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. §§ 1114and 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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