Background
Gensetix entered into a Patent and Technology License Agreement with MD Anderson for cancer-treating technology developed at the institution. After taking assignment of licensee rights from a third party with MD Anderson’s consent, Gensetix paid hundreds of thousands of dollars to the university and funded research efforts, including over $100,000 in payments to a patent co-inventor. MD Anderson agreed to cooperate fully in any patent infringement suits.
When Gensetix filed suit in 2016 against a patent co-inventor and Baylor College of Medicine for infringement, MD Anderson refused to participate, claiming sovereign immunity. The patent infringement action proved unsuccessful. In 2020, MD Anderson terminated the licensing agreement citing Gensetix’s failure to make required payments, and subsequently conveyed the patents to Baylor.
Gensetix sued MD Anderson and related entities for breach of contract and constitutional taking (inverse condemnation). The trial court denied MD Anderson’s plea to the jurisdiction based on sovereign immunity. MD Anderson appealed.
The Court’s Holding
The appellate court reversed and held that MD Anderson retained sovereign immunity for both claims. On the takings claim, the court found that MD Anderson acted under “color of contract” when terminating the agreement and selling the patents. Under Texas law, when government acts pursuant to colorable contract rights, it lacks the requisite intent to take property under eminent domain powers and thus retains immunity. The court cited the similar case of Curadev Pharma v. UT Southwestern and concluded that MD Anderson could not have possessed the necessary intent to take property.
On the breach of contract claim, the court held that sovereign immunity is not waived by simply entering a contract, even when the government accepts contract benefits. The court rejected Gensetix’s argument that extraordinary or egregious conduct should waive immunity, finding no valid “waiver by conduct” theory under Texas Supreme Court precedent. The only avenue for waiving sovereign immunity is through legislative action.
Key Takeaways
- Government entities retain sovereign immunity in contract disputes absent legislative waiver, even when they benefit from the contract.
- When a government entity acts under colorable contract rights—even wrongfully or in bad faith—it retains immunity from takings claims because it lacks the requisite intent to take under eminent domain powers.
- Egregious or bad faith conduct does not constitute a valid basis for waiving sovereign immunity from breach of contract claims.
- Only the state Legislature can waive sovereign immunity; courts cannot find waiver through conduct alone.
Why It Matters
This decision reinforces the broad scope of sovereign immunity protections for government entities, including state universities and their affiliated institutions. For businesses contracting with universities or other government agencies, the ruling clarifies that even if the government entity breaches the contract or acts in bad faith, the private party generally cannot sue in state court absent specific legislative authorization. This significantly limits remedies available to private contractors dealing with government entities.
The decision also clarifies that takings claims cannot succeed against government entities when they exercise contractual rights, even if those rights are exercised in ways that benefit the government and harm the private party’s property interests. For patent holders and technology licensors dealing with academic institutions, this creates a substantial immunity protection that shifts risk assessment in contract negotiations with public universities.