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

R EARGUED M ARCH 30, 2011—D ECIDED A UGUST 5, 2011

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

W OOD , Circuit Judge. This case presents complex ques-

tions about the law of trademark and the law of sover-

eign immunity, as the latter applies to a state univer-

sity. The contending parties are Phoenix International

Software, Inc., a small software developer, and the

2 No. 08-4164

Board of Regents of the University of Wisconsin System,

which is an arm of the state of Wisconsin. Their dispute

centers around two computer programs, each of which

holds the registered trademark “CONDOR.” We delve

into the details of the case below. For now, it is enough

to say that two central issues have occupied us on

appeal: first, the question whether the likelihood of

confusion between Wisconsin’s CONDOR mark and

Phoenix’s identical mark could be ascertained in sum-

mary judgment proceedings; and second, whether Wis-

consin is entitled to immunity from Phoenix’s federal

counterclaims. When we first heard this case, the panel

unanimously concluded that summary judgment on the

trademark dispute was inappropriate and thus further

proceedings were needed, and a majority ruled that the

university was entitled to immunity from Phoenix’s

counterclaims. The panel granted rehearing limited to

the immunity questions. We now reaffirm our ruling

rejecting summary judgment; this portion of our opinion

draws heavily on Judge Tinder’s original opinion. After

the benefit of the arguments on rehearing, we conclude

that the state is not entitled to assert sovereign im-

munity over the counterclaims, and so we reverse that

part of the district court’s judgment as well.

I

Phoenix registered the CONDOR trademark in 1997

for software that runs on mainframe computers and

provides online programming development, library

management, and systems development; four years later,

No. 08-4164 3

Wisconsin registered the identical mark, but for software

that takes advantage of unused processing power across

a network of computers. (For convenience, we occa-

sionally refer to CONDOR-Phoenix and CONDOR-Wis-

consin, to keep clear which product we are addressing.)

In 2004, Phoenix filed a petition to cancel Wisconsin’s

registration with the Trademark Trial and Appeal

Board (TTAB), arguing that the state’s mark was likely to

cause confusion in trade. See 15 U.S.C. §§ 1052(d) and 1064.

Concluding that Phoenix had shown that confusion

between the marks was likely, the TTAB granted the

petition and cancelled Wisconsin’s registration. Phoenix

Software Int’l v. Board of Regents of the Univ. of Wis. Sys.,

Cancellation No. 92042881 (T.T.A.B. Sept. 26, 2007).

Wisconsin decided to challenge the TTAB’s decision

through a suit in the federal district court. This was one

option that federal trademark law made available to it.

See 15 U.S.C. § 1071(b). Another option would have been

to appeal the TTAB’s decision to the U.S. Court of

Appeals for the Federal Circuit. See 15 U.S.C. § 1071(a).

Phoenix responded to Wisconsin’s action both by de-

fending the TTAB’s decision and by asserting counter-

claims for trademark infringement and false designation

of origin under the Lanham Act, see 15 U.S.C. §§ 1114

and 1125(a). The district court dismissed Phoenix’s

federal counterclaims on the ground that they were

barred by the state’s sovereign immunity. The parties

then filed cross-motions for summary judgment. The

district court granted Wisconsin’s motion, denied Phoe-

nix’s, and thereby reversed the TTAB’s decision to

cancel Wisconsin’s registration.

4 No. 08-4164

As we have noted, our first opinion concluded unani-

mously that Phoenix was entitled to a trial on its confusion-

in-trade allegation. The question whether Wisconsin

was entitled to immunity, however, proved more

difficult to resolve, and we thank the parties for their

patience and their additional attention to this important

issue. We now hold that the Supreme Court’s decision

in Lapides v. Board of Regents of the University System of

Georgia, 535 U.S. 613 (2002), requires us to find that Wis-

consin waived its sovereign immunity when it filed suit

in the federal district court seeking to overturn the

decision of the TTAB. To maximize its chances of

reversing the agency’s decision, the state availed itself

of the advantages of a fresh lawsuit, choosing that path

over a number of others available. It would be anomalous

if, after invoking federal jurisdiction, the state could

declare that the federal court has no authority to con-

sider related aspects of the case. Cf. Lapides, 535 U.S. at

619. Phoenix’s counterclaims are compulsory in nature

and thus lie well within the scope of Wisconsin’s waiver

of immunity. Accordingly, we reverse the district court’s

grant of summary judgment, reinstate Phoenix’s federal

counterclaims, and remand for further proceedings.

II

A

Before turning to the merits, it is necessary to say a

word about the standard of review. We have mentioned

that trademark law provides two avenues for review of

TTAB decisions. The road not taken by Wisconsin was a

No. 08-4164 5

direct appeal to the Federal Circuit, which would have

been restricted to the record developed before the TTAB

and would have focused on whether substantial evidence

supported the agency’s decision. CAE, Inc. v. Clean Air

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

option Wisconsin chose was a new action in the district

court. One advantage of this path for the state was the

ability to expand the record by offering new evidence

to fend off Phoenix’s cancellation claim. A challenge to

the TTAB’s decision in a district court is “both an

appeal and a new action, which allows the parties to

request additional relief and to submit new evidence.” Id.

at 673. In such an action, the district court wears two

hats: “[it] is an appellate reviewer of facts found by the

TTAB and is also a fact-finder based on new evidence

introduced to the court.” Id. at 674. The court here

properly followed this approach. It applied a deferential

standard of review to the TTAB’s findings, in keeping

with Dickinson v. Zurko, 527 U.S. 150 (1999), and CAE,

267 F.3d at 675, and for summary judgment purposes

the court viewed new evidence in the light most

favorable to the nonmoving party.

This standard of review, in combination with the

posture of the case and the issues presented, presents a

real obstacle to summary judgment in Wisconsin’s fa-

vor. The central issue here—the likelihood of confu-

sion between the parties’ trademarks—is a question of

fact for the jury. AutoZone, Inc. v. Strick, 543 F.3d 923, 929

(7th Cir. 2008). It was Phoenix that prevailed before

the TTAB, and so the district court could not have ruled

in Wisconsin’s favor without concluding either that no

6 No. 08-4164

finder of fact could have thought that substantial evi-

dence supported the TTAB’s determination, or that a

legal error clouded the agency’s understanding of the

likelihood-of-confusion issue. A party is entitled to sum-

mary judgment only if there exists no genuine issue

of material fact and the moving party is entitled to judg-

ment as a matter of law. F ED. R. C IV. P. 56. Because Wis-

consin was the moving party, it would have to point

to compelling facts that it neglected to bring to the

TTAB’s attention, and those facts had to be enough—

viewed in the appropriate light—to require judgment in

Wisconsin’s favor, even if credit was given to all the

facts the TTAB found during its proceedings.

B

1. Findings of the Trademark Trial and Appeal Board

Before the TTAB was testimony from Wisconsin’s

mainframe coordinator that “an organization that

did not have a mainframe or is not involved in

developing software application[s] for mainframe com-

puters” would have no use for Phoenix’s software, as

well as testimony from Wisconsin’s software creator

stating that the state’s software was not used on main-

frame computers. Phoenix, however, countered with

evidence that its software was not limited to mainframes.

The company’s sole shareholder, Fred Hoschett, pointed

out that many of his CONDOR customers did not have

mainframes; he testified that “effectively we can run

our software, unchanged, unaltered on a workstation,

on someone’s desktop, as if it were on a mainframe” and

No. 08-4164 7

that the software “often” operates on a network of

workstations, which he defined as a “LAN, WAN or

some other network that allows the interconnection of

these workstations.” Hoschett also read the description

of Wisconsin’s CONDOR software posted on the Uni-

versity’s website:

Condor is a specialized workload management

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 manage-

ment. Users submit their serial and 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.

This language seriously concerned Hoschett; initially, he

thought that it was describing his product. 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 program-

ming software, submitted batch jobs and queuing

batch jobs, or managing the environment or managing

the resources.”

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

8 No. 08-4164

us to conclude that these products are not related.”

The agency found the biggest difference between the

two CONDORs to be the fact that Phoenix’s version

was “used in a mainframe environment while [Wiscon-

sin’s] goods are used in a network of individual

computer workstations.” That distinction was “not neces-

sarily significant,” however, because as one of Wiscon-

sin’s witnesses conceded, “there might be [s]ome incen-

tive” to operate “in both environments.” The agency

made a number of additional significant findings. Both

programs, it concluded, were “downloadable”; con-

sumers of either program were sophisticated and could

exercise special care with their purchases; there was no

evidence that any consumer was actually confused as to

the source of either product; and both parties’ marketing

practices were “relatively limited,” though Wisconsin

told the TTAB that it was expanding its operations,

which the agency thought made the chances of con-

fusion more likely.

Based on the record before it, the TTAB concluded

that Phoenix had successfully proven the likelihood of

confusion. It thus granted Phoenix’s petition to cancel

Wisconsin’s registration of the CONDOR mark.

2. Findings of the District Court

At the district court, Phoenix attempted to supplement

the record with evidence bolstering its position that the

CONDOR software products performed overlapping

functions. According to Hoschett, Wisconsin had struck

deals with IBM to make Wisconsin’s version of CONDOR

No. 08-4164 9

available on PC-based mainframes. Hoschett also pro-

vided a list of customers operating Phoenix’s version of

CONDOR on PC-based mainframes. The district court,

however, rejected the proffered evidence on the ground

that it was filed too late. The account that follows is

based on evidence that the district court found to be

undisputed, for summary judgment purposes.

While Phoenix’s software cannot run on a network of

workstations that are unconnected to a mainframe

system, it can function on non-mainframe computers

if emulation software is used. The Phoenix software

allows “users to submit batch jobs to local and remote

computers through a network of computers to more

effectively utilize and balance the available computing

cycles.” Phoenix’s customers must be specialized, because

mainframe computer systems “are generally expensive

computing systems that are extremely reliable and

secure and capable of enormous throughput,” they are

“centrally managed and maintained,” and a choice of

software for use on a mainframe “requires careful con-

sideration.” The end-users of software like Phoenix’s are

“mainframe systems administrators and mainframe

systems application developers.” These end-users form

a tight-knit group that learns about products through

word-of-mouth advertising, mainframe trade shows

and conferences, and the advice of consulting firms.

Advertising of CONDOR-Phoenix is done at trade

shows, on the Internet, and through brochures. In 2000,

the company spent approximately $65,000 on mar-

keting; that number was virtually unchanged in 2003.

10 No. 08-4164

Although distribution and customer overlap between the

two parties’ programs began at low levels, it has been

growing. While CONDOR-Wisconsin does not run on

mainframes, a mainframe might be part of the network of

computers on which Wisconsin’s software is operating.

Because the state distributes its software under an open

software license, anyone may download and use the

program for free. This means that users are hard to iden-

tify; Wisconsin estimates that the total number is in the

tens of thousands. A person generally must have a

“systems-level understanding” of computers to make

CONDOR-Wisconsin work. Thus, typical users are

systems operators of scientific research groups, such as

the “high energy physics community, the DOE [Depart-

ment of Energy] National Labs, biology and computer

science departments, and industrial groups.” The evi-

dence indicated that 3,738 copies of Wisconsin’s soft-

ware 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,” grew over the

same time from a one-day event attracting 20 partici-

pants to a four-day event with more than 150 participants.

C

We come, then, to the central question on the trade-

mark part of the appeal: whether consumers were likely

to be confused by Wisconsin’s and Phoenix’s concurrent

use of the CONDOR marks. The TTAB said yes, while

the district court said no. The court found that the

No. 08-4164 11

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.”

There are a number of multiple-factor tests that are

used across the circuits to determine the likelihood of

confusion. These are useful insofar as they operate as a

checklist to ensure that we do not overlook relevant

evidence, but they are a means to an end, not an end

in themselves. This court has identified the following

points as especially important:

1. the similarity between the marks in appearance

and suggestion;

2. the similarity of the products;

3. the area and manner of concurrent use;

4. the degree of care likely to be exercised by con-

sumers;

5. the strength of the plaintiff’s mark;

6. any actual confusion; and

7. the intent of the defendant to “palm off” his product

as that of another.

AutoZone, 543 F.3d at 929. In reaching its decision, the

lower court emphasized the similarity of the products

and the area and manner of their use (factors 2 and 3).

No one disputes that the marks are identical (factor 1,

favoring Phoenix), nor that the proof of current actual

confusion is weak (factor 6, favoring Wisconsin). There

also is no accusation that “palming off” was taking place

(which removes factor 7 from the discussion). Customer

12 No. 08-4164

sophistication (factor 4) appears to be a wash on these

facts, and neither party has made anything of the

strength of the mark (factor 5). We therefore may safely

confine our attention to the two points on which the

district court focused: similarity of products and manner

of use.

The district court identified two findings of the TTAB

that it believed were in error. First, it thought that the

TTAB should not have considered the “actual nature of

the parties’ goods” but instead should have limited itself

to the descriptions of the goods contained in the parties’

respective trademark registrations. In examining sim-

ilarity of products, the district court—urged on by Wis-

consin—emphasized similarity of function rather than

actual or potential use. Its functional inquiry, moreover,

was confined to an examination of the registration mate-

rials each party had filed. Second, the court believed

that the TTAB should not have placed the burden on

Wisconsin to prove that the parties’ goods were distinct

in the way they were used or sold. Phoenix, it held,

should have borne this burden, since Phoenix was trying

to cancel the registration of a presumptively valid mark.

After rejecting the TTAB’s finding that the products

were similar, the court concluded that Phoenix failed

to meet its burden.

The district court erred by placing so much weight on

the parties’ registration statements. To decide whether

there is a likelihood of confusion between the two CON-

DOR products, a court must ask whether consumers, and

specifically consumers who would use either product,

No. 08-4164 13

would be likely to attribute them to a single source.

AutoZone, 543 F.3d at 931; see also McGraw-Edison Co. v.

Walt Disney Prod., 787 F.2d 1163, 1169 (7th Cir. 1986).

“[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 trade-

mark extend to any goods that might be, in the minds

of consumers, ‘related,’ i.e., put out by a single producer,

the 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); see also Eli Lilly & Co. v.

Natural Answers, Inc., 233 F.3d 456, 463 (7th Cir. 2000).

The TTAB’s opinion shows that it asked the right ques-

tion and applied the correct standard.

The descriptions in the trademark registry are thus of

little help. Products do not even have to perform

similar functions, much less be described identically, for

a likelihood of confusion to exist. We have found that a

likelihood of confusion can exist between a mark for

electrical fuses and the mark on Disney’s merchandise

for the movie Tron, McGraw-Edison, 787 F.2d at

1169; 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 pollution laws, CAE,

267 F.3d at 679; or between an auto-parts retailer’s mark

and the mark of an oil change and carwash operator,

AutoZone, 543 F.3d at 931-32. All of these cases featured

products displaying less similarity than those at issue

14 No. 08-4164

here. In most of the cases, moreover, the products had

identical marks. While more than the same mark is

needed to show confusion, see, e.g., M2 Software, Inc. v. M2

Communications, Inc., 450 F.3d 1378, 1385 (Fed. Cir. 2006),

the presence of such identity often creates triable issues

of fact regarding the various ways a product is marketed.

The Federal Circuit case on which the district court

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

Inc., 918 F.2d 937, 942 (Fed. Cir. 1990), is not to the con-

trary. There a registrant whose mark was challenged

tried to supplement the registration to show that it in-

tended its mark to cover a narrower set of goods than

those described in the registration. The Federal Circuit

rejected this attempt, saying that the court should con-

sider the goods as described in the registration. A likeli-

hood of confusion existed because the registrant’s original

application “encompassed modems and computer pro-

grams” and thus conflicted with the petitioner’s registra-

tion of a similar mark for computer programs. Further-

more, the record showed that modems and computer

programs are used together in networking; they can

come from a single source; and they may be identified

with the same mark. Id. at 943. The critical fact in

Octocom was thus not that the registrations were

identical; it was that they covered similar products.

Similarity may be reflected “expressly or inherently.” Id.

at 942. While a court should consider the marks as they

are described in the registration, it is error to bar any

evidence of their actual use as irrelevant. One of the

factors in the test for likelihood of confusion, after all, is

No. 08-4164 15

the area and manner of concurrent use. The actual use

of a product is important in its own right and informa-

tion about use is relevant to explain the meaning of the

terms used in the registration. Id. at 943; see also Forum

Corp. of N. Am. v. Forum, Ltd., 903 F.2d 434, 442 (7th

Cir. 1990). The TTAB committed no error when it

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.”

Our disagreement with the district court’s rationale,

however, does not dispose of the case. Our review is

de novo, and we may affirm on any ground supported

by the record. To defeat Wisconsin’s motion for sum-

mary judgment, Phoenix had to produce enough evi-

dence to create an issue for the trier of fact. Wisconsin

would still be entitled to summary judgment if there

were no evidence that users would be likely to confuse

a product running on a mainframe system (CONDOR-

Phoenix) with a product that runs on a network of indi-

vidual computer workstations (CONDOR-Wisconsin).

The TTAB offered three reasons for cancelling Wiscon-

sin’s registration. First, and most importantly, it relied on

the conceded fact that the marks are identical. Second, the

TTAB found that the two software products perform

similar functions and thus cannot be said to occupy

unrelated fields. Third, it found that “sophisticated pur-

chasers would likely believe that there is some relation-

ship or association between the sources of the goods

under these circumstances.” These findings tipped the

16 No. 08-4164

balance on the questions of similarity and manner of use

in favor of Phoenix.

The TTAB credited Phoenix’s evidence that its main-

frame software can operate on a network; it found that the

two CONDORs perform similar functions, noting that

Wisconsin’s description of its product sounded very

much like Phoenix’s; there was evidence that the products

were delivered the same way; the same customers were

likely to encounter both products, particularly in light

of Wisconsin’s expanded marketing efforts; and there

was some incentive to operate in both mainframe and

network environments. Wisconsin offered new evidence

in the district court to rebut these findings, and it argued

that the facts should be interpreted differently. It relied

most heavily on the sophistication of consumers and

the theory that mainframe purchasers take care when

choosing what product to buy. This is relevant to, but

not dispositive of the likelihood of confusion issue, see

4 M C C ARTHY ON T RADEMARKS AND U NFAIR C OMPETITION

§ 23:103 (4th ed. 2011). But the question is not whether

purchasers of Phoenix’s CONDOR product would ac-

cidentally buy Wisconsin’s product; it is whether

those consumers would likely attribute them to a single

source. Moreover, the TTAB credited Phoenix’s witness

Hoschett, who testified that he was confused by Wiscon-

sin’s description of its product, and we are bound to

give this important credibility finding deference. Wis-

consin’s evidence of sophistication is not compelling

enough to eliminate any issue of fact.

The question in the end is not whether the evidence

compelled a finding in favor of Phoenix. Wisconsin has

No. 08-4164 17

pointed to a number of facts in its favor: there was no

actual confusion; the “downloadability” of both pro-

grams is not dispositive of whether the products were

sold in similar trade channels; Phoenix may not have

been diligent about protecting its mark; and any con-

fusion might be quickly rectified. But the record in-

cludes enough evidence supporting Phoenix that fur-

ther proceedings are necessary. Accordingly, we must

reverse the district court and remand for a trial on the

likelihood of confusion issue.

III

Phoenix also asks that we reinstate on remand the

federal counterclaims that it asserted against Wisconsin.

Behind Phoenix’s request is a difficult question of con-

stitutional law: are Phoenix’s counterclaims against Wis-

consin barred by the sovereign immunity doctrine that

the Supreme Court has found reflected in the Eleventh

Amendment to the U.S. Constitution? The district court

thought so. Congress, the court said, has not abrogated

Wisconsin’s immunity in this area; the state’s decision

to participate in the federal trademark system did not

effect a waiver of immunity; and the state had done

nothing to voluntarily invoke federal jurisdiction. The

district court regarded Wisconsin’s appearance in fed-

eral court as nothing more than the involuntary appeal

of an unfavorable agency decision. In many respects,

the district court’s analysis of Wisconsin’s immunity

was correct. In our view, however, Wisconsin’s litigation

conduct in this case was sufficient to waive its sovereign

18 No. 08-4164

immunity with respect to the counterclaims Phoenix

has asserted.

While the language of the Eleventh Amendment

literally says only that federal jurisdiction is limited

where a state is sued by citizens of another state or

foreign country, the Supreme Court has “understood the

Eleventh Amendment to stand not so much for what it

says, but for the presupposition of our constitutional

structure which it confirms.” Blatchford v. Native Vill. of

Noatak and Circle Vill., 501 U.S. 775, 779 (1991). The

power established in Article III does not supersede “the

sovereign immunity that the States possessed before

entering the Union.” College Sav. Bank v. Florida Prepaid

Postsecondary Educ. Expense Bd., 527 U.S. 666, 669 (1999)

(“College Savings”). So interpreted, the Eleventh Amend-

ment guarantees 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).

This robust immunity from suit, however, is not abso-

lute. Two exceptions are potentially relevant to this case.

First, Congress can authorize suits against the states by

exercising its power to enforce the Fourteenth Amendment

to the Constitution, see College Savings, 527 U.S. at 670

(citing Fitzpatrick v. Bitzer, 427 U.S. 445 (1976)); this excep-

tion recognizes that the Fourteenth Amendment, ratified

more than 70 years after the Eleventh Amendment, repre-

sents a fundamental reorganization of our federal system

and a limitation on the sovereign power of the states.

Second, a state may voluntarily waive its sovereign

No. 08-4164 19

immunity by consenting to federal jurisdiction explicitly

or by invoking that jurisdiction through its behavior.

See id. (citing Clark v. Barnhard, 108 U.S. 436, 447-48 (1883)).

Phoenix takes the position that its counterclaims should

move forward under either exception.

A

We can be brief on the subject of congressional abroga-

tion. After Wisconsin initiated its action in the district

court, Phoenix counterclaimed for infringement and

false designation of origin under 15 U.S.C. §§ 1114 and

1125(a). Both of these statutes demonstrate Congress’s

intention to subject the state to liability in trademark

actions brought by those injured by a state’s acts. None-

theless, we doubt that either provision would survive

a constitutional challenge in the Supreme Court. College

Savings held that a provision of the Trademark Remedy

Clarification Act (TRCA) making states liable for false

advertising (one form that a claim under 15 U.S.C.

§ 1125(a) may take) violated the Constitution. 527 U.S. at

691. In addition, Florida Prepaid Postsecondary Education

Expense Board v. College Savings Bank (“Florida Prepaid”),

found that the TRCA’s sister statute, which estab-

lished state liability for patent infringement was similarly

unconstitutional. 527 U.S. 627, 647-48 (1999). As the

district court noted, these decisions appear to foreclose

any argument that Congress has properly abrogated

Wisconsin’s immunity from Phoenix’s federal counter-

claims. We leave closer examination of the issue for

another day, however, because in our view the state

has waived its immunity from suit.

20 No. 08-4164

B

The Supreme Court has long recognized that a state

may waive its sovereign immunity. E.g., Clark, 108 U.S.

436. “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, 527 U.S. at 675-76

(internal quotation marks and citations omitted). One

way in which a state may submit itself to federal juris-

diction is through its conduct during litigation. In

1883, the Supreme Court held that when a state makes a

“voluntary appearance” in federal court as an intervenor,

that participation amounts to a wavier of 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

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

that voluntarily files in federal court “waives any im-

munity . . . respecting the adjudication of the claim.” 329

U.S. 565, 574 (1947). Most recently, the Court unanimously

reaffirmed this principle in Lapides: “The Court has long

accepted this statement of the law as valid, often

citing with approval the cases embodying that princi-

ple.” 535 U.S. at 619.

Lapides confirms that the Court did not eliminate the

doctrine of waiver by litigation conduct in Ford Motor

No. 08-4164 21

Co. v. Department of Treasury 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

lower courts. Id. at 467-69. For a time, it seemed Ford was

in tension with the view that voluntary invocation of

federal jurisdiction waives immunity. But the Court’s

decision in Wisconsin Department of Corrections v. Schacht,

524 U.S. 381 (1998), resolved any such tension. There, the

Court wrote that “[t]he Eleventh Amendment . . . does not

automatically destroy original jurisdiction. 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 ignore it.” Id. at 389 (cita-

tions omitted). The year after Schacht, the Court reaffirmed

“the unremarkable proposition that a State waives its

sovereign immunity by voluntarily invoking the juris-

diction of the federal courts.” College Savings, 527 U.S.

at 681 n.3.

The question 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

22 No. 08-4164

defendants removed the case to federal court, where

they promptly sought dismissal of the official-action

claims on state sovereign immunity grounds. 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:

[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 “immu-

nity” 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 (citations omitted). 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.

The Court could not have expressed itself more

plainly. Ford is limited to its facts; states can waive their

No. 08-4164 23

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 question is how to apply these broad principles to

the case before us.

1. Constructive Waiver

It is important for purposes of the waiver inquiry to be

precise about what aspect of Wisconsin’s conduct we

are talking about. Although as a theoretical matter

one might consider whether Wisconsin’s decision to

participate in the federal trademark system at all

amounts to constructive waiver, we put that possibility

to one side. College Savings rejected the same argument

in the patent context, and the Court’s decision appears

to eliminate the doctrine of constructive waiver outright.

See 527 U.S. at 680-84. This rules out any possibility

that Wisconsin subjected itself to suit by registering its

trademark with the Patent and Trademark Office. Partici-

pation in the trademark system is not the sort of conduct

that voluntarily invokes the jurisdiction of the federal

courts. Importantly, however, the Court took care in

Lapides to recall that “College Savings Bank distinguished

the kind of constructive waivers repudiated there from

waivers effected by litigation conduct.” Lapides, 535 U.S.

at 620.

2. Waiver by Litigation Conduct

Quite separate from its general participation in the

trademark system is Wisconsin’s specific conduct in

24 No. 08-4164

this lawsuit. The question is whether the state’s deci-

sion to challenge the TTAB’s adverse decision by filing

a lawsuit in federal district court effected the type of

waiver of immunity that the Supreme Court discussed

in Lapides.

We must consider two preliminary questions about

the scope of the Lapides rule before analyzing what Wis-

consin did here. The first is whether Lapides applies to

all instances in which a state removes a case to federal

court; the second is whether the removal mechanism

is central to the Court’s holding in Lapides, or whether

other paths to federal court cause a similar waiver of

the immunity defense. To answer both, it is helpful to

take a closer look at the Lapides litigation.

The dispute in Lapides began as a lawsuit against the

State of Georgia in a Georgia court under a state law that

explicitly waived Georgia’s immunity to damages in

state court. 535 U.S. at 617. In addition to the state-law

claim, the plaintiff in Lapides asserted a claim against

Georgia based on § 1983. The state removed both claims

to federal court. The latter claim, the Court noted, could

not go forward 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)). That

is why 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. The Court’s rationale, however,

was not so limited:

No. 08-4164 25

It would seem anomalous or inconsistent for a State

both (1) to invoke federal jurisdiction, thereby con-

tending 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 in the same case could gen-

erate 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 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 principle 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:

26 No. 08-4164

[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.

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

at 620). See also 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). In fact, only the Fourth Circuit has

concluded that Lapides should be limited to its facts.

Stewart v. North Carolina, 393 F.3d 484, 488-90 (4th Cir.

2005); but see Watters v. Washington Metro. Area Transit

Auth., 295 F.3d 36, 42 n.13 (D.C. Cir. 2002) (suggesting

that the holding of Lapides is narrow but refusing to

consider the issue because the parties had not raised it).

To date, this court has had the opportunity to apply

Lapides only in circumstances functionally equivalent to

those that were 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

removed to federal court by a defendant state). Contrary

No. 08-4164 27

to Wisconsin’s suggestion, however, none of our

past decisions confines Lapides to those limited circum-

stances. Like the Fifth Circuit, we regard the Fourth Cir-

cuit’s Stewart decision as an outlier that “misconstrues

important principles animating Lapides,” Meyers, 410

F.3d at 249, and we join the majority of our other sister

circuits in reading Lapides to state a more general rule.

That brings us to the question whether anything in

Lapides turned on the fact that the case reached the

federal court through removal. We think not. As the

Lapides Court explained, “In large part the rule gov-

erning voluntary invocations of federal jurisdiction

has rested upon the problems of inconsistency and unfair-

ness that a contrary rule of law would create.” 535 U.S. at

622. “[R]emoval is a form of voluntary invocation 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 invoking the federal

court’s jurisdiction. There is no reason to think that the

state’s use of any other mechanism—such as filing an

original action in federal court—carries less force for

waiver purposes.

The Supreme Court took care in Lapides 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.” Id. at 620. Waivers by litiga-

tion conduct depend on whether the state has made a

voluntary change in behavior that demonstrates it is

no longer defending the lawsuit and is instead taking

28 No. 08-4164

advantage of the federal forum. This is not a question of

what label the state assumes in litigation: the analysis

of waiver by litigation conduct should not turn on

whether the state is a defendant, as in Lapides, an inter-

vening claimant, as in Clark, 108 U.S. at 447, a plaintiff, as

Wisconsin is here, or even an appellant in this court, see

Indiana Prot. and Advocacy Servs. v. Indiana Family

and Soc. Servicing Admin., 603 F.3d 365, 370-71 (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

outside of the removal context. It decided that a state

that initiates and prevails in a patent interference pro-

ceeding against a competing applicant cannot use sover-

eign immunity to block an appeal to federal court of the

agency’s decision. Vas-Cath, Inc. v. Curators of Univ.

of Missouri, 473 F.3d 1376, 1385 (Fed. Cir. 2007). In addi-

tion, the Federal Circuit has held that 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 Univ. of

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

2003). In contrast, it has refused to find waiver where a

state is sued and the plaintiff claims that the state has

waived its immunity because the state had waived its

immunity in an earlier lawsuit involving the same par-

ties. See Biomedical Patent Mgmt. Corp. v. California Dep’t

of Health Servs., 505 F.3d 1328, 1334-41 (Fed. Cir. 2007).

No. 08-4164 29

Similarly, that court has decided that a state that files

a lawsuit in one district court does not waive its

immunity in a related lawsuit filed by a party in

another district court, at least in situations where that

party could have intervened in the action filed by the

state. Tegic Communications Corp. v. Board of Regents of the

Univ. of Texas Sys., 458 F.3d 1335, 1342 (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).

Phoenix’s case presents an additional wrinkle: Wisconsin

did not initiate the proceeding before the administrative

agency, but it did choose to go to court after Phoenix

prevailed in the TTAB. Cases in the First and Eighth

Circuits shed light on this scenario. 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 proceedings before a federal arbitration panel without

raising a sovereign immunity defense, the state cannot

challenge the arbitral 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 pro-

ceeding.” Id. at 16. Any other decision, it reasoned, would

allow the state to gain an unfair advantage. Id. at 16-17.

Earlier, the same court had determined that the state’s

participation as a defendant in administrative pro-

ceedings 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

30 No. 08-4164

Dep’t of Envtl. Mgmt. v. United States, 304 F.3d 31, 49 (1st

Cir. 2002).

The First Circuit’s most recent decision involving

state sovereign immunity and administrative pro-

ceedings concluded that a state maintained its sovereign

immunity even though the state initiated proceedings

before an Administrative Law Judge (ALJ). Taylor v. U.S.

Dep’t of Labor, 440 F.3d 1 (1st Cir. 2005). While at first

glance Taylor seems to contradict the First Circuit’s earlier

decisions, the case involved a “slightly different” situation,

id. at 5, and its unusual circumstances provide little help in

evaluating Wisconsin’s litigation conduct in our case. The

state in Taylor faced a situation where the sovereign

immunity defense “was not available at the investigatory

stage of the administrative proceedings.” Id. at 8. As a

result, the state requested a proceeding before an ALJ

precisely for the purpose of asserting its sovereign immu-

nity, and it claimed its immunity at the first opportunity

once that proceeding began. Id. at 7-8. Together, these cases

suggest that a state may be required to assert its

immunity at the first opportunity in administrative

proceedings or risk being deemed to have waived its

immunity by its litigation conduct. Such an approach

would be consistent with the Supreme Court’s recognition

that state sovereign immunity extends to administrative

proceedings initiated by private parties. See Federal Mari-

time Comm’n v. South Carolina State Ports Auth., 535

U.S. 743, 760 (2002).

Most recently, the Eighth Circuit held in United States

v. Metropolitan St. Louis Sewer Dist., 578 F.3d 722 (8th

No. 08-4164 31

Cir. 2009), that the State of Missouri had waived its sover-

eign immunity by litigation conduct in a case that is

strikingly similar to this one. Missouri joined the United

States as a plaintiff in an enforcement action based on the

Clean Water Act, filing a complaint against a local water

and sewage district that had discharged untreated

wastewater. The district counterclaimed, arguing that

the state was required (by federal law and because of

equitable considerations) to indemnify it for any costs

that it might incur as a result of the suit. In response to

the counterclaims, Missouri asserted its sovereign immu-

nity defense. It pointed to section 309(e) of the Clean

Water Act, see 33 U.S.C. § 1319(e), which provides that

whenever a municipality is sued by the United States

under the statute, “the State in which such municipality

is located shall be joined as a party.” Because the statute

compelled its participation as a party, Missouri argued,

it had not taken any step during the litigation that could

be seen as inconsistent with an assertion of sovereign

immunity. The Eight Circuit disagreed. Pointing to

Lapides, the court said, “The filing of a complaint in a

federal district court is the quintessential means of in-

voking its jurisdiction. There is no indication in the

record that Missouri was reluctant to proceed as a

coplaintiff . . . .” Metropolitan St. Louis Sewer Dist., 578 F.3d

at 725. The state’s litigation conduct was thus sufficient

to waive its immunity, and the water district’s counter-

claims were allowed to proceed.

We need not explore these cases in any more detail to

resolve the dispute between Wisconsin and Phoenix. The

32 No. 08-4164

distinction 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’s

decisions addressing waiver by litigation conduct. 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. Moreover, a waiver of immunity in an

initial proceeding extends to all ancillary proceedings

that follow. Gunter, 200 U.S. at 281-82, 289-90. Here,

Wisconsin not only declined to raise its immunity

during the administrative proceedings, it also decided

to challenge the TTAB’s determination by initiating a

civil action in the federal district court. As we have

noted, this type of civil action is “both an appeal and a

new action,” CAE, 267 F.3d at 673, and it reflects exactly

the sort of affirmative decision to place a dispute in the

federal court’s hands that effects a waiver of immunity.

Wisconsin insists that the necessary element of volun-

tary behavior is missing here, but none of its arguments

withstands close examination. The state complains that

it was forced to bring this lawsuit in the district court

once the TTAB ruled adversely to it. We disagree, for the

simple reason that Wisconsin was not compelled to do

anything at all. 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 one carried a different implication for

sovereign immunity.

No. 08-4164 33

Wisconsin chose to challenge the TTAB’s decision

granting Phoenix’s petition and cancelling the state’s

registration by filing a complaint in the district court.

But resort to that court was far from Wisconsin’s only

choice. In fact, we can think of at least five options

that Wisconsin had: (1) the state could have done

nothing and let the TTAB’s decision stand; (2) it might

have refused to acquiesce in the agency’s decision or the

TTAB proceedings in the first place; (3) it could have

taken action against Phoenix in state court before the

agency proceedings began; (4) it could have appealed the

TTAB’s decision directly to the Federal Circuit, 15 U.S.C.

§ 1071(a); or (5) it could have filed (as it did) a civil action

in district court challenging the agency’s decision, 15

U.S.C. § 1071(b). An exploration of these paths and the

consequences each carried illustrates why Wisconsin’s

choice can only be seen as a voluntary invocation of

federal jurisdiction.

a. Do Nothing. Wisconsin could have acquiesced in the

TTAB’s cancellation of its mark and found a new trade-

mark for its software. Nothing forced it to spend a minute

in federal court. The state may object that it is unfair to

make it choose between maintaining its immunity and

challenging an adverse agency decision. We disagree.

Although College Savings forecloses a theory of construc-

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

ticipation in the trademark system, there is no reason

to expand this principle to its outer limits. (As we

explain in the final section of this opinion, the evolution

of the sovereign immunity doctrine suggests that there

is every reason to be cautious about expansions when

34 No. 08-4164

we are dealing with the states’ commercial activities.)

Administrative agencies routinely resolve the rights of

parties before them, and Congress does not always see

fit to provide for recourse to the courts. Indeed, we

are not familiar with any administrative scheme in

which the party who loses before the agency is compelled

to appeal the adverse decision. 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 is inconsistent with a waiver of sovereign im-

munity.

Nor is there anything particularly offensive about

requiring a state to accept the TTAB’s decision without

further recourse. Other regimes pass constitutional

muster where federal court review of agency adjudica-

tion is curtailed, and they concern rights at least as pre-

cious as a party’s interest in a trademark. In 2010, the

Supreme Court reaffirmed that judicial review of the

Attorney General’s decision to deport a person from

the United States may be limited, see Kucana v. Holder,

130 S. Ct. 827, 831 (2010), and we have recognized in at

least two en banc decisions that review of an agency’s

entitlement determinations may be foreclosed, see

Czerkies v. U.S. Dep’t of Labor, 73 F.3d 1435, 1437-39 (7th

Cir. 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

Department 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

No. 08-4164 35

individual claims determination by the Veterans Admin-

istration). In many circumstances, 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. Consider, for example, the jurisdiction-

limiting provisions in the Prison Litigation Reform Act

of 1996, Pub. L. No. 104-134, 110 Stat. 1321 (Apr. 26,

1996), and the Antiterrorism and Effective Death Penalty

Act of 1996, Pub. L. No. 104-132, 110 Stat. 1214 (Apr. 24,

1996). 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.

b. Refuse to Acquiesce in the TTAB’s Decision or the Agency

Proceedings. Wisconsin also could have refused to partici-

pate at an earlier stage of the TTAB’s proceedings. As

we have mentioned, the Supreme Court recognized in

Federal Maritime Commission, 535 U.S. at 760, that state

sovereign immunity applies to privately initiated agency

proceedings. Similarly, the state might have refused to

acquiesce in the TTAB’s determination after the decision

issued (though we certainly are not suggesting that

this would be a responsible course of action). In either

case, Phoenix would have been forced to sue in state

court—either for a determination of its rights or for

enforcement of the agency’s decision—and the state

would either have retained its immunity or enjoyed the

benefit of litigating under state law in its home courts.

c. File a Lawsuit in State Court. Wisconsin also ignores

that at one point in the history of the case it had another

36 No. 08-4164

state-court avenue available. Before Phoenix initiated

TTAB proceedings, 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

jurisdiction 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(a); Alpharma, Inc. v.

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

Aquatherm Indus., Inc. v. Florida Power & Light Co., 84

F.3d 1388, 1394 (11th Cir. 1996). A party alleging a trade-

mark 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 Wisconsin

state court.

d. Appeal to the Federal Circuit. Putting the first three

options to one side, Wisconsin’s sovereign immunity

claim loses any remaining force when one realizes that

the state freely chose to challenge the TTAB decision in

federal district court rather than in the Federal Circuit.

Compare 15 U.S.C. § 1071(a), with 15 U.S.C. § 1071(b). Had

Wisconsin opted instead for the Federal Circuit, Phoenix

would not have been able to introduce counterclaims

into the litigation. (There is no provision in the Federal

Rules of Appellate Procedure that would allow an

appellee to introduce a new counterclaim.) The Federal

Circuit would have been able to focus exclusively on the

TTAB’s decision, without any threat to Wisconsin’s

sovereign immunity.

No. 08-4164 37

Wisconsin argues that the possibility of appealing to

the Federal Circuit should not affect our view of whether

it waived immunity by its litigation conduct, because

even if it had taken such an appeal, Phoenix could have

forced it back into the federal district court. The state is

referring to 15 U.S.C. § 1071(a), which provides that an

adverse party to the TTAB proceedings (like Phoenix)

can move a challenge to the agency decision that is filed

in the Federal Circuit to a federal district court. But it

is hard to see how this helps the state. As Phoenix con-

ceded during oral argument, if it had been the one in-

voking the district court’s jurisdiction, whether by

forcing Wisconsin into district court after the state filed

a challenge in the Federal Circuit or by any other means,

it could not then claim that Wisconsin had waived

its immunity by litigation conduct. Wisconsin would

have found itself forced into district court and fully

entitled to sovereign immunity.

e. File an Action in District Court. Wisconsin’s decision

to file its challenge to the TTAB decision in the district

court must be understood against the backdrop of the full

range of options it had. The state argues strenuously

that the case it filed was nothing more than an appeal of

an adverse agency determination in a proceeding in

which it was an unwilling party. But even if we put to

one side the fact that Wisconsin failed to assert its im-

munity in the administrative proceeding and we ignore

the fact that the district court proceeding is “both an

appeal and a new action,” CAE, 267 F.3d at 673, Wis-

consin’s argument fails because it misconstrues the rele-

vant inquiry after Lapides. When we judge whether litiga-

tion conduct effected a waiver of immunity, we do not

38 No. 08-4164

focus exclusively on whether the district court pro-

ceedings were somehow related to the agency proceedings

that came beforehand; instead, we must analyze why

Wisconsin chose to proceed in the manner that it did

and the consequences that its decision carried. In this

case, the question is why Wisconsin chose to attack the

agency decision in the district court rather than in

the Federal Circuit (or through any of the other options

we have identified), given that the Federal Circuit

could provide the state with all of the relief it sought

and insulation from Phoenix’s counterclaims.

An animating principle of Lapides is that a state should

not reap litigation advantages through its selection of a

forum and subsequent assertion of sovereign immunity

as a defense. The choice of the district court came with

at least three advantages for Wisconsin: it provided the

opportunity to introduce new evidence that had not

been provided to the TTAB (review in the Federal

Circuit would have been confined to the agency record);

it allowed the state to add supplemental claims to

broaden the relief sought; and it provided (at least in

part) a de novo standard of review, rather than the more

deferential stance that the Federal Circuit would have

taken toward agency findings and conclusions. See CAE,

267 F.3d at 673; see also City of Chicago v. International

Coll. of Surgeons, 522 U.S. 156 (1997).

Wisconsin says that these were not necessarily advan-

tages. To an extent, it is correct: Phoenix took advantage

of the forum Wisconsin chose by asserting counter-

claims—a development that Wisconsin did not wel-

come. But in all other respects the state’s argument is

No. 08-4164 39

thin. Wisconsin says the chance to introduce new

evidence cannot be considered an advantage because

both parties were allowed to supplement the record.

Similarly, it points out that the district court’s less-defer-

ential standard of review applied only to evidence pre-

sented for the first time in the district court, not to evi-

dence that had been before the agency. Structurally,

however, the features that come with challenging

the TTAB’s decision in a district court provide an advan-

tage to the party that has lost in the agency. By choosing

to file a new action, Wisconsin gave itself better

odds of reversing the agency’s cancellation of its mark.

There might also have been pragmatic reasons behind

the state’s decision to pursue relief in the federal

district court. One could understand if the state found

Madison, Wisconsin, where the university is located, to

be a more convenient or cost-effective place to litigate

than the Federal Circuit in Washington, D.C. (though

we note that the Federal Circuit from time to time

visits other parts of the country to hear argument, see 28

U.S.C. § 48(a) & (d)). In addition, the state’s lawyers

may have been more familiar with litigation practices

in that particular district court. Or perhaps the state

thought that district judges sitting there would be

more sympathetic to its claim than a panel of the

Federal Circuit. Wisconsin, of course, does not suggest

that any of these is the reason that it turned to the

district court. Even if it had provided a pragmatic justi-

fication for choosing a federal court close to home, the

decision it made went considerably beyond a choice

of venue. The significant differences between an appeal

40 No. 08-4164

to the Federal Circuit and a new action in district court

convince us that the state’s choice of courts was driven

primarily by its desire to increase its chance of success.

Choosing one court over another to increase the chance

of victory and then denying the chosen court’s com-

petence to resolve related claims is exactly the sort of

gamesmanship that the Lapides Court hoped to discour-

age. Wisconsin’s choice to contest the decision of the

TTAB in the district court is thus litigation conduct that

is inconsistent with an assertion of sovereign immunity.

C

That brings us to the question whether Wisconsin’s

waiver of immunity extends to Phoenix’s federal counter-

claims. Wisconsin, unsurprisingly, says no. It points to

In re Friendship Medical Center, Ltd., where we said:

“[T]he waiver of immunity is limited to mat-

ters . . . arising out of the same transaction or occur-

rence which is the subject matter of the suit, to

the extent of defeating the plaintiff’s claim. Waiver does

not extend to what federal procedure terms ‘permissive’

counterclaims, . . . claims for affirmative relief in excess of

or different in kind from that sought by the plaintiff.”

710 F.2d 1297, 1301 (7th Cir. 1983) (quoting Federal Savings

& Loan Insurance Corp. v. Quinn, 419 F.2d 1014, 1017

(7th Cir. 1969)) (emphasis in original). Wisconsin reads

this passage to mean that it has waived immunity only

so far as compulsory counterclaims in recoupment are

concerned. It says that Phoenix’s claims are barred by its

No. 08-4164 41

immunity because they are neither compulsory (because,

the state asserts, they arise from a different transaction or

occurrence than the state’s claim) nor are they claims for

recoupment (because they ask for relief beyond that sought

by the state).

One can imagine at least three possibilities when it

comes to defining the scope of a state’s waiver by litiga-

tion conduct. First, the waiver might expose the state

to any additional claims that form part of the same con-

stitutional case or controversy. According to that under-

standing, Wisconsin’s waiver would permit Phoenix to

assert any claims arising from a “common nucleus of

operative fact.” United Mine Workers v. Gibbs, 383 U.S.

715, 725 (1966). Only “a loose factual connection” between

the claims would be required. Baer v. First Options of

Chicago, Inc., 72 F.3d 1294, 1299 (7th Cir. 1995) (internal

quotation marks and citation omitted). Second, the

waiver might permit only counterclaims that are com-

pulsory within the meaning of Federal Rule of Civil

Procedure 13(a), which would expose the state to those

claims that “arise[] out of the same transaction or occur-

rence” as its own claim. Third, the waiver may be

limited to compulsory counterclaims for recoupment—

the subset of compulsory counterclaims that seek relief

of the same kind or nature, and, if monetary, ask for

a recovery that does not exceed the amount the state

has asked for. See F.D.I.C. v. Hulsey, 22 F.3d 1472, 1487

(10th Cir. 1994). Compare F ED. R. C IV. P. 13(d) (counter-

claims against the United States).

The statement in Friendship Medical on which Wis-

consin relies comes from Quinn, which involved the

42 No. 08-4164

amenability of the United States to counterclaims filed by

a private party it had sued on a note. As the Quinn court

noted, and as Rule 13(d) confirms, the United States is

subject only to counterclaims that both arise out of the

same transaction or occurrence and are limited to recoup-

ment. See generally 6 C HARLES A LAN W RIGHT, et al.,

F EDERAL P RACTICE AND P ROCEDURE § 1427, at 232 (3d ed.

2010). Friendship Medical imported to the bankruptcy

setting Quinn’s rule limiting waivers to recoupment

counterclaims. The Friendship Medical court had to

decide whether a state agency that filed a proof of claim

in a bankruptcy proceeding had, by so doing, opened

itself up to any and all claims that the debtor might have

against it. Given the fact that bankruptcy opens up

literally every facet of the debtor’s financial situation, we

had no trouble in saying no. We held that a state’s deci-

sion to file a claim waived its sovereign immunity only

for matters arising out of the same transaction, to the

extent that they might defeat the state’s claim. 710 F.2d

at 1301. Otherwise, debtors could use the bankruptcy

proceeding as a lever to hale the state into court on virtu-

ally any commercial dealing they had ever had with it.

We have never had occasion to decide, however, how

the compulsory-counterclaim rule found in Rule 13(a)

operates in ordinary litigation, when the state voluntarily

enters court as the plaintiff. (We recognize that some

commentators have assumed that we have adopted a

recoupment rule, but they were extrapolating from deci-

sions that did not squarely raise this question. See R ICHARD

A. F ALLON, et al., H ART AND W ECHSLER’S THE F EDERAL

C OURTS AND THE F EDERAL S YSTEM 883 (6th ed. 2009)

No. 08-4164 43

(citing 71 U.S.L.W. 2592 Mar. 18, 2003)).) Guidance from

the Supreme Court and the decisions of our sister circuits

persuade us that there is no implicit exception to Rule 13(a)

that operates as a counterpart to Rule 13(d)’s express

provision for the United States. In Gardner, the Supreme

Court held that “[w]hen the state becomes the actor and

files a claim against the fund it waives any immunity

which it otherwise might have had respecting the ad-

judication of the claim.” 329 U.S. at 574. Later, it reaf-

firmed in College Savings that Gardner “stands for the

unremarkable proposition that a State waives its

sovereign immunity by voluntarily invoking the juris-

diction of the federal courts,” 527 U.S. at 681 n.3.

Although Gardner on its facts was a bankruptcy case

that did not involve any effort to obtain a judgment

against the state, 329 U.S. at 574, the Court did not assign

any significance to this fact. See Arecibo Community Health

v. Commonwealth of Puerto Rico, 270 F.3d 17, 27 (1st Cir.

2001) (“Although the scope of waiver found constitutional

in Gardner and affirmed in College Savings was limited to

recoupment . . . nothing in either decision explicitly

precludes a broader rule of waiver.”); Teresa K. Goebel,

Comment, Obtaining Jurisdiction over States in Bankruptcy

Proceedings after Seminole Tribe, 65 U. C HI. L. R EV. 911, 925

(1998) (“The Gardner Court held that the defensive counter-

claim rule was constitutional, but did not foreclose the

possibility that a broader test may be constitutional.”). A

narrow reading of Gardner would be especially difficult

to reconcile with the Lapides Court’s concern about states

picking and choosing what aspects of a case the federal

court might be competent to consider.

44 No. 08-4164

None of our sister circuits has found such a limitation

in either Rule 13(a) or any decision of the Supreme

Court. They have held instead that a waiver of sovereign

immunity encompasses all compulsory counterclaims.

See Arecibo, 270 F.3d at 28 (“Where a state avails itself

of the federal courts to protect a claim, we think it rea-

sonable to consider that action to waive the state’s im-

munity with respect to that claim in toto and, therefore, to

construe that waiver to encompass compulsory counter-

claims, even though they could require affirmative recov-

ery from the state.”); In re Straight, 143 F.3d 1387, 1392

(10th Cir. 1998) (finding that a state’s proof of claim

in bankruptcy proceedings waives Eleventh Amend-

ment immunity from compulsory counterclaims); In re

Creative Goldsmiths, 119 F.3d 1140, 1148 (4th Cir. 1997)

(suggesting that as long as the claims of the party

opposing the plaintiff state “amount to a compulsory

counterclaim, a state has waived any Eleventh Amend-

ment immunity against that counterclaim in order to

avail itself of the federal forum”); In re 995 Fifth Ave.

Associates, L.P., 963 F.2d 503, 509 (2d Cir. 1992) (holding

that a state waives Eleventh Amendment immunity to

claims that arise from the same transaction or occurrence).

Since Lapides, this trend among the circuits has contin-

ued. The Ninth Circuit initially declined to choose

between the recoupment approach and the broader

understanding of waiver relied upon by other circuits,

In re Lazar, 237 F.3d 967, 978 (9th Cir. 2001), but more

recently and after Lapides that court has decided to “fol-

low[] a number of sister circuits to hold that by filing

No. 08-4164 45

a proof of a claim, the state waives its Eleventh Amend-

ment immunity with regard to . . . claims that arise from the

same transaction or occurrence as the state’s claim,” In re

Pegasus Gold Corp., 394 F.3d 1189, 1195 (9th Cir. 2005).

The Second Circuit’s opinion in In re Charter Oak Associates,

361 F.3d 760 (2d Cir. 2004), notes that cases on state

waivers of immunity during bankruptcy proceedings are

simply an application of the Lapides litigation-conduct rule,

id. at 767, and observes that “[m]ost circuits agree . . . that

when a state files a proof of claim, it waives its immunity

as to at least some counterclaims, specifically compulsory

counterclaims,” id. at 768. The Second Circuit in that case

concluded that even permissive counterclaims capped by

a set-off limitation fall within a state’s waiver of immunity.

Id. at 768-69. Finally, the Federal Circuit has decided that

“the compulsory counterclaim criterion is superior to the

recoupment criterion for determining waiver of immunity

with respect to counterclaims,” and held that “when a

state files suit in federal court to enforce its claims to

certain patents, the state shall be considered to have

consented to have litigated in the same forum all com-

pulsory counterclaims . . . .” Knight, 321 F.3d at 1126.

Against this weight of authority, Wisconsin submits

that its understanding of Friendship Medical would be

the preferable rule. It reminds us that the Supreme

Court has said that waivers of immunity are to be

narrowly construed in favor of the sovereign. E.g., Lane

v. Peña, 518 U.S. 187, 192 (1996). But that canon of con-

struction is a tool that federal courts use to interpret

a sovereign’s explicit waiver of immunity in a statute

46 No. 08-4164

(and it is not always relied upon in that context, see

Dolan v. U.S. Postal Service, 546 U.S. 481, 491-92 (2006)); the

canon “has little relevance in this context, where the

waiver is effected not through the language a state has

used, but through the actions it has taken during the

course of litigation,” Charter Oak Associates, 361 F.3d at

770. As we have said, Wisconsin enjoyed a number of

advantages when it selected the district court to chal-

lenge an adverse agency decision; Lapides expresses the

Court’s concern with unfair litigation tactics; and it

would be manifestly unfair if Wisconsin were allowed

to enjoy the advantages of the district court while using

sovereign immunity to avoid the disadvantages. We

conclude that our sister circuits have articulated the

rule that is most consistent with Lapides: when a state

waives its sovereign immunity by litigation conduct,

that waiver opens the door to counterclaims regarded

as compulsory within the meaning of Federal Rule of

Civil Procedure 13(a). Whether such a waiver extends

more broadly—perhaps to the entire constitutional case

or controversy—is a question for another day.

Rule 13(a) defines a compulsory counterclaim as one

that “arises out of the transaction or occurrence that is

the subject matter of the opposing party’s claim.” FED. R.

C IV. P. 13(a). We use a “logical relationship” test to

decide whether two matters are the same for purposes

of Rule 13(a). The approach is necessarily flexible: as we

have noted before, “[a] court should consider the totality

of the claims, including the nature of the claims, the

legal basis for recovery, the law involved, and the respec-

No. 08-4164 47

tive factual backgrounds.” Burlington Northern R.R. Co. v.

Strong, 907 F.2d 707, 711 (1990). Our approach thus

focuses on the facts of the case, rather than on the technical

elements of the claims in question.

Wisconsin maintains that Phoenix’s claims for infringe-

ment and false designation of origin under the Lanham

Act fail this test because the facts that Phoenix must

prove to succeed are different from those that the state

will present in its effort to reverse the TTAB’s decision to

cancel its registration. It insists that the state’s claim

is about CONDOR-Wisconsin, while Phoenix’s counter-

claims are about CONDOR-Phoenix. The first flaw in

Wisconsin’s position is the fact that this court (as well as

others) does not use a “same evidence” test for purposes

of Rule 13(a). See 6 W RIGHT, et al., supra, § 1410, at 60-

61 (giving a number of examples in which counter-

claims are compulsory even though the evidence dif-

fers). Applying the proper test, we have no trouble con-

cluding that there is a logical relationship between Wis-

consin’s claim and Phoenix’s counterclaims. All of the

claims focus on a single factual dispute: the conflict

between the two CONDOR marks. To make a case of

infringement (or false designation of origin), Phoenix

will be required to show that it had a protectable mark

and that the state’s use of that mark is likely to cause

confusion in trade. CAE, 267 F.3d at 673-74. On remand,

Wisconsin’s effort to overturn the TTAB’s decision

will depend almost entirely on how the jury resolves

the question whether Wisconsin’s registration of the

CONDOR mark is likely to cause confusion among con-

sumers.

48 No. 08-4164

This does not mean that infringement and false designa-

tion counterclaims are compulsory as a matter of law.

One could imagine a case where the registration dispute

turned on an allegation that a party committed fraud,

while the counterclaims focused on the likelihood

of confusion in trade. It is entirely possible that those

counterclaims would not be compulsory. See, e.g., Nasalok

Coating Corp. v. Nylok Corp., 522 F.3d 1320, 1326 (Fed. Cir.

2008). But in this case, Wisconsin’s challenge to the

TTAB decision is part of the same transaction or occur-

rence that gives rise to Phoenix’s counterclaims. See J.

T HOMAS M C C ARTHY, M C C ARTHY ON T RADEMARKS AND

U NFAIR C OMPETITION § 21:20 & n.11 (4th ed. 2011) (one

advantage of challenging a TTAB decision in the dis-

trict court is that “the case can be expanded to include

a prayer for injunctive relief for trademark infringe-

ment,” but noting that in such a case the “[d]efendant

may have a claim for infringement which is a com-

pulsory counterclaim under F.R.C.P. 13(a)”). Accordingly,

Wisconsin’s waiver of sovereign immunity is broad

enough to encompass the federal counterclaims that

Phoenix has asserted here.

D

In summary, we conclude that Wisconsin, by choosing

to bring its challenge to the TTAB decision in the

district court, waived its sovereign immunity against

compulsory counterclaims that meet the requirements of

Rule 13(a). On remand, Phoenix’s federal counterclaims

are reinstated for further appropriate proceedings.

No. 08-4164 49

IV

While this is arguably enough to resolve the appeal

before us, it is significant that broader policies under-

lying the doctrine of sovereign immunity also support

our result. To the extent that Wisconsin has argued

that our result is in tension with the Supreme Court’s

sovereign immunity cases, we explain briefly why we

believe that is not so.

A

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. See A RTICLES

OF C ONFEDERATION of 1781, art. II (“Each state retains

its sovereignty, freedom, and independence, and every

power, jurisdiction and right, which is not by this Con-

federation expressly delegated to the United States, in

Congress assembled.”); id. art. III (“The said states

hereby severally enter into a firm league of friendship

with each other . . . .”). It was against this backdrop that

the 1787 Constitution was written. Although that Con-

stitution greatly strengthened the powers of the central

government, it did not change the fundamental principle

under which the states remain sovereign entities to the

extent that the Constitution does not provide otherwise.

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

50 No. 08-4164

ment, which reserves to the states or the people the

powers not delegated in the Constitution to the United

States nor prohibited to the States. U.S. C ONST. amend. X.

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 majority’s reasoning, all members

of the Court understood that they had to decide

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 saw no need to

rely on external sources. Id. at 450. Justice Wilson

chose to look more broadly at principles of general juris-

prudence, the laws and practices of other nations, as

well as the constitutional text. He too concluded that

states could constitutionally be brought to account

before tribunals. 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 permitting the

lawsuit before the Court, adding that he could not

imagine “any construction of [the Constitution], 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 in reliance on

the English traditions about suits against the crown. Id.

at 437-38. He drew a direct link between the states’ immu-

No. 08-4164 51

nity from suit before the adoption of the Constitu-

tion—immunity derived from principles embodied

in public international law—and the states’ continuing

immunity afterwards. 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, 372 (1834), 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. What-

ever authority they have in other states, depends upon

principles of international comity, and a sense of justice.”

More than forty years later, Justice Field used almost the

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

decision that for years was the wellspring of the con-

stitutional law of personal jurisdiction. 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 Constitution. But, except

as restrained and limited by that instrument, 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.

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

52 No. 08-4164

reinvigorated the doctrine of state sovereign immunity:

Although the text of the [Eleventh] Amendment

would appear to restrict only the Article III diversity

jurisdiction of the federal courts, we have understood

the Eleventh Amendment to stand not so much for

what it says, but for the presupposition . . . which it

confirms. . . . That presupposition, 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 amena-

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

id., at 13 (emphasis deleted), quoting The Federalist

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

Id. at 54 (some internal quotation marks and cita-

tions omitted). 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) (“[T]he 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 upon an equal footing

with the other States) except as altered by the plan of

the Convention or certain constitutional 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 Com-

mission, 535 U.S. at 760 (“The preeminent purpose of

No. 08-4164 53

state sovereign immunity is to accord States the dignity

that is consistent with their status as sovereign entities.”).

B

The fact that the states enjoy “sovereign immunity” is

just the beginning of the inquiry. The term requires some

understanding both of sovereignty and of the scope of

the immunity that attends it. Early theorists thought

that sovereignty was necessarily 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). The Framers of the Constitution, how-

ever, had a more nuanced view of the concept of sover-

eignty. As Justice Kennedy put it in his concurring opin-

ion 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) (Ken-

nedy, J., concurring). Thus, with reference to state or

Native American sovereignty, it is always necessary 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) (concluding that the 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.,

City of Boerne v. Flores, 521 U.S. 507, 529-30 (1997).

Another established attribute of state sovereign im-

54 No. 08-4164

munity under the federal Constitution is the privilege

of the state to choose whether to assert or to waive the

defense. Schacht, 524 U.S. at 389.

Some questions about state sovereign immunity, how-

ever, have received less attention. One deals with the

scope of the defense. Is the doctrine absolute, or is it

qualified or restrictive? And if it has changed over time,

should courts look to the version in effect in 1787 (or

perhaps the date of each state’s entry into the Union) or

to the doctrine as it is generally understood today?

While unanswered in the context of state sovereign

immunity, these issues have received extensive attention

in both Congress and the courts, insofar as foreign states

are concerned. From the Founding until 1952, the

United States granted foreign nations absolute im-

munity 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 political branches on whether

immunity existed, and for many years the State Depart-

ment “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, the United States shifted its position.

Commentators regularly outlined the tension between

absolute sovereign immunity and the rise of state

trading, particularly in the Soviet Union, and expressed

No. 08-4164 55

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 im-

munity.” Bernard Fensterwald, Jr., Sovereign Immunity

and Soviet State Trading, 63 H ARV . L. R EV. 614, 614 (1950);

see also Sigmund Timberg, Sovereign 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, announced that the State Department

intended henceforth to apply a restrictive theory of

foreign sovereign immunity. According to that theory,

he explained, “the immunity of the sovereign is recog-

nized 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). Tate noted 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.” 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 revealed problems

with the system of relying on the Executive for sug-

gestions of immunity. See Verlinden B.V., 461 U.S. at 487-88.

56 No. 08-4164

Thus, in 1976, Congress passed the Foreign Sovereign

Immunities Act (FSIA), 28 U.S.C. §§ 1330, 1332, 1391(f),

1441(d), and 1602-1611, “in order to free the Government

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 488. Codifying

the restrictive theory of sovereign immunity, the FSIA

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 if one of several

enumerated exceptions in the statute applies, see id.

§§ 1605(a), 1605A (exceptions for waiver, commercial

activity, expropriations, certain other property rights,

noncommercial torts, maritime liens, and acts of terror-

ism). 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 coun-

terclaim:

(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 (emphasis added).

No. 08-4164 57

“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

evaluating whether a foreign State has engaged in com-

mercial activity that falls within the statutory exception,

a court must evaluate the nature of the act, rather than

the purpose for which that act was undertaken. See 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 behind 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 indi-

vidual under like circumstances” (with modifications

for punitive damages and wrongful death actions).

28 U.S.C. § 1606.

The Supreme Court 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:

58 No. 08-4164

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

ernment 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. Instead of communicating to

the company its privileges 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 trans-

acted.

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 drew a line

between commercial and governmental acts, commenting

that “[w]hen 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 . . . .” 425

U.S. at 696.

C

Although the Supreme Court has addressed the

question of state sovereign immunity on a number of

occasions in recent years, it has not given sustained

attention to the question whether the default rule ought

to be one of absolute or restrictive immunity. It came

closest to this issue when it rejected the argument that

the market-participant doctrine found in dormant Com-

merce Clause cases was pertinent to the states’ sovereign

No. 08-4164 59

immunity. College Savings, 527 U.S. at 685-86 (citations

omitted). As the Court pointed out, the market-par-

ticipant doctrine was developed to address the risk that

the states might construct barriers to trade between

themselves, in violation of the principles behind the

Commerce Clause. In contrast, it suggested, “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 par-

ticipant.’ ” Id. at 685. 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 of the

State” of Florida . . . . But the validity of that assump-

tion is doubtful if the Court’s jurisprudence in this

area is to be based primarily on present-day assump-

tions about the status of the doctrine of sovereign

immunity in the 18th century. Sovereigns did not

then play the kind of role in the commercial market-

place that they do today. In future cases, it may there-

fore be appropriate to limit the coverage of state

sovereign immunity by treating the commercial en-

60 No. 08-4164

terprises of the States like the commercial activities

of foreign sovereigns under the Foreign Sovereign

Immunities Act of 1976.

527 U.S. at 691-92 & n.1 (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 made a comparable

point. 527 U.S. at 699 (Breyer, J. dissenting).

The majority found those allusions to foreign sov-

ereign immunity unhelpful; it dismissed the “sug-

gestion . . . that we limit state sovereign immunity to

noncommercial state activities because Congress has so

limited foreign sovereign immunity” on the assumption

that state sovereign immunity is rooted in the Constitution,

while foreign sovereign immunity is not. 527 U.S. at 686 n.4

(opinion of Scalia, J.). “The text of the Eleventh Amend-

ment,” the majority wrote, “makes no distinction be-

tween commercial and noncommercial state activities . . . .”

Id. That text, of course, also does not delineate the doc-

trine of state sovereign immunity that the Supreme

Court has recognized. In fact, neither state nor foreign

sovereign immunity as understood today is mentioned

directly by the Constitution. Both doctrines flow from

broader constitutional principles: state sovereign im-

munity is considered to be inherent in the constitutional

plan, while foreign sovereign immunity flows from the

interaction between the United States and its fellow

sovereign nations, reflected among other places in

Article II of the Constitution.

No. 08-4164 61

We neither have nor need a crystal ball to tell us how

these immunity doctrines will develop in the future.

Our only point is that it is worth recalling that at least

through the end of the nineteenth century the Court

regularly applied principles of public international law

to the U.S. states. Those principles permeate this

country’s foundational documents, and international

analogies abound in the Federalist Papers. Nothing in

the Court’s line of state sovereign immunity cases

implies that any less dignity is due today to the states.

If parity is to be the rule, then the day may return when

it exists across-the-board.

Many of the competitive concerns that motivated the

move from absolute to restrictive immunity in the

foreign setting 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 lo-

cated 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

a competitive edge over a private competitor. And, given

the fact that litigation imposes transaction costs—often

very high costs—on the parties, the failure to recognize

a commercial-act exception for state entities may confer

the same kind of competitive advantage on the states

that the United States was reluctant to confer on socialist

or Communist countries. See, e.g., Joan E. Donoghue,

Taking the “Sovereign” Out of the Foreign Sovereign Immuni-

ties Act: A Functional Approach to the Commercial Activity

62 No. 08-4164

Exception, 17 Y ALE J. INT’L L. 489, 490 (1992); 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 suggests

caution in extending sovereign immunity to new areas

of commercial activity.

V

Far from doing violence to the policies behind the

immunity doctrines, the outcome in this case is fully

consistent with them. A straightforward application of

Lapides and the doctrine of waiver by litigation conduct

require us to reinstate Phoenix’s counterclaims on re-

mand. Moreover, there are genuine issues of fact on

the question whether there is a likelihood of confusing

Phoenix’s CONDOR mark with Wisconsin’s, in light of

No. 08-4164 63

the TTAB’s factual findings. The decision of the district

court is R EVERSED and the case is R EMANDED for further

proceedings consistent with this opinion.

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