This case presents complex questions about the law of trademark and the law of sovereign immunity, as the latter applies to a state university. The contending parties are Phoenix International Software, Inc., a small software developer, and the 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 summary judgment proceedings; and second, whether Wisconsin 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 immunity 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, Wisconsin registered the identical mark, but for software that takes advantage of unused processing power
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 defending the TTAB’s decision and by asserting counterclaims for trademark infringement and false designation of origin under the Lanham Act, see 15 U.S.C. §§ 1114 and 1125(a). The district court dismissed Phoenix’s federal counterclaims on the ground that they were barred by the state’s sovereign immunity. The parties then filed cross-motions for summary judgment. The district court granted Wisconsin’s motion, denied Phoenix’s, and thereby reversed the TTAB’s decision to cancel Wisconsin’s registration.
As we have noted, our first opinion concluded unanimously 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,
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 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.,
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 favor. The central issue here — the likelihood of confusion between the parties’ trademarks — is a question of fact for the jury. AutoZone, Inc. v. Strick,
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^] for mainframe computers” 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 mainframe 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 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 University’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 management. 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.
The TTAB found that there was “at least some evidence in the record that the parties’ respective software performs the same general functions and the evidence does not demonstrate the goods are used in distinctly different fields,” and that “there is no clear division between the parties’ software that would cause us to conclude that these products are not 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 [Wisconsin’s] goods are used in a network of individual computer workstations.” That distinction was “not necessarily significant,” however, because as one of Wisconsin’s witnesses conceded, “there might be [s]ome incentive” to operate “in both environments.” The agency made a number of additional significant findings. Both programs, it concluded, were “downloadable”; consumers 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 confusion 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 available on PC-based mainframes. Hoschett also provided 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 consideration.” 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 con-
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 identify; 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 [Department of Energy] National Labs, biology and computer science departments, and industrial groups.” The evidence indicated that 3,738 copies of Wisconsin’s software were downloaded in 2000; by 2004, the number of downloads grew to 15,155, an increase of more than 400 percent. A promotional program offered by the University of Wisconsin, “CONDOR Week,” grew over the same time from a one-day event attracting 20 participants to a four-day event with more than 150 participants.
C
We come, then, to the central question on the trademark 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 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 consumers;
5. the strength of the plaintiffs mark;
6. any actual confusion; and
7. the intent of the defendant to “palm off’ his product as that of another.
AutoZone,
The district court identified two findings of the TTAB that it believed were in error. First, it thought that the TTAB should not
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 CONDOR products, a court must ask whether consumers, and specifically consumers who would use either product, would be likely to attribute them to a single source. AutoZone, 543 F.3d at 931; see also McGraw-Edison Co. v. Walt Disney Prod.,
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,
The Federal Circuit case on which the district court relied, Octocom Systems, Inc. v. Houston Computer Services, Inc.,
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 the area and manner of concurrent use. The actual use of a product is important in its own right and information 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.,
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 summary judgment, Phoenix had to produce enough evidence 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 individual computer workstations (CONDOR-Wisconsin).
The TTAB offered three reasons for cancelling Wisconsin’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 purchasers would likely believe that there is some relationship or association between the sources of the goods under these circumstances.” These findings tipped the balance on the questions of similarity and manner of use in favor of Phoenix.
The TTAB credited Phoenix’s evidence that its mainframe 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 McCarthy on Trademarks and Unfair Competition § 23:103 (4th ed.2011). But the question is not whether purchasers of Phoenix’s CONDOR product would accidentally buy Wisconsin’s product; it is whether those consumers would likely attribute them to a single source.
The question in the end is not whether the evidence compelled a finding in favor of Phoenix. Wisconsin has pointed to a number of facts in its favor: there was no actual confusion; the “downloadability” of both programs 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 confusion might be quickly rectified. But the record includes enough evidence supporting Phoenix that further proceedings are necessary. Accordingly, we must reverse the district court and remand for a trial on the likelihood of confusion issue.
Ill
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 constitutional law: are Phoenix’s counterclaims against Wisconsin 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 federal 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 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.,
This robust immunity from suit, however, is not absolute. 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,
A
We can be brief on the subject of congressional abrogation. 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. Nonetheless, 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.
B
The Supreme Court has long recognized that a state may waive its sovereign immunity. E.g., Clark,
Lapides confirms that the Court did not eliminate the doctrine of waiver by litigation conduct in Ford Motor Co. v. Department of Treasury of Indiana,
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....”
[A]n interpretation. of the Eleventh Amendment that finds waiver in the litigation context rests upon the Amendment’s presumed recognition of the judicial need to avoid inconsistency, anomaly, and unfairness, and not upon a State’s actual preference or desire, which might, after all, favor selective use of “immunity” to achieve litigation advantages.... The relevant “clarity” here must focus on the litigation act the State takes that creates the waiver. And that act — removal-—-is clear.
Id. at 620,
The Court could not have expressed itself more plainly. Ford is limited to its facts; states can waive their 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
2. Waiver by Litigation Conduct
Quite separate from its general participation in the trademark system is Wisconsin’s specific conduct in this lawsuit. The question is whether the state’s decision 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 Wisconsin 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.
It would seem anomalous or inconsistent for a State both (1) to invoke federal jurisdiction, thereby contending that the “Judicial power of the United States” extends to the case at hand, and (2) to claim Eleventh Amendment immunity, thereby denying that the “Judicial power of the United States” extends to the case at hand. And a Constitution that permitted States to follow their litigation interests by freely asserting both claims in the same case could generate seriously unfair results.
Id. at 619,
Reflecting that spirit, most Courts of Appeals have applied the rule of Lapides to all instances of removal initiated by a state. The Fifth Circuit’s decision in Meyers ex rel. Benzing v. Texas explains why this is the proper result:
[I]n formulating its rationale, the Court did not restrict itself to facts, rules, or reasons peculiar to the Lapides case. Rather, throughout its opinion, the Court’s reasoning, rule-making, and choice of precepts were derived from generally applicable principles serving “the judicial need to avoid inconsistency, anomaly, and unfairness” in states’ claims of immunity in all types of federal litigation.
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,
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 governing voluntary invocations of federal jurisdiction has rested upon the problems of inconsistency and unfairness that a contrary rule of law would create.”
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,
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 proceeding against a competing applicant cannot use sovereign immunity to block an appeal to federal court of the agency’s decision. Vas-Cath, Inc. v. Curators of Univ. of Missouri,
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,
The First Circuit’s most recent decision involving state sovereign immunity and administrative proceedings 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,
Most recently, the Eighth Circuit held in United States v. Metropolitan St. Louis Sewer Dist.,
We need not explore these cases in any more detail to resolve the dispute between Wisconsin and Phoenix. The 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,
Wisconsin insists that the necessary element of voluntary 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-
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 trademark 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 constructive waiver based solely on the fact of the state’s participation 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 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 immunity.
b. Refuse to Acquiesce in the TTAB’s Decision or the Agency Proceedings. Wisconsin also could have refused to participate at an earlier stage of the TTAB’s proceedings. As we have mentioned, the Supreme Court recognized in Federal Maritime Commission,
c. File a Lawsuit in State Court. Wisconsin also ignores that at one point in the history of the case it had another 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.,
d. Appeal to the Federal Circuit. Putting the first three options to one side, Wisconsin’s sovereign immunity claim los
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 conceded during oral argument, if it had been the one invoking 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 immunity in the administrative proceeding and we ignore the fact that the district court proceeding is “both an appeal and a new action,” CAE,
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. Interna
Wisconsin says that these were not necessarily advantages. To an extent, it is correct: Phoenix took advantage of the forum Wisconsin chose by asserting counterclaims — a development that Wisconsin did not welcome. But in all other respects the state’s argument is 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-deferential standard of review applied only to evidence presented for the first time in the district court, not to evidence that had been before the agency. Structurally, however, the features that come with challenging the TTAB’s decision in a district court provide an advantage 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 justification 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 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 competence to resolve related claims is exactly the. sort of gamesmanship that the-Lapides Court hoped to discourage. 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 counterclaims. Wisconsin, unsurprisingly, says no. . It points to In re Friendship Medical Center, Ltd., where we said:
“[T]he waiver of immunity is limited to matters ...- arising out of the same transaction or occurrence which is the subject matter of-the,suit, to the extent of defeating the plaintiffs 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.”
One can imagine at least three possibilities when it comes to defining the scope of a state’s waiver by litigation conduct. First, the waiver might expose the state to any additional claims that form part of the same constitutional case or controversy. According to that understanding, Wisconsin’s waiver would permit Phoenix to assert any claims arising from a “common nucleus of operative fact.” United Mine Workers v. Gibbs,
The statement in Friendship Medical on which Wisconsin relies comes from Quinn, which involved the 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 recoupment. See generally 6 Charles Alan Wright, et al., Federal Practice and Procedure § 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 debt- or’s financial situation, we had no trouble in saying no. We held that a state’s decision 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.
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 decisions that did not squarely raise this question. See Richard A. Fallon, et al., Hart and Wechsler’s the Federal Courts and the Federal System 883 (6th ed.2009) (citing
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,
Since Lapides, this trend among the circuits has continued. 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,
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. Pena,
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.CivP. 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 respective factual backgrounds.” Burlington Northern R.R. Co. v. Strong,
Wisconsin maintains that Phoenix’s claims for infringement 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 counterclaims 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 Wright, et al., supra, § 1410, at 60-61 (giving a number of examples in which counterclaims are compulsory even though the evidence differs). Applying the proper test, we have no trouble concluding that there is a logical relationship between Wisconsin’s claim and Phoenix’s counter
This does not mean that infringement and false designation 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.,
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.
IV
While this is arguably enough to resolve the appeal before us, it is significant that broader policies underlying 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 Articles of Confederation of 1781, art. II (“Each state retains its sovereignty, freedom, and independence, and every power, jurisdiction and right, which is not by this Confederation expressly delegated to the United States, in Congress assembled.”); id. art. Ill (“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 Constitution 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 Amendment, which re
Over the years, the Supreme Court has consistently recognized the sovereign immunity of the states. Even in Chisholm v. Georgia,
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 emphasized 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’ immunity from suit before the adoption of the Constitution— immunity derived from principles embodied in public international law — and the states’ continuing immunity afterwards. Id.
Throughout the nineteenth century, the Court commonly turned to the same principles of public international 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,
The Supreme Court has returned repeatedly to this theme in the line of cases that began with Seminole Tribe of Florida v. Florida,
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 ob*473 served over a century ago in Hans v. Louisiana,134 U.S. 1 [10 S.Ct. 504 ,33 L.Ed. 842 ] (1890), has two parts: first, that each State is a sovereign entity in our federal system; and second, that “ ‘[i]t is inherent in the nature of sovereignty not to be amenable to the suit of an individual without its consent,’ ” id. at 13 [10 S.Ct. 504 ] (emphasis deleted), quoting The Federalist No. 81, p. 487 (C. Rossiter ed.1961) (A. Hamilton).
Id. at 54,
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. Brierly, The Law of Nations: An Introduction to the International Law of Peace 8 (Sir Humphrey Waldock ed., 6th ed.1963). The Framers of the Constitution, however, had a more nuanced view of the concept of sovereignty. As Justice Kennedy put it in his concurring opinion in US. Term Limits, Inc. v. Thornton, the Framers “split the atom of sovereignty” between the states and the national government.
Some questions about state sovereign immunity, however, 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?
In 1952, Jack Tate, Acting Legal Adviser for the Department 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 recognized with regard to sovereign or public acts (jure imperii) of a state, but not with respect to private acts (jure gestionis).” Letter from Jack B. Tate, Acting Legal Adviser, U.S. Department of State, to Acting U.S. Attorney General Philip B. Perlman (May 19, 1952), reprinted in 26 Dep’t State Bull. 984-85 (1952). 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 suggestions of immunity. See Verlinden B.V.,
(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 ocv currence 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).
“The most significant of the FSIA’s exceptions ... is the ‘commercial’ exception of § 1605(a)(2)____” Republic of Argentina v. Weltover, Inc.,
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,
It is, we think, a sound principle, that when a government becomes a partner in any trading company, it divests itself, so far as concerns the transactions of that company, of its sovereign character, and takes that of a private citizen. 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 transacted.
Bank of the United States v. Planters’ Bank of Georgia,
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 Commerce Clause cases was pertinent to the states’ sovereign immunity. College Savings, 527 U.S. at 685-86,
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 assumption is doubtful if the Court’s jurisprudence in this area is to be based primarily on present-day assumptions about the status of the doctrine of sovereign immunity in the 18th century. Sovereigns did not then play the kind of role in the commercial marketplace that they do today. In future cases, it may therefore be appropriate to limit the coverage of state sovereign immunity by treating the commercial enterprises of the States like the commercial activities of foreign sovereigns under the Foreign Sovereign Immunities Act of 1976.
The majority found those allusions to foreign sovereign immunity unhelpful; it dismissed the “suggestion ... 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.
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 located in Milwaukee, would have to defend. Nor is there any apparent reason why a state-owned hospital, or garbage pick-up service, or power plant, should have 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 Immunities Act: A Functional Approach to the Commercial Activity Exception, 17 Yale J. Int’l L. 489, 490 (1992); see also 1 Restatement (Third) of the Foreign Relations Law of the United States 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.,
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 remand. 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 the TTAB’s factual findings. The decision of the district court is Reversed and the case is Remanded for further proceedings consistent with this opinion.