 (2001),

and Federal Maritime Commission v. South Carolina State

Ports Authority, 535 U.S. 743, 760 (2002) (“The preeminent

purpose of state sovereign immunity is to accord

States the dignity that is consistent with their status as

sovereign entities.”).

B

This brief review demonstrates that the states enjoy

“sovereign immunity.” But that turns out to be just the

beginning of the inquiry. The term is, after all, a general

one; it applies not only to the states, but to the United

States, to foreign countries, and to Native American

tribes. Early theorists thought that sovereignty was nec-

essarily a singular phenomenon: either an entity enjoyed

sovereignty, or it did not—there was no such thing

as partial sovereignty. See, e.g., J.L. B RIERLY, T HE L AW OF

N ATIONS: A N INTRODUCTION TO THE INTERNATIONAL L AW

OF P EACE 8 (Sir Humphrey Waldock ed., 6th ed. 1963).

A sovereign state is recognizable through several charac-

teristics: a specific territory, a permanent population, its

own government in control, and the capacity to engage

in formal relations with other such entities. R ESTATE-

MENT (T HIRD ) OF THE F OREIGN R ELATIONS L AW OF THE

U NITED S TATES § 201 (1987). The Framers of the Constitu-

70 No. 08-4164

tion, however, had a more nuanced view of the concept

of sovereignty. As Justice Kennedy put it in his con-

curring opinion in U.S. Term Limits, Inc. v. Thornton, the

Framers “split the atom of sovereignty” between the

states and the national government. 514 U.S. 779, 838

(1995) (Kennedy, J., concurring). Thus, with reference to

state or Native American sovereignty, it is always neces-

sary to consider whether sovereign powers have

already been ceded, see, e.g., Central Virginia Community

College v. Katz, 546 U.S. 356, 377-78 (2006) (states agreed

in the plan of the constitutional Convention not to

assert sovereign immunity in bankruptcy proceedings),

or abrogated by valid congressional legislation, see, e.g.,

Seminole Tribe, 517 U.S. at 55-73; see also City of Boerne,

521 U.S. at 529-30 (describing requirements for valid

remedial measures under section 5 of the Fourteenth

Amendment). In addition, as the Supreme Court made

clear in Wisconsin Department of Corrections v. Schacht,

another attribute of sovereign immunity under the

federal Constitution is that “the Eleventh Amendment

grants the State a legal power to assert a sovereign im-

munity defense should it choose to do so. The State

can waive the defense. . . . Nor need a court raise the

defect on its own. Unless the State raises the matter, a

court can ignore it.” 524 U.S. 381, 389 (1998) (citations

omitted).

Another question, largely unexplored for state

sovereign immunity, but by now well elaborated for

foreign sovereign immunity, deals with the scope of the

defense. Is the doctrine absolute, or is it qualified or

restrictive? And if it has changed over time, are courts

No. 08-4164 71

required to apply the doctrine as it applied at the time

of the Founding, or at the time any given state entered

the Union, or as the doctrine is generally understood

today?

The answer to these latter questions for purposes of

foreign sovereign immunity has received extensive at-

tention in both Congress and the courts. From the Found-

ing until 1952, the United States granted foreign nations

absolute immunity from suit in U.S. courts as a matter

of comity. Verlinden B.V. v. Central Bank of Nigeria, 461

U.S. 480, 486-89 (1983) (discussing The Schooner Exchange

v. McFaddon, 11 U.S. (7 Cranch) 116 (1812)). The

Supreme Court “deferred to the decisions of the polit-

ical branches . . . on whether to take jurisdiction over

actions against foreign sovereigns” and, “[u]ntil 1952, the

State Department ordinarily requested immunity in all

actions against friendly foreign sovereigns.” Id. at 486.

Reacting in the wake of World War II to the important

role of state-owned enterprises in the Communist

countries and reluctant to give a litigation advantage

in U.S. courts to those enterprises, in 1952 the United

States shifted its position. Commentators regularly out-

lined the tension between absolute sovereign immunity

and the rise of state trading, particularly in the Soviet

Union, and expressed the concern that “private traders

will be reluctant to deal with state traders if their legal

rights and remedies are greatly curtailed by the

principle of sovereign immunity.” Bernard Fensterwald,

Jr., Sovereign Immunity and Soviet State Trading, 63 H ARV .

L. R EV. 614, 614 (1950); see also Sigmund Timberg, Sover-

72 No. 08-4164

eign Immunity, State Trading, Socialism and Self-Deception,

56 N W . U. L. R EV. 109, 111 (1961).

In 1952, Jack Tate, Acting Legal Adviser for the Depart-

ment of State, wrote a letter to the Acting Attorney

General announcing that the State Department intended

henceforth to apply a restrictive theory of foreign

sovereign immunity:

According to the classical or absolute theory of

sovereign immunity, a sovereign cannot, without

his consent, be made a respondent in the courts

of another sovereign. According to the newer or

restrictive theory of sovereign immunity, the

immunity of the sovereign is recognized with

regard to sovereign or public acts (jure imperii) of a

state, but not with respect to private acts (jure

gestionis).

Letter from Jack B. Tate, Acting Legal Adviser, U.S.

Department of State, to Acting U.S. Attorney General

Philip B. Perlman (May 19, 1952), reprinted in 26 Dep’t

State Bull. 984-85 (1952). After describing the trend

among various countries toward a restrictive theory of

sovereign immunity and noting “that the widespread

and increasing practice on the part of governments of

engaging in commercial activities [made] necessary a

practice which [would] enable persons doing business

with them to have their rights determined in the

courts,” Tate wrote that it would thereafter be the State

Department’s policy “to follow the restrictive theory of

sovereign immunity in the consideration of requests of

foreign governments for a grant of sovereign immu-

No. 08-4164 73

nity.” Id. “The reasons which obviously motivate state

trading countries in adhering to the theory [of absolute

immunity] with perhaps increasing rigidity,” wrote Tate,

“are most persuasive that the United States should

change its policy.” Id.

Experience under the Tate Letter demonstrated that

more was necessary, as the Supreme Court recounted

in Verlinden:

The restrictive theory was not initially enacted

into law . . . and its application proved trouble-

some. As in the past, initial responsibility for

deciding questions of sovereign immunity fell

primarily upon the Executive . . . and the courts

abided by “suggestions of immunity” . . . . As a

consequence, foreign nations often placed diplo-

matic pressure on the State Department in seeking

immunity. On occasion, political considerations

led to suggestions of immunity in cases where

immunity would not have been available under

the restrictive theory.

An additional complication was posed by the

fact that foreign nations did not always make

requests to the State Department. In such cases,

the responsibility fell to the courts to determine

whether sovereign immunity existed, generally

by reference to prior State Department deci-

sions. . . . Not surprisingly, the governing stan-

dards were neither clear nor uniformly applied.

In 1976, Congress passed the Foreign Sovereign

Immunities Act in order to free the Government

74 No. 08-4164

from the case-by-case diplomatic pressures, to

clarify the governing standards, and to “assur[e]

litigants that . . . decisions are made on purely

legal grounds and under procedures that insure

due process,” H.R. Rep. No. 94-1487, p. 7 (1976).

Verlinden B.V., 461 U.S. at 487-88 (citations and footnote

omitted).

The Foreign Sovereign Immunities Act (“FSIA”), 28

U.S.C. §§ 1330, 1332, 1391(f), 1441(d), and 1602-1611,

codifies the restrictive theory of sovereign immunity. It

provides that “a foreign state shall be immune from the

jurisdiction of the courts of the United States and of the

States,” 28 U.S.C. § 1604, except in cases where:

• the foreign state has explicitly or impliedly

waived its immunity, § 1605(a)(1);

• the action is based on commercial activity

carried on in the United States by the foreign

state, an act performed in the United States

related to commercial activity of the foreign

state elsewhere, or an act outside of the

United States related to commercial activity

of the foreign state outside of the United

States that causes a direct effect in the United

States, § 1605(a)(2);

• the action concerns rights in property that

has been taken in violation of international

law, where the property is connected to

commercial activity of the foreign state

within the United States, § 1605(a)(3);

No. 08-4164 75

• the action concerns rights in real estate or

inheritance or gift property located in the

United States, § 1605(a)(4);

• the action involves certain noncommercial

torts occurring within the United States,

§ 1605(a)(5);

• the action involves a maritime lien, § 1605(b);

or

• the action involves certain acts of terrorism

connected to the foreign state, § 1605A.

In addition, in actions brought by foreign States (or in

cases where a foreign State intervenes) the foreign State

is not accorded immunity with respect to any counter-

claim:

(a) for which a foreign state would not be entitled

to immunity under section 1605 or 1605A . . . had

such claim been brought in a separate action

against the foreign state; or

(b) arising out of the transaction or occurrence

that is the subject matter of the claim of the

foreign state; or

(c) to the extent that the counterclaim does not

seek relief exceeding in amount or differing in

kind from that sought by the foreign state.

28 U.S.C. § 1607.

“The most significant of the FSIA’s exceptions . . . is the

‘commercial’ exception of § 1605(a)(2) . . . .” Republic of

Argentina v. Weltover, Inc., 504 U.S. 607, 611 (1992). When

76 No. 08-4164

evaluating whether a foreign State has engaged in com-

mercial activity that falls within the commercial activity

exception, a court must evaluate the nature of the act,

rather than the purpose for which that act was under-

taken. 28 U.S.C. § 1603(d); Republic of Argentina, 504 U.S.

at 614 (“[T]he issue is whether the particular actions that

the foreign state performs (whatever the motive be-

hind them) are the type of actions by which a private

party engages in ‘trade or traffic or commerce,’ Black’s

Law Dictionary 270 (6th ed. 1990).”). “[W]hen a foreign

government acts, not as regulator of a market, but

in the manner of a private player within it, the foreign

sovereign’s actions are ‘commercial’ within the meaning

of the FSIA.” Republic of Argentina, 504 U.S. at 614. Where

one of the FSIA’s statutory exceptions, like the one

for commercial acts, applies, “the foreign state shall be

liable in the same manner and to the same extent as

a private individual under like circumstances” (with

modifications for punitive damages and wrongful

death actions). 28 U.S.C. § 1606.

The Supreme Court has had several opportunities to

discuss the commercial-act exception to the general rule

of foreign sovereign immunity. It has recognized that

“the distinction between state sovereign acts, on the

one hand, and state commercial and private acts, on the

other, [is] not entirely novel to American law.” Republic

of Argentina, 504 U.S. at 613 (discussing Alfred Dunhill

of London, Inc. v. Republic of Cuba, 425 U.S. 682, 695-96

(1976)). Indeed, as early as 1823 Chief Justice Marshall

noted the importance of the distinction:

No. 08-4164 77

It is, we think, a sound principle, that when a

government becomes a partner in any trading

company, it divests itself, so far as concerns the

transactions of that company, of its sovereign

character, and takes that of a private citizen. In-

stead of communicating to the company its privi-

leges and its prerogatives, it descends to a

level with those with whom it associates itself, and

takes the character which belongs to its associates,

and to the business which is to be transacted.

Bank of the United States v. Planters’ Bank of Georgia, 22 U.S.

(9 Wheat.) 904, 907 (1823); cf. Sloan Shipyards Corp. v.

United States Shipping Bd. Emergency Fleet Corp., 258

U.S. 549, 567-68 (1922). Relying on precedents dealing

with state action within the United States, the Dunhill

plurality justified the line between commercial and gov-

ernmental acts as follows:

In this same tradition, South Carolina v. United

States, 199 U.S. 437 (1905), drew a line for pur-

poses of tax immunity between the historically

recognized governmental functions of a State

and businesses engaged in by a State of the kind

which theretofore had been pursued by private

enterprise. Similarly, in Ohio v. Helvering, 292

U.S. 360, 369 (1934), the Court said: “If a state

chooses to go into the business of buying and

selling commodities, its right to do so may be

conceded so far as the Federal Constitution is

concerned; but the exercise of the right is not

the performance of a governmental function . . . .

78 No. 08-4164

When a state enters the market place seeking

customers it divests itself of its quasi sovereignty

pro tanto, and takes on the character of a

trader . . . .” It is thus a familiar concept that

“there is a constitutional line between the State

as government and the State as trader . . . .” New

York v. United States, 326 U.S. 572, 579 (1946).

See also Parden v. Terminal R. Co., 377 U.S. 184, 189-

190 (1964); California v. Taylor, 353 U.S. 553, 564

(1957); United States v. California, 297 U.S. 175, 183

(1936).

425 U.S. at 696.

It was against this backdrop that the Court could

have reconsidered the question whether a distinction

between commercial acts and governmental acts was

proper for the state sovereign immunity it found

reflected in the Eleventh Amendment. It did not do so,

however, in any sustained way. In College Savings, Justice

Scalia wrote:

The “market participant” cases from our dor-

mant Commerce Clause jurisprudence, relied upon

by the United States, are inapposite. . . . Those

cases hold that, where a State acts as a participant

in the private market, it may prefer the goods or

services of its own citizens, even though it could

not do so while acting as a market regulator. . . .

The “market participant” exception to judicially

created dormant Commerce Clause restrictions

makes sense because the evil addressed by those

restrictions—the prospect that States will use

No. 08-4164 79

custom duties, exclusionary trade regulations,

and other exercises of governmental power . . .

to favor their own citizens . . .—is entirely absent

where the States are buying and selling in

the market. In contrast, a suit by an individual

against an unconsenting State is the very evil at

which the Eleventh Amendment is directed—and

it exists whether or not the State is acting for

profit, in a traditionally “private” enterprise,

and as a “market participant.” In the sovereign-

immunity context, moreover, “[e]venhandness”

between individuals and States is not to be ex-

pected: “[T]he constitutional role of the States

sets them apart from other employers and defen-

dants.” Welch [v. Texas Dep’t of Highways and

Public Transp.], 483 U.S. [468, 477 (1987)].

527 U.S. at 685-86 (citations omitted). The concerns under-

lying the dormant Commerce Clause, however, are

quite different from those motivating sovereign im-

munity, as the Court understandably recognized. The

latter doctrine received little attention. Aside from a

couple of fleeting references in dissenting opinions and

an even briefer response by the majority, it does not

appear that the rationale underlying the recognition of

a commercial-acts exception for purposes of foreign

sovereign immunity was considered by the Court.

What attention there was primarily came from Justices

Stevens and Breyer. In his dissenting opinion in that

case, Justice Stevens remarked:

The procedural posture of this case requires the

Court to assume that Florida Prepaid is an “arm

80 No. 08-4164

of the State” of Florida because its activities

relate to the State’s educational programs. . . . But

the validity of that assumption is doubtful if

the Court’s jurisprudence in this area is to be

based primarily on present-day assumptions

about the status of the doctrine of sovereign im-

munity in the 18th century. Sovereigns did not

then play the kind of role in the commercial mar-

ketplace that they do today. In future cases, it

may therefore be appropriate to limit the cov-

erage of state sovereign immunity by treating the

commercial enterprises of the States like the com-

mercial activities of foreign sovereigns under the

Foreign Sovereign Immunities Act of 1976.

527 U.S. at 691-92 (Stevens, J., dissenting) (citing the

FSIA’s commercial activity exception, 28 U.S.C.

§ 1605(a)(2), and its definition of “commercial activity,” id.

§ 1603(d)). Justice Breyer’s dissent also mentioned that

Congress had drawn a line between a state’s public acts

and its acts as a “market participant” in the FSIA:

In doing so, Congress followed the modern trend,

which spread rapidly after the Second World War,

regarding foreign state sovereign immunity. . . .

Indeed, given the widely accepted view among

modern nations that when a State engages in

ordinary commercial activity sovereign im-

munity has no significant role to play, it is today’s

holding, not Parden, that creates the legal “anom-

aly.”

527 U.S. at 699 (internal quotation marks and citations

omitted).

No. 08-4164 81

Justice Scalia found those allusions to foreign sovereign

immunity unhelpful; he dismissed the “suggestion . . .

that we limit state sovereign immunity to noncom-

mercial state activities because Congress has so limited

foreign sovereign immunity” with this comment:

This proposal ignores the fact that state sovereign

immunity, unlike foreign sovereign immunity, is

a constitutional doctrine that is meant to be both

immutable by Congress and resistant to trends.

The text of the Eleventh Amendment, of course,

makes no distinction between commercial and

noncommercial state activities . . . .

527 U.S. at 686 n.4 (opinion of Scalia, J.). The text of the

Eleventh Amendment, of course, also says nothing about

state sovereign immunity. If the matter were fully pre-

sented today, it is possible that the Court might view

matters differently. In virtually all of the cases that fol-

lowed College Savings, the Court recognized that nothing

about the doctrine of state sovereign immunity—either

its breadth or its limitations—appears in the Eleventh

Amendment. See, e.g., South Carolina State Ports Auth.,

535 U.S. at 753 (“[T]he Eleventh Amendment does not

define the scope of the States’ sovereign immunity; it is

but one particular exemplification of that immunity.”);

Garrett, 531 U.S. at 363 (“Although by its terms the Amend-

ment applies only to suits against a State by citizens of

another State, our cases have extended the Amend-

ment’s applicability to suits by citizens against their own

States.”); Kimel, 528 U.S. at 72-73 (quoting Blatchford v.

Native Village of Noatak and Circle Village, 501 U.S. 775, 779

82 No. 08-4164

(1991), for the proposition that “we have understood

the Eleventh Amendment to stand not so much for what

it says, but for the presupposition of our constitu-

tional structure which it confirms”).

These more recent developments in the law of state

sovereign immunity lend some support to the possibility

that the question of the scope of state sovereign

immunity may not yet be resolved. As I have already

noted, at least through the end of the nineteenth century

the Court regularly applied principles of public interna-

tional law (that is, the principles that apply among dif-

ferent nation-states of the world) to the U.S. states. Those

principles permeate this country’s foundational docu-

ments, and international analogies abound in the

Federalist Papers. Thus, it appears that the burden of

proof is on those who would deny that the rules gov-

erning the immunity of foreign countries apply in the

context of the states, or that a time came when state

sovereign immunity diverged from foreign sovereign

immunity. As of 1787, these were just two applications

of the same doctrine.

The Supreme Court has decided at least one case in

which it looked back to the original plan of the Conven-

tion to see if a state retained its sovereign immunity or

if it ceded a portion of that immunity to the federal gov-

ernment. This was Central Virginia Community College

v. Katz, in which the Court held that an adversary pro-

ceeding in bankruptcy brought by a Chapter 11 trustee

to set aside preferential transfers that the debtor had

made to state agencies was not barred by the state’s

No. 08-4164 83

sovereign immunity. 546 U.S. at 359. Essentially, the

State of Virginia wanted to prevent the trustee from

undoing the preferential transfers. It would have suc-

ceeded if the trustee’s action ran up against the barrier

of sovereign immunity. But, noting that bankruptcy

jurisdiction is in rem and that the states at the time of

the Founding had acquiesced in a grant of congressional

power to regulate the bankruptcy process, the Court

found that no such immunity existed. Id. 362-63. If one

were to follow the same methodology for state

sovereign immunity generally, one would start with

the analogy to foreign sovereign immunity and move

forward in each case. Only one question—but a big

one—would remain: have the contours of state sovereign

immunity changed over time, just as the contours of

foreign sovereign immunity have done?

Given the fact that the doctrine of state sovereign im-

munity is one that has been developed over the years

by the courts, largely based on structural assumptions,

there is no obvious obstacle to taking the same move

away from an absolute theory of immunity for states as

the United States has done (first in the Tate Letter and

later in the FSIA) for foreign governmental immunity.

Many of the competitive concerns that motivated the

latter move apply to the states with equal force. 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. Nor is

there any apparent reason why a state-owned hospital,

or garbage pick-up service, or power plant, should have

84 No. 08-4164

a competitive edge over a private competitor. And, given

the fact that litigation imposes transaction costs—often

very high costs—on the parties, it seems undeniable

that the failure to recognize a commercial-act exception

for state entities confers the same kind of competitive

advantage on the states that the United States was re-

luctant to confer on socialist or Communist countries

when it embraced the restrictive theory of foreign sover-

eign immunity after World War II. See, e.g., Joan E.

Donoghue, Taking the “Sovereign” Out of the Foreign Sover-

eign Immunities Act: A Functional Approach to the Com-

mercial Activity Exception, 17 Yale J. Int’l L. 489, 490

(1992) (“Communist governments generally supported

an absolute theory . . . while Western governments pro-

moted a restrictive theory . . . .”); see also 1 R ESTATEMENT

(T HIRD ) OF THE F OREIGN R ELATIONS L AW OF THE U NITED

S TATES 390 (1987) (Introductory Note to Part IV, Ch. 5).

Capitalism and private ownership have served the

United States well. Even though there is no clause in the

Constitution explicitly committing this country to such

an economic system (although the Takings Clause of

the Fifth Amendment may come close), the antitrust

laws have been called quasi-constitutional, and there

seems little doubt that economic freedom is high on the

list of cherished rights. See, e.g., United States v. Topco

Associates, Inc., 405 U.S. 596, 610 (1972) (“Antitrust laws . . .

are the Magna Carta of free enterprise.”); Northern Pac.

R.R. Co. v. United States, 356 U.S. 1, 4 (1958) (“The

Sherman Act was designed to be a comprehensive

charter of economic liberty[.]”). At a minimum, this

public policy should provide a rule of construction for

No. 08-4164 85

courts considering questions of state sovereign immu-

nity. At a stronger level, these considerations may yet

persuade the Supreme Court to take up the question

whether the scope of the sovereign immunity enjoyed

by the states should be limited in the same way that

sovereign immunity is limited for foreign nations, such

that an exception to immunity would exist for com-

mercial acts. My position in this case, however, does not

depend upon the Court’s taking the latter step. Even

now, Lapides and the Court’s other decisions that

recognize waivers of sovereign immunity by litigation

conduct require us to reinstate Phoenix’s counterclaims

on remand. For all of these reasons, I respectfully dissent.

12-28-10