Federal Circuit Jurisdiction Over Patent Contract Disputes

09 October 2014 PharmaPatents Blog

In a precedential order issued in Jang v. Boston Scientific Corp., the Federal Circuit held that it has jurisdiction over the parties’ patent-related contract dispute under Gunn v. Minton even though the patents at issue have been invalidated. Despite having found Federal Circuit jurisdiction, the court denied the parties’ petition for permission to bring an interlocutory appeal because too many potentially relevant facts were unresolved.

Procedural History

 

As noted in the Federal Circuit’s order, this decision marks the third time the Federal Circuit has heard issues in this case. The bare facts laid out for the latest proceeding are as follows:

  • The parties had “entered into an agreement whereby Jang assigned his rights in various patents to petitioners in exchange for an upfront payment and a promise under defined circumstances to pay additional compensation if petitioners sold stents covered by Jang’s patents.”
  • In 2005, Jang sued BSC “in federal court for breach of contract and other various state law claims, basing jurisdiction on diversity of citizenship and alleging that petitioners had failed to compensate Jang for the sale of certain covered stent products.
  • While the case was pending, “petitioners filed requests for ex parte reexamination” of the patents, pursuant to which “the claims at issue were canceled in issued reexamination certificates.”
  • “Petitioners moved for summary judgment in the district court, arguing, inter alia, that under Lear, Inc. v. Adkins, 395 U.S. 653 (1969), the parties’ assignment agreement cannot require payment for practice of claims subsequently held to be invalid.”
  • The district court denied the motion, citing Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561 (Fed. Cir. 1997) (“Kohle”), for the proposition that “a patentee is not precluded under Lear from recovering royalties until the date the licensee or assignee first challenges the validity of the patent.”

The district court certified an interlocutory appeal under 28 U.S.C. § 1292(b) as to the interplay between Lear and Kohle in this case.

Federal Circuit Jurisdiction under Gunn v. Minton

 

The petition for interlocutory appeal was heard by Judges Dyk, Plager, and Linn. Judge Linn authored the order denying the petition.

The first issue addressed in the order was whether the Federal Circuit has jurisdiction over the interlocutory appeal, e.g., whether the underlying civil action arises under the patent laws. The court applied Gunn v. Minton and answered that question in the affirmative, finding:

 [T]his case … presents a patent issue that is “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.”

The Federal Circuit distinguished the contract dispute at issue in this case with the malpractice alleged in Gunn (where the Federal Circuit was held to not have jurisdiction), by emphasizing that the issues raised in Gunn were particular to the parties, while “[c]ontract claims based on underlying royalty obligations … raise the real-world potential for subsequently arising infringement suits affecting other parties.” The Federal Circuit characterized the patent issues in Gunn as “not substantial because the questions posed were only “backward-looking” and hypothetical,” and their importance was limited to the specific facts and parties in that case, but found “the disputed federal patent law issues presented by Jang’s well-pleaded complaint are substantial and neither entirely backward-looking nor hypothetical.”

The Federal Circuit placed particular emphasis on the fact that the contract called for payments for products “covered by one or more Valid Claims,” and defined “Valid Claims” with reference to a decision “of a court of competent jurisdiction,” and emphasized that patent validity is a substantial federal question:

Permitting regional circuits to adjudicate questions of patent validity, for example, could result in inconsistent judgments between a regional circuit and the Federal Circuit, resulting in serious uncertainty for parties facing similar infringement charges before district courts within that regional circuit. Maintaining Federal Circuit jurisdiction over such contractual disputes to avoid such conflicting rulings is important to “the federal system as a whole” and not merely “to the particular parties in the immediate suit.”

Federal Circuit Jurisdiction Not Negated By Patent Invalidity

 

The Federal Circuit rejected Jang’s argument that there could be no “substantial” question of patent law that might impact other parties, because the patents had been invalidated in final USPTO decisions that were not appealed. As noted by the court, jurisdiction is evaluated as of the time the complaint was filed, which was before the reexamination proceedings.

Federal Circuit Discretion To Deny Interlocutory Appeal

 

Having decided that it had jurisdiction over the appeal, the Federal Circuit decided to exercise its discretion to deny interlocutory review:

 As a general proposition, our court grants interlocutory review in these multi-faceted patent cases only rarely. In this case, we decline to grant such review. …. It is not clear that the legal issues identified in the questions will in fact be controlling, and each question depends on the resolution of factual issues not yet addressed by the district court.

Looking Ahead

 

While it does seem odd that the Federal Circuit finds a “substantial” patent law issue based on the need for uniformity in patent validity determinations in a case where the patents already have been held invalid, it is well-settled that jurisdiction is assessed from the perspective of the “well-pleaded complaint.” Moreover, in order to weigh in on the interplay between Lear and Kohle—which is a substantial question of patent law the Federal Circuit necessarily will have to hear an appeal in a case where the patent at issue already has been held invalid.

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