By Dennis Crouch
US Water Services, Inc. v. ChemTreat (Fed. Cir. 2014)
The Federal Circuit has determined that it lacks subject-matter appellate jurisdiction over the patent infringement appeal and has thus transferred the case to its sister-court, the Court of Appeals for the Eighth Circuit.
The unusual outcome stems from the parties pleading posture that began pre-AIA. Under the law when the case was filed, the Federal Circuit has subject-matter appellate jurisdiction over cases that “arise under” federal patent law. Arising-under jurisdiction is a term of art that follows the “well-pled complaint rule” which requires the patent law question appear on the face of the plaintiff’s original complaint as outlined in the Supreme Court’s 2002 decision on point. Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 534 U.S. 826 (2002).
Here, the original complaint was filed by USWS against ChemTreat for trade secret misappropriation under Minnesota law. In a counter claim, ChemTreat alleged invalidity and non-infringement of one of USWS’s issued patents. The parties then settled the trade secret claim and the district court subsequently granted ChemTreat’s motion for summary judgment of non-infringement. USWS now appeals that noninfringement determination. Since the patent issue was first raised in the responsive pleading (rather than in the complaint), the case cannot be said to arise under the federal patent laws. The result then is that the Federal Circuit has no subject matter appellate jurisdiction over the appeal.
As the patentee with a technical argument on appeal, the USWS was looking for Federal Circuit jurisdiction. It raised two arguments on the appeal (1) that it consented to the counterclaim filing; and (2) that the counterclaim joined additional parties (the patent owners since USWS was merely the exclusive licensee) and thus should be seen as the equivalent to a complaint under the well-pled-complaint rule. In its decision here, the Federal Circuit rejected both of those arguments, finding instead that the rule is hard and inflexible. See also Wawrzynski v. H.J. Heinz Co., 728 F.3d 1374 (Fed. Cir. 2013).
tl;dr: patent issue was first raised in a counterclaim so the case did not arise under the US patent laws.
If the same lawsuit had been more recently filed, it is possible but still unlikely that the Federal Circuit would have subject matter appellate jurisdiction based upon the AIA amendments made in 2011. In particular, the Federal Circuit jurisdiction now additionally extends to cases where the patent law issue is raised only in a “compulsory counterclaim.” Although not expressly decided it does not appear that the patent issue here should be seen as compulsory under the rules of civil procedure but instead merely supplemental. As such, even the broader appellate subject matter jurisdiction rules of the AIA would not permit the Federal Circuit to hear the case.
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The decision here was based upon appellate subject matter jurisdiction and did not reach the merits of the underlying appeal. Those underlying merits focused on whether the district court held declaratory judgment jurisdiction since (according to USWS), USWS never threatened patent infringement and the challenged patent was so different from ChemTreat’s activities that it would be silly to fear such an action.