NJ Transit Patent Immunity Claim Crosses Circuit-Court Divide

The tracks linking New York to New Jersey in tunnels beneath the Hudson River traverse a judicial divide that could determine whether New Jersey Transit Corp. is shielded from allegations it’s using patented railworker-safety technology without permission.

The transportation authority is fighting Railware Inc.'s allegations that its dispatch system infringes three patents, urging a New York federal court to dismiss the lawsuit because NJ Transit says it’s immune as “an arm of the State of New Jersey.”

New Jersey, where the rail system is incorporated, is under the US Court of Appeals for the Third Circuit, which has previously ruled that NJ Transit qualifies as an arm of the state for the purposes of sovereign immunity. But the allegations concern its dispatch system at New York Penn Station, where the Second Circuit has authority. It’s taken a more restrictive view of immunity, using a six-factor test to determine whether an entity is an arm of the state.

The case, one of several Railware suits against transportation authorities, is testing the boundaries of sovereign immunity. The clashing standards could set the stage for a conflict at the US Supreme Court, said Michael Risch, a Villanova University law professor.

“Either it’s considered an arm of the state or it’s not,” Risch said. “But the part that’s weird is that every circuit has its own sort of rules, it seems, about what constitutes an arm of the state.”

Sovereign immunity protects government entities from being sued without their consent. The 11th Amendment immunizes states—including certain state agents and instrumentalities—from lawsuits brought by private parties in federal court.

The scope and application of sovereign immunity, however, can vary depending on state laws and legal precedents.

Amtrak, Railware’s first target in 2022, settled its dispute this June. Two weeks later, Railware sued the Southeastern Pennsylvania Transportation Authority in Pennsylvania district court, then asserted the same patents against NJ Transit in New York.

Amtrak didn’t claim immunity in its suit before the settlement, and SEPTA hasn’t claimed sovereign immunity.

“Whether a transportation authority like SEPTA or NJ Transit is entitled to sovereign immunity is a highly fact-dependent analysis,” said Jeremy W. Bock, a law professor at Tulane University. “It can get murky because how an entity is set up and organized might make it a government actor for, say, First Amendment purposes, but not for sovereign immunity purposes.”

Lawyers representing Amtrak, SEPTA, and NJ Transit declined to comment. Attorneys for Railware didn’t respond to a request for comment.

‘Uncommon’ Defense

In each of the three cases, Railware alleged the rail authorities’ dispatch systems use products such as Wabtec Corp.’s RailwayNet and Advanced Information Management platform, which Railware said incorporate its technology without permission, infringing US Patent Nos. 9,517,782, RE47,835, and RE49,115.

As a federally chartered corporation, Amtrak isn’t a state-related entity and doesn’t qualify for 11th Amendment sovereign immunity. That’s why Amtrak didn’t invoke the defense before settling, said Lisa Phillips, a partner at Fisch Sigler LLP.

“The sovereign immunity defense isn’t novel,” she said. “It’s just uncommon in patent cases because so few defendants qualify to raise it.”

SEPTA, which hasn’t yet raised the defense, last month challenged the patents’ validity, suggesting that an employee at Metro-North Railroad, a Railware licensee, may have contributed to the invention.

In the 1990s, Congress amended patent and copyright laws to include provisions barring the assertion of sovereign immunity against federal infringement claims. The US Supreme Court in 1999 struck down the legislative override for patent suits, and in 2020 it invalidated the parallel copyright provision.

If NJ Transit proves it qualifies for sovereign immunity, Phillips said, the question will become whether it’s “waived that immunity or consented to suit.”

Waivers are particular to any given entity, but if the New York district court finds “some specific language” where NJ Transit waived its 11th Amendment immunity, it could help Railware in cases against other transportation authorities, said Shubha Ghosh, a law professor at Syracuse University.

The district court “might do something as bold as to say that the 11th Amendment doesn’t apply to this case for some reason,” Ghosh added. “But it’s unlikely to do that. That’s going to create some conflict with the Supreme Court precedent.”

‘Sink or Swim’

The fate of NJ Transit’s motion will be “instructive” for future plaintiffs and any defendants who assert arm-of-the-state defenses, Bock said, but it isn’t likely to affect Railware’s path against other transit authorities.

“What might lead NJ Transit to sink or swim,” he said, “would not necessarily lead SEPTA to sink or swim.”

Railware argued in its Oct. 16 opposition that NJ Transit’s claim of sovereign immunity “goes off the rails from the start and never manages to get back on the right track,” highlighting that the agency is primarily funded through non-state sources and operates independently from the state.

NJ Transit’s reply is due Nov. 4.

NJ Transit also awaits a ruling from the New York Court of Appeals on whether it’s immune from a personal injury suit brought in New York. NJ Transit’s attorneys argue that case doesn’t implicate the 11th Amendment but rather the US Supreme Court’s May 2019 ruling that found interstate sovereign immunity bars lawsuits against an arm of the state in a sister court.

“Is NJ Transit the ‘state’ that is immune?” Risch said. “To me, that answer cannot differ between the cases.”

If the New York court finds NJ Transit to be an arm of the state in the personal injury case, Risch said, the issue likely won’t reach the Supreme Court.

But “if they say, ‘This is not an arm of the state,’ it probably will go to the Supreme Court,” he said. “You’ve got the Third Circuit saying this is an arm of the state, and you’ve got the highest court of New York saying it is not an arm of the state.”

The case is Railware Inc. v. NJ Transit Corp., S.D.N.Y., No. 24-cv-5537.