Federal Circuit Refuses to Hear Contract Dispute over Patent Assignment and Royalty Contract

By Dennis Crouch

DeRosa v. J.P. Walsh & J.L. Marmo Enterprises (Marmo) (Fed. Cir. 2013) (nonprecedential)

In the face of Supreme Court scrutiny over its jurisdictional power, the Federal Circuit has taken a step back from its historic approach of expanding patent law jurisdictional reach.

DeRosa is the inventor of a cam-less chuck for use in a router. These have been available for some time with ordinary drills, but the large size and high rotation speed made the same type of assembly more difficult for a router. DeRosa’s provisional patent application was filed back in November 1998 and, at the same time, DeRosa assigned his rights in the invention and “further improvements” to Marmo in return for a promise that a promise that Marmo would manufacture and sell the device and that DeRosa would receive royalties on those sales.

In 2010, DeRosa sued Marmo in Virginia state court – alleging that the company had failed to live up to its continued contractual obligations to manufacture and sell the device. In the lawsuit, Marmo asked for both contract damages and a reversion of ownership rights in the patent. The case was first removed to Federal Court on diversity grounds and then removed to an arbitrator based upon the contract terms. The arbitrator found for DeRosa on breach of contract but held that Marmo was still the proper patent owner. That decision was confirmed by the E.D. Virginia District Court in an April 6, 2012 order.

On appeal, the Federal Circuit has refused to decide the case – holding that it lacks jurisdiction and that the proper venue is the Court of Appeals for the Fourth Circuit. The reason here is that the complaint did not raise any substantial questions of patent law but rather simply focused on the contract. Judge Bryson writes:

Causes of action based on contractual rights in a patent assignment or license agreement as a general rule do not arise under the patent laws. See Luckett v. Delpark, Inc., 270 U.S. 496, 502-03 (1926); New Marshall Engine Co. v. Marshall Engine Co., 223 U.S. 473 (1912). Marmo nonetheless argues that the appeal is properly before this court because the complaint specifically requests a restoration of ownership in patent rights.

That DeRosa’s complaint ultimately sought to restore ownership in the invention is of no great significance. The focus of the jurisdictional inquiry is whether the plaintiff “set up some right, title or interest under patent laws, or at least makes it appear that some right or privilege will be defeated by one construction, or sustained by the opposite construction of these laws.” Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 807-08 (1988).

The complaint in this case did not turn on such a claim. The alleged harm stated was Marmo’s failure to abide by its “contractual and financial obligations under the contract” resulting in DeRosa not having received the “bargained for benefit” of “a steady flow of manufacturing business and the timely payment for the product.” Although a restoration of patent ownership is sought in the complaint, such relief is entirely premised on the claim that Marmo’s failure to fulfill its obligations under the contract warrants a remedy of rescission. As such, this case does not arise under the patent laws, and we do not have jurisdiction.

In Jim Arnold Corp. v. Hydrotech Systems, Inc., 109 F.3d 1567 (Fed. Cir. 1997), a case very similar to this one, this court held that a plaintiff seeking rescission of a patent assignment agreement in order to restore ownership rights in a patent could not meet the jurisdictional test set forth in Christianson. As in the present case, the plaintiff in Jim Arnold had no rights in the patent without judicial intervention and was thus left only to argue that ownership of the patents should be restored based upon a breach of contract claim. Because a plaintiff under such circumstances could at best only present a frivolous allegation of ownership of the patents at issue sufficient to confer jurisdiction under section 1338, we transferred the case to the regional circuit. Since the same outcome is warranted here, pursuant to 28 U.S.C. § 1631, we transfer the case to the Fourth Circuit.

The court ignored Marmo’s most compelling argument – that the action was implicitly a move by DeRosa to quiet title in his further improvements that he later patented and now manufactures through another source. Marmo argued that mapping the contracted-for improvements to the various patents necessarily requires a substantial consideration of patent law issues. The case will now move to the Fourth Circuit to see whether the arbitration award was properly confirmed.

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Minton v. Gunn: This term, the Supreme Court is considering Minton v. Gunn, a patent litigation malpractice case. Legal malpractice is ordinarily a state law claim. Here, however, the court is considering whether the malpractice action arises under the U.S. patent laws in such a way that would confer both federal jurisdiction at the district court level and Federal Circuit jurisdiction on appeal.

America Invents Act: The Leahy–Smith America Invents Act (AIA) expanded the scope of federal jurisdiction to include cases whose only substantial patent claim is filed in a compulsory counterclaim. See 28 U.S.C. § 1295(a)(1) as amended. However, that change in the statute does not impact this case because it only applies to civil actions commenced on or after September 16, 2011.

Notice of Arbitration Awards: 35 U.S.C. § 294(d) requires that a notice of arbitration award be filed with the USPTO. Under the statute, “[w]hen an award is made by an arbitrator, the patentee, his assignee or licensee shall give notice thereof in writing to the Director.” The submission is required to include a number of details as well as “a copy of the award” itself. Under the law, that award becomes a public record and part of the patent file. As a kicker, law states that “[t]he award shall be unenforceable until the notice required by subsection (d) is received by the Director.”

In this case, the notice of award was probably not required because the statute further limits its focus to arbitration of validity or infringement issues. Here, the dispute was over contract terms and ownership.

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12 thoughts on “Federal Circuit Refuses to Hear Contract Dispute over Patent Assignment and Royalty Contract

  1. It is quite the objective views that you flail about trying to combat.

    Pumpkin the tired working beside the gray effortless.

    I’m starting to understand why you enjoy playing Humpty Dumpty here: you’re just paying tribute to your favorite author! Cute.

  2. Our legal system, like our political system, puts substantially more stock in theatre, “appearances”, and power/celebrity worship. Hence some the weirdness on blogs like this one where…

    LOL – had it going right there MM up to the point where you accused others of what you do.

    You, after all, are the one who pounds the (paper) table of policy argument and lies about facts and laws. It is quite the objective views that you flail about trying to combat.

  3. You have more qualifications than these “non-scientifically trained generalists,” right?

    I think the point is that objective technical “qualifications” are less important than “reputations” in the legal field, and also less important than the ability to keep a poker face while spinning a nonsensical yet pleasing tale. This is generally not the case for scientists, whose blustering is kept in check by the scientific method, which is merciless and unbiased. Our legal system, like our political system, puts substantially more stock in theatre, “appearances”, and power/celebrity worship. Hence some the weirdness on blogs like this one where multi-millionaire inventor/copiers and their lawyers are rabidly defended by their “fans”.

  4. Witness F&R’s Prometheus arguments which were just psychotic nonsense.

    Lacking a winning argument, they didn’t have much of a choice. They weren’t the only defenders of those claims making psychotic arguments.

    That said, I wasn’t impressed with Mayo’s briefs either.

  5. NWPA can you capture the essence of the F&R argumentation in a few words for me please? I’m confused because I thought that F&R was the largest and highest profile patent law boutique firm. Have the liberal arts majors now taken over there too?

  6. That means non-scientifically trained generalists get the gravy cases and those foolish to expend the effort to earn double degrees in the sciences and law and then are smart and capable of passing the PTO exam and becoming Registered Patent Attorneys are relegated to prosecution before an increasingly dysfunctional PTO whose decisions are then subject to the wisdom of liberal arts majors on the CAFC.

    I’m not sure I follow you, Stuart. Why is it that you’re not allowed to get the “gravy cases”? You have more qualifications than these “non-scientifically trained generalists,” right?

  7. The liberal arts majors too want to remove the technical nature from patent law. They like things to stay at a board level so that they can keep control. What a better way then the word “abstract.” Use such a word and moronic arguments can ensue that completely devoid of reality. Witness F&R’s Prometheus arguments which were just psychotic nonsense.

  8. Appointment of scientifically illiterates to the CAFC, fee diversion, the chaotic management of the PTO and, of course, the diminishing rights of patent applicants and owners via changes in the patent laws.

    If you controlled R&D of a major corporation, would you devote large investments the increasingly unstable US patent system?

    So we get uncontrolled outsourcing of innovation started here and shrinking investments in capital-intensive fields like pharmaceuticals.

    Good work, General Bar!

  9. The General Bar has taken over patent law, under the misleading guise of being “IP” lawyers. That means non-scientifically trained generalists get the gravy cases and those foolish to expend the effort to earn double degrees in the sciences and law and then are smart and capable of passing the PTO exam and becoming Registered Patent Attorneys are relegated to prosecution before an increasingly dysfunctional PTO whose decisions are then subject to the wisdom of liberal arts majors on the CAFC.

    This destruction of the once proud and effective US patent system can be traced to the decision of the former APLA to admit non-patent attorneys to full voting membership as it transformed to the AIPLA which is now dominated by the generalists.

    The old APLA would have fought the aburd appointments of PTO Directors like Bruce Lehmann, the ap

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