Eighth Circuit: Federal Circuit Does Not Hold Appellate Jurisdiction over a Refusal to Compel Arbitration in a Patent Case

Industrial Wire Products, Inc. (IWP) v. Costco Wholesale Corp., 576 F.3d 516 (8th Cir. 2009).

On appeal, Costco asked the court to determine whether the mandatory arbitration clause of its supply agreement with IWP operates to compel arbitration of IWP’s patent infringement lawsuit. (The Federal Arbitration Act (FAA) creates a right to immediately appeal a district court’s refusal to compel arbitration.)

Before reaching the merits, however, the Eighth Circuit questioned its own appellate jurisdictional over the patent case.

Federal Circuit Appellate Jurisdiction: In creating the Court of Appeals for the Federal Circuit (Federal Circuit), Congress indicated its desire for national uniformity of the patent laws. The Federal Circuit holds exclusive jurisdiction over appeals of district court final judgments in cases that “arise under” the patent laws. 28 USC § 1295(a)(1). The Federal Circuit also holds exclusive jurisdiction over interlocutory appeals of those patent cases if the appeal relates to the grant or denial of an injunction or the creation or destruction of a receivership.

After examining the jurisdictional statutes, the Eighth Circuit determined that the Federal Circuit did not have exclusive jurisdiction because the lower court’s decision (1) was not a final judgment because the lower court had retained jurisdiction after denying the motion to compel arbitration and (2) did not relate to the grant or denial of injunctive relief (or to a receivership). Absent those conditions, the Eighth Circuit held that itself – as the “circuit embracing the district” – had jurisdiction over the appeal. 28 U.S.C. § 1294(1).

Circuit Split: This case highlights an already existing circuit split. In a 2004 decision, the Federal Circuit held that it has exclusive jurisdiction over an appeal of a denial or grant of a motion to compel arbitration. Microchip Tech. Inc. v. U.S. Philips Corp., 367 F.3d 1350 (Fed. Cir. 2004). In Microchip Tech, the Federal held that the act of compelling arbitration is “in effect a mandatory injunction.” Id., following Sinclair Refining Co. v. Atkinson, 370 U.S. 195 (1962) (discussing a “mandatory injunction to carry out an agreement to arbitrate”). The Third Circuit previously held that the Federal Circuit does not have exclusive jurisdiction in this situation. Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44 (3rd Cir. 2001).

The injunction question could be resolved depending upon whether the district court was (1) asked to simply stay the case or refuse jurisdiction or (2) asked to issue an “antisuit injunction” or order participation in the arbitration process. The FAA specifically discusses the right to “compel arbitration.” Arbitration expert Gary Born has written that an order compelling arbitration “amounts to an injunction requiring a party to arbitrate pursuant to its arbitration agreement.” Gary Born, International Commercial Arbitration 1015 (2009). A Second Circuit decision explains the difference between refusing to hear a case and compelling arbitration:

The first merely arrests further action by the court itself in the suit until something outside the suit has occurred; but the court does not order that it shall be done. The second, through the exercise of discretionary equity powers, affirmatively orders that someone do (or refrain from doing) some act outside the suit. Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978 (2nd Cir 1942)

Compelling Arbitration: On the merits, the Eighth Circuit reversed – holding that the current patent infringement dispute fell within the mandatory arbitration agreement between the parties and therefore that the district court should have entered an order compelling arbitration.

Notes:

5 thoughts on “Eighth Circuit: Federal Circuit Does Not Hold Appellate Jurisdiction over a Refusal to Compel Arbitration in a Patent Case

  1. Paul has it right. On its face, the result here (on the merits) appears wrong.

    However assuming the arbitration clause was directly related to the patent dispute, the grant or denial of an arbitration order sounds more in contract, and its interpretation under state law, than in the patent dispute and patent law. With that assumption made, I agree with the opinion here.

    Only when an order is made that is directly related to the substance of the patent dispute rather than to state law matters should the order be appealable to the Federal Circuit.

  2. Dennis, do you have any thoughts on what impact, if any, the SCT opinion in Vaden v. Discover Bank, 129 S. Ct. 1262, 1278 (2009), might have on the issue of whether the Federal Circuit or regional circuits should have jurisdiction over the grant or denial of a motion to compel arbitration?

    In Vaden, the Court held that when faced with a motion to compel arbitration under § 4 of the FAA, the district court must “look through” the complaint and determine whether the underlying controversy is one in which it would have subject matter jurisdiction if there were no arbitration agreement, if not than the appropriate state court must determine the enforceability of the agreement to arbitrate. The SCT reversed the judgment on a motion to compel arbitration in Vaden because the underlying dispute was a state law issue, and federal law only became implicated as a defense, which was insufficient to make the controversy “arise under” federal law for purposes of federal question jurisdiction, and therefore the arbitration question had to be settled by a state court, applying the FAA.

    If that “look through” analysis is applied to the arbitration of patent disputes, in the context of “arising under” jurisdiction as it relates to the Federal Circuit’s jurisdiction, the injunction issue may become moot, as the focus of the analysis is whether the underlying claim presents a patent law issue or a state contract law issue. (I don’t profess to be an arbirtation expert, and am not sure if section 4 of the FAA that the was addressed in Vaden even applies to patent disputes).

  3. Does anyone familiar with the CAFC arbitration cases think the result would have been different under those rather than the 8th Cir. approach?

  4. Why would this be shocking?

    Multiple patents can impact multiple products from multiple vendors.

  5. Isn’t it rather shocking that a boilerplate purchase order form for purchasing a product from one supplier should be held to cover a patent suit for buying a different product from a different supplier?

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