Federal Circuit Divided on Federal Jurisdiction over Legal Malpractice Claims

Stephen Byrne v. Wood, Herron & Evans (Fed. Cir. 2011)

Byrne’s malpractice claim alleges that his former patent attorneys at WHE failed to secure broad enough patent protection for his weed trimming device. See RE 34,815. In 2004, Byrne sued Black & Decker but lost on summary judgment. In that case, the district court ruled that B&D’s device could not infringe because of it did not include a “generally planar outboard flail stabilizing surface” as required by Byrne’s patent claims.

In the subsequent legal malpractice claim, WHE filed a summary judgment motion arguing that the prosecution history showed clearly that the “generally planar” limitation was necessary in order to distinguish Byrne’s invention from the cited prior art.  WHE also argued that Mr. Byrne’s claim should fail because he had so fully participated in the prosecution, including the addition of that limitation into the claim. In the responsive motion, Byrne filed an affidavit discussing the scope of the cited prior art and arguing that the limitation was not necessary for patentability.  Acting sua sponte, the district court rejected Byrne’s testimony — holding that he was not qualified to offer expert testimony as one of ordinary skill in the art.  Without any rebuttal evidence, the court then granted WHE’s motion for summary judgment of no malpractice.

Jurisdiction over Patent Prosecution Malpractice. In several recent cases, the Federal Circuit has expanded the scope of federal court and Federal Circuit jurisdiction over patent malpractice cases. Writing for a 2–1 majority, Judge O’Malley agreed that stare decisis compels federal jurisdiction in this case, but argued that the jurisdictional law should be revisited for cases like this where the cause of action is based upon state-law (malpractice) and the patent issue is only a question of a hypothetical patent claim.

Indeed, it is only the “special and small category” or “slim category” of cases in which a state law cause of action will trigger federal jurisdiction. . . .

[I]t is difficult to see teh federal interest in determining the validity of a hypothetical patent claim that is ancillary to a state law malpractice action. The outcome of such determinations invariably will rest on case-specific inquiries comparing prior art against patent claims that have not and will never issue. As such, these determinations, which involve only application and not interpretation of patent law, have little or no bearing on other cases. On the other hand, finding federal jurisdiction over malpractice cases involving questions of hypothetical patent claims opens the federal courthouse to an entire class of actions, thereby usurping state authority over this traditionally state law tort issue. . . .

Applying these federalism considerations, several courts either have outright disagreed with our analysis or have found a meaningful distinction when only hypothetical patent rights are at stake. . . . In many cases, the procedural posture prevents us from reviewing these decisions, thus allowing courts simply to ignore our law. We address the issues in this appeal, however, because our existing case law compels us to do so.

This is the type of issue that the Supreme Court tends to hear, and a high quality petition for certiorari would have a good chance of gaining the high court’s attention.  Aiding this theory are the growing number of state and federal court decisions that have criticized the Federal Circuit jurisdictional holdings and the general rarity non-patent-related cases of finding federal question “arising under” jurisdiction where no federal cause of action is alleged. 

On the merits, the Federal Circuit ruled that the lower court abused its discretion by refusing to let the inventor testify regarding the scope and content of the prior art and its relation to the invention. The particular problem with the lower court’s finding was that it made no finding of the qualifications of one of ordinary skill in the art and whether Byrne possessed that level of skill.  In several prior cases, the Federal Circuit has held that inventors typically possess at least ordinary skill in the relevant art and therefore “it is especially inappropriate for the district court to strike Byrne’s affidavit without going through the exercise of identifying the requisite level of skill.”  On remand, the district court will likely hear Byrne’s testimony and consequently reject WHE’s summary judgment motion.

In re Microsoft: Presence Created Solely for Purposes of Litigation Does Not Support Venue

By Jason Rantanen

In re Microsoft Corporation (Fed. Cir. Order 2011)
Panel: Newman, Friedman, Laurie (per curium)

The Federal Circuit's decision in In re Microsoft, which granted Microsoft's request for a writ of mandamus ordering the Eastern District of Texas to transfer the case to Washington State, originally issued as a nonprecedential order in early November; the CAFC reissued it as precedential today.  The order adds another piece to the now fairly substantial body of law surrounding review of denials of requests to transfer venue.  Allvoice Develop-ments, a company operated from the United Kingdom, sued Microsoft in the Eastern District of Texas for infringing Patent No. 5,799,273.  Microsoft, which is headquartered in the Western District of Washington (where a substantial portion of its employees and operations are located), requested a transfer of venue to Washington State. 

In denying Microsoft's motion to transfer venue, the district court relied on the existence of a local Allvoice office in Tyler, as well as Allvoice's incorporation under the laws of Texas.  The court also weighed the witness factor against transfer because Allvoice had identified potential non-party witnesses in New York, Massachusetts and Florida who, the court found, would find Texas more convenient for trial.  Although the court found that the sources of proof factor weighed in favor of transfer, it did so only slightly because Allvoice said that its documents were maintained in its office in the E.D. Texas. 

On appeal, the Federal Circuit granted Microsoft's request for a writ, likening this case to In re Genentech, Inc., 566 F.3d 1338 (Fed. Cir. 2009), and concluding that the district court abused its discretion by denying transfer.  The CAFC first noted that there was a vast disparity with respect to the convenience of witnesses: all individuals identified by Microsoft as having material information relating to the patents reside within 100 miles of the W.D. Wash.; all but two of the witnesses identified by Allvoice reside outside Texas, and even those two witnesses appear to be relatively peripheral.

Particularly notable, however, was the CAFC's refusal to consider Allvoice's presence in the E.D. Texas.  "Allvoice’s argument … rests on a fallacious assumption: that this court must honor connections to a preferred forum made in anticipation of litigation and for the likely purpose of making that forum appear convenient."  Slip Op. at 5.  Thus, just as transferring thousands of pages of relevant documents to the offices of litigation counsel in Texas in order to assert that the location of those documents favored non-transfer was entitled to no weight in In re Hoffmann-La Roche Inc., 587 F.3d 1333 (Fed. Cir. 2009), so too is the existence of an office created solely for the purpose of manipulating venue a meaningless fact for the venue analysis.  Nor did the CAFC ascribe any weight to extra step of incorporating under the laws of Texas, noting that it was done sixteen days before filing suit.

In re Vistaprint Ltd.: Venue Transfer Denied

By Jason Rantanen

In re Vistaprint Ltd. (Fed. Cir. 2010)
Panel: Gajarsa, Schall (author), and Moore

In a counterpoint to its recent decision in In re Acer, this morning the Federal Circuit denied a request for a writ of mandamus seeking transfer of venue out of the Eastern District of Texas.  The underlying action was bought by ColorQuick, LLC, which holds a patent relating to the preparation of production data for printing, against Vistaprint Limited and OfficeMax Incorporated.  As in Acer, none of the parties resided in Texas: Vistaprint, a foreign corporation, has a wholly-owned subsidiary in Massachusetts; OfficeMax is a Delaware corporation with its principal place of business in Illinois; and ColorQuick is a New Jersey corporation.  Both the panel and author in this appeal were identical to the panel and author that granted the writ in In re Acer.

In denying the request for a writ, the CAFC acknowledged the lack of residency, but ruled that the district court did not abuse its discretion in denying transfer.  The panel first noted that although a trial court has broad discretion in transfer decisions pursuant to 28 U.S.C. § 1404(a), "that is not the same as saying that it may accord weight simply as it pleases."  Slip Op. at 4.  Applying that standard, the panel concluded the district court's weighing of factors in this case did not amount to a "patently erroneous result."  Id. (quoting In re Volkswagen of Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (en banc)). Specifically, the CAFC concluded that the district court had not abused its discretion in weighing two factors relating to judicial economy: that the trial court had gained substantial experience in construing the claims of the same patent during a prior litigation and that there was a related case currently pending before the same court.

The CAFC also rejected the petitioners' argument that it is always improper for a district court to deny transfer based on judicial economy when all of the convenience factors clearly favor transfer.  While the court noted the importance of the convenience factors, it also recognized that "§ 1404(a) commits the balancing determination to the sound discretion of the trial court based not on per se rules but rather on an 'individualized, case-by-case consideration of convenience and fairness.'"  Slip Op. at 6-7 (quoting Van Dusen v. Barrack, 376 U.S. 612, 622 (1964)).  In this specific case, the CAFC could not conclude that "the trial court's balancing was so unreasonable as to warrant the extraordinary relief of mandamus."  Id. at 8.

Note: The opinion's final footnote appears to summarize the panel's overarching view on mandamus petitions directed to the venue transfer issue.  It states:

Our holding today does not mean that, once a patent is litigated in a particular venue the patent owner will necessarily have a free pass to maintain all future litigation involving that patent in that venue. However, where, as here, the trial court performed a detailed analysis explaining that it is very familiar with the only asserted patent and the related technology, and where there is a co-pending litigation before the trial court involving the same patent-in-suit, and pertaining to the same underly-ing technology and accusing similar services, we cannot say the trial court clearly abused its discretion in denying transfer.

In re Acer: Transfer Out of the Eastern District of Texas

By Jason Rantanen

In re Acer America Corporation (Fed. Cir. 2010)
Panel: Gajarsa, Schall (Author), and Moore

In 2008, MedioStream, a company headquartered in the Northern District of California, brought a patent infringement suit in the Eastern District of Texas against twelve hardware and software companies, five of which are also headquartered in the Northern District of California.  The defendants moved to transfer venue to the Northern District of California pursuant to 28 U.S.C. 1404(a), which authorizes transfer "[f]or the convenience of parties and witnesses, in the interest of justice."  The district court denied the motion, primarily because one of the defendants, Dell, Inc., is headquarted in Round Rock, Texas, relatively close to (albeit outside) the Eastern District of Texas. The defendants petitioned the Federal Circuit for a writ of mandamus. 

On appeal, the Federal Circuit agreed with the Petitioners, concluding in a precedential opinion that the district court abused its discretion in denying the request to transfer venue.  Particularly important in the panel's analysis was the fact that a substantial number of party witnesses reside in or near the Northern District of California, and requiring them to travel to the Eastern District of Texas would result in substantial expenses for airfare, meals, lodging, and the loss of productivity from time spent away from work, as well as the personal costs imposed on the witnesses.  While it was possible that more than one Dell employee might testify, that number was likely to be insignificant in contrast with the substantial number of party witnesses that would be required to travel to Texas.  Similarly weighing in favor of transfer to California was the venue's ability to compel testmony through subspoena power, the presence of a significant portion of the evidence in the Northern District of Caliornia (and none in the Eastern District of Texas), and the local interest of the Northern District flowing from the residence of many of the parties in that district.

Note: Last month, the court granted a temporary stay of the district court proceedings.

Nuance Communications v. Abbyy Software

By Jason Rantanen

Cases involving foreign parties often raise complex procedural issues.  In this case, two of the defendants – a Russian corporation and a Cypriot corproration – argued that the district court lacked personal jurisdiction and that the plaintiff's attempts at service were insufficient.

Nuance Communications, Inc. v. Abbyy Software House (Fed. Cir. 2010)
Panel: Rader (author) Newman, Prost

In 2008, Nuance Communications sued Abbyy USA Software House, Abbyy Production, and Abbyy Software for patent infringement.  Abbyy Production, a corporation organized under the laws of the Russian Federation, and Abbyy Software, a Cypriot corporation, filed a motion to dismiss for lack of personal jurisdiction and improper service of process.  In a short order, the district court granted the motion and declined to consider Nuance's request for jurisdictional discovery by not addressing that issue.

On appeal, the Federal Circuit reversed the district court's ruling.  On the question of personal jurisdiction, the panel first noted that because this is a patent case, Federal Circuit precedent applies rather than that of the regional circuit.  The overarching analysis, however, focused on the traditional "minimum contacts" approach: "whether the defendant purposefully established 'minimum contacts' in the forum state."  Because the question in this case was one of specific jurisdiction, it thus required examining:

(1) whether the defendant purposefully directed activities at residents of the forum; (2) whether the claim arises out of or relates to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair.

Slip. Op. at 8.  Applying this test, the majority concluded that the district court had erred in dismissing Abbyy Production and Abbyy Software.  With respect to Abbyy Production, the appellate court noted that the defendant had engaged in a variety of activities directed at California, including its distribution of the allegedly infringing software to Abbyy USA, a California entity.  These activities also satisfied the second prong, as Nuance alleged in its Complaint that Abbyy Production's importation of the software into California infringed and induced infringement of the patents-in-suit.  The panel further found that the third prong was met, noting that even beyond the fact that Abbyy Production purposefully targeted activities at the forum state, it and Abbyy USA operated under a shared management team and were represented by the same counsel.

The panel declined to conduct a similar analysis for Abbyy Software, concluding that the extent of its involvement in sales of the accused product was uncertain on the facts before the court.  Consequently, the court remanded for additional jurisdictional discovery.

The Federal Circuit also reversed the dismissal based on improper service of process.  After a lengthy discussion of the applicability of Hague Convention procedures to service of process on corporations in the Russian Federation, the panel declined to opine on whether personal service on corporations was permissible in this case.  Rather, the court held that permitting substituted service under Federal Rule of Civil Procedure 4(f)(3) was called for here, and service on Abbyy USA would be sufficient to satisfy constitutional notions of due process for service on Abbyy Production. 

Note: The panel also reversed the district court's sua sponte dismissal of Abbyy Software for improper service of process, noting that the court lacked authority to do so because Abbyy Software had waived the objection.

Genentech & Volkswagen: Federal Circuit Splits on Venue Transfer Cases

In re Genentech (Fed. Cir. 2009)(granting mandamus and ordering transfer) 09-M901.pdf
In re Volkswagen of America (Fed. Cir. 2009)(denying mandamus) 09-M897.pdf

Since deciding TS Tech, the Federal Circuit has received a gaggle of Mandamus petitions – most of them asking the appellate court to order cases transferred out of the Eastern District of Texas to more convenient locations. In a pair of opinions – both authored by Judge Linn and released on the same day – the appellate court has provided additional guidance on deciding these transfer issues.

Genentech – Transfer Granted:

  • Key Witnesses: Genentech identified several witnesses in Northern California and argued it would be more convenient for them to attend trial in that locale. The district court, however gave little weight to Genentech list because the did not identify location of “key” witnesses. On appeal, the Federal Circuit held that at such an early stage of trial, it is unreasonable to require a defendant to show that potential witnesses are “more than relevant” or face denial of transfer.
  • European Witnesses: Several identified witnesses would come from Europe. The Texas court held that it would be more convenient for the European witnesses to travel to Texas than to California because California is further from Europe than is Texas. Here, the district court directly followed the Fifth Circuit’s proportionality test that “[w]hen the distance between an existing venue for trial of a matter and a proposed venue under § 1404(a) is more than 100 miles, the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled.” On appeal, the Federal Circuit noted that the difference in distance should be given less weight when the witnesses are already traveling a great distance.
  • Centralized Location: Although Texas is certainly a more central location, the Federal Circuit held that the factor could not favor a Texas venue because none of the identified witnesses reside in Texas. Rather, the court found that California is more centralized because a number of material witnesses reside within California.
  • Convenience to the Parties: Genentech is in Northern California, Biogen (another defendant) is in San Diego, Sanofi (the plaintiff) is in Germany.
  • Availability of Compulsory Process: If trial is in Texas, there may be several third-party witnesses that could not be compelled to attend because they are in California – outside the long-arm of Texas jurisdiction.
  • Evidence: “In patent cases, the bulk of the relevant evidence comes from the accused infringer.” Here, all of Genentech & Biogen’s relevant evidence is in California.
  • Prior Suit: Genentech has been a plaintiff in the Eastern District of Texas and the district court. On appeal, the Federal Circuit ruled that it would be legal error to consider a prior case that would not otherwise provide for judicial economy.
  • California’s Jurisdiction over Sanofi: There is some question of whether the California court has jurisdiction over Sanofi. The Federal Circuit held that the potential lack of personal jurisdiction in the transferred venue does not weigh heavily against transfer. “There is no requirement under § 1404(a) that a transferee court have jurisdiction over the plaintiff or that there be sufficient minimum contacts with the plaintiff.”
  • Court Congestion: This is a speculative factor and given little weight.

In re Volkswagen – Mandamus Denied:

  • The plaintiff – MHL – is a small company headquartered in Michigan, but registered in Texas.
  • In two lawsuits separate lawsuits (both in the Eastern District of Texas), MHL has sued over thirty US & Foreign automobile companies for patent infrignement.
  • VW has asked that the case be transferred from the Eastern District of Texas to the Eastern District of Michigan.
  • Multiple Lawsuits: The Federal Circuit identified the “existence of multiple lawsuits” involving the same patents and overlapping issues to be “a paramount consideration when determining whether a transfer is in the interest of justice. … Although these cases may not involve precisely the same issues, there will be significant overlap and a familiarity with the patents could preserve time and resources. Because the district court’s decision is based on the rational argument that judicial economy is served by having the same district court try the cases involving the same patents, mandamus is inappropriate under our precedents.”

Comment: In patent cases, these venue games tend to approach the absurd, and I am surprised that the Federal Circuit has taken these cases so seriously. Defendants want to move out of the Eastern District of Texas because they fear trial and the potential major damage award. The “convenient venue” argument is concocted because the Eastern District of Texas is clearly a “proper forum” with personal jurisdiction over the defendants.

MHL is a patent holding company that registered as a Texas business in June of 2007. That registration appears to have served its purpose – to win the Texas venue argument even though the principles of the business are all located in Michigan. On the other side – it looks like the Federal Circuit refused to consider the two most important facts of convenience in the Genentech case. First, in 2006, Genentech sued MedImmune for patent infringement in the Eastern District of Texas. At that time, Genentech calculated that Texas was perfectly suitable even though neither party was located in the state. Yet, the Federal Circuit held that it was legal error for the district court to consider Genentech’s prior activities in the present motion for Venue. The second issues is jurisdiction – it just does not make sense to transfer a case to a new forum without some assurances that the court has personal jurisdiction over the parties.

Disclaimer: I just noticed that my former firm MBHB (who is now a sponsor of Patently-O) is involved in the Genentech case. I do not represent any clients these days. One reason why I have enjoyed having MBHB as a sponsor is that the firm has never tried to exert editorial control over the blog or its content beyond the layout of the firm’s ad.

Eastern District of Texas as the Best Venue

Mayer Lebowitz was a noted inventor of security technology. He died in 2005, but the trustee of his estate (Gellman) sued to enforce patent rights against various security companies including ADT, Diebold, Digital Security, Europlex, NAPCO, Numerex, Protection One, and Telular. Gelman lives in Texas and brought suit on behalf of the estate in the Eastern District of Texas – alleging infringement of U.S. patent No. 6,075,451. The ’451 patent covers the method and electronics for sending alerts via a cellular network. That way, the lines can’t be cut, and installation may be much cheaper.

Judge Ward rejected the defendants motion to transfer Venue to the Northern District of Illinois – finding that the Plaintiff’s Texas location weighed heavily in favor of keeping the case in Texas. Gellman v. ADT Sec. Services, Inc., 2008 WL 4280351 (E.D.Tex. 2008). Following In re TS Tech, Telular has now moved for mandamus – asking the Federal Circuit to order that venue be transferred. In a preliminary ruling on the Motion, Judge Dyk demanded that Gellman brief the matter.

In a parallel case, Judge Ward recently refused to transfer a case that had been filed against a dozen auto manufacturers. MHL TEK, a Texas corporation, sued Audi, VW, Nissan, Hyundai, Kia, BMW, Porsche, Isuzu, etc. The defendants asked that the case be sent to the Eastern District of Michigan, Judge Ward found numerous reasons why Michigan was a poor choice of venue. MHL TEK, LLC, v. NISSAN MOTOR COMPANY, 2009 U.S. Dist. LEXIS 13676 (E.D. Tex. 2009). In his opinion, Judge Ward made the law on venue look quite silly when applied to major multi-party patent cases. For instance, the convenience factor looks at distance to the forum: “For defendants flying in from Germany, the Detroit airport would possibly be closer than the Shreveport airport. For defendants flying in from Asia over the Pacific, the Shreveport airport would possibly be closer than the Detroit airport.” As in the Gellman case, at least one defendant here (VW) has asked for the Federal Circuit to rule on mandamus. Briefing on that motion continues.

Both cases are easily contrasted with Odom v. Microsoft. (AKA Patent Hawk) In Odom’s case, both the patent holder and defendant were located in the Pacific Northwest, and the defendant asked that the case be transferred to the Plaintiff’s home jurisdiction. In both Gellman & MHL TEK, the plaintiffs are located in Texas and the multiple defendants are located throughout the country and the world without any particular site of nexus.

Applying Supreme Court Precedent

Carlsbad Technology v. HIF Bio (Supreme Court 2009)

The Supreme Court held oral arguments in this case on February 24. In its opinion, the Federal Circuit held that it lacked appellate jurisdiction to review a district court order to remand a case back to state court. The Federal Circuit's decision goes against precedent set by the Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh Circuits. And, the case appears in conflict with the Supreme court's Powerex v. Reliant (2007) decision.

During oral arguments the Justice Roberts was considering when lower courts follow Supreme Court holdings when he made the following statement:

CHIEF JUSTICE ROBERTS: Well, they don't have a choice, right? They can't say, I don't like the Supreme Court rule so I'm not going to apply it, other than the Federal Circuit.

(Laughter).

Federal Circuit Finds DJ Jurisdiction Even After Time-Limited Covenant Not To Sue

Revolution Eyewear v. Aspex Eyewear (Fed. Cir. 2009)pic-8.jpg

After several years of litigation, the patentee-plaintiff Revolution delivered a covenant not to sue to Aspex. The covenant was limited to the asserted patent and to activities prior to dismissal of the action. The district court dismissed the case, but Aspex did not let go. The accused infringer wanted assurances that it could continue selling the accused version of its eyeglass design without worrying about future charges of infringement.

In the appeal, Judge Newman agreed that a case or controversy continues to exist and that under MedImmune, the district court still retains jurisdiction. In the backdrop, the Newman was careful to differentiate this case from those where an accused defendant may be hoping to seek a speculative judicial opinion on future product lines:

This case is of larger substance than merely a would-be competitor seeking to test the waters by way of an advisory judicial opinion on an adverse patent….These parties are already in infringement litigation initiated by the patentee, the case has been pending since 2003, and already has produced a summary judgment of invalidity (which was later vacated by this court, 175 Fed. Appx. 350); the patentee filed its covenant in 2007, after four years of litigation, on the eve of trial of the question of enforceability. Throughout this period the accused eyewear were removed from the market by Aspex, and would not be shielded by the covenant should it be returned to the market, as Aspex states is its intention. Aspex states, and Revolution agreed at the argument of this appeal, that it is reasonable to believe that Revolution will again file suit should Aspex return to this market with the same product as it previously sold. By now barring the counterclaims that have been pending since 2003, Aspex states that this court would enable the “scare-the-customer-and-run” tactics that were deplored in Arrowhead.

Dismissal Reversed. On remand, the lower court retains subject matter jurisdiction over the declaratory judgment counterclaims.

The Exodus: Following TS Tech, Patent Lawsuit Transferred from E.D. Texas to Oregon

A few days ago I was discussing TS Tech with a patent law guru. I suggested that TS Tech would not have a major impact on the location of patent cases – largely because local judges still retain a large amount of discretion in determining whether another venue is more convenient. . . . What do I know.

Odom v. Microsoft (E.D. Tex, Jan 30 2009)

Famed patent blogger Gary Odom sued Microsoft in the Eastern District of Texas – alleging that the Office 07 toolbar infringes Odom's software patent. Judge Love was assigned the case — but now he has granted Microsoft's motion to transfer the case to Oregon. You see, Odom is located in Oregon, Microsoft in Washington, the Klarquist firm (who once worked with both Odom and Microsoft) is in Oregon.

Judge Love relied on the Federal Circuit's TS Tech (J. Rader) opinion and the 5th Circuit's VW opinion (en banc) in determining that the suit should continue in the Northwest rather than Texas.

Under the circumstances presented here, the convenience of witnesses and localized interests weigh in favor of transfer with the other factors neutral or weighing slightly in favor of transfer. This is a case that is significantly localized in the Northwest. Both parties are residents of the Northwest, and Microsoft’s equitable defenses all arise out of conduct and contracts in the Northwest. No Texas resident is a party to this litigation, nor is any Texas state law cause of action asserted. All identified witnesses—with the possible exception of one—are located in the Northwest. This is not a case where witnesses are expected to be traveling from all over the country or world. In summary, there is little convenience to the parties for this case to remain in Texas, while there are several reasons why it would be more convenient for the parties to litigate this case in Oregon.

Case transferred.

Notes:

  • Order to transfer order to transfer from texas
  • E.D. Texas Blogger Michael Smith has more details
  • It remains to be seen if Judges Ward and Davis follow suit.
  • In the opinion, Judge Love did distinguish some portions of TS Tech. Importantly, much of the likely evidence is in electronic form. The court found that the physical location of the servers holding that electronic evidence did not impact the inconvenient forum analysis.

No Personal Jurisdiction for Patent Case Against Sprint Nextel

Datascape v. Sprint Nextel (N.D. GA, 2008)

Datascape sued Sprint Nextel for infringement of its patents covering a system for linking non-standard devices to an open network.

In an interesting holding, the Federal district court in Georgia held it lacks personal jurisdiction over Sprint Nextel. It turns out that – despite indications from its website – Sprint Nextel is simply a holding company that holds stock in operating companies.

Based on the evidence presented in this case, the Court is unable to find that Sprint Nextel has contacts with the State of Georgia sufficient to confer either general or specific jurisdiction over Sprint Nextel. Moreover, as to the analysis for specific jurisdiction, in particular, the Court is unable to find, as required by Supreme Court and Federal Circuit law, that Sprint Nextel purposefully directed its activities at the State of Georgia or that the assertion of personal jurisdiction would be reasonable and fair. operating activity of Sprint Nextel, according to Mr. Andreasen, is a telephone refurbishing business in Kansas. Sprint Nextel denies manufacturing, using, selling, importing, and/or offering for sale products or services related to wireless products

Federal Circuit Finds Personal Jurisdiction Over Declaratory Judgment Defendant

Patent.Law150Campbell Pet Co. v. Theresa Miale & Ty-Lift Ent. (Fed. Cir. 2008)

Ms. Miale holds two patents relating to stretchers for carrying injured animals her company (a partnership with her mother) sells products based on the patents.

The issue in the case is one of personal jurisdiction – whether the Federal Court sitting in Washington State has sufficient power over the patentee and her company to adjudge Campbell’s declaratory judgment action.

The facts are that Ty-Lift sold several thousand dollars worth of equipment to Washington residents, opened its internet website to Washington residents, and Ms. Miale even demonstrated the product at a Convention in the state.  While there, Miale and her mother “confronted several Campbell employees” and accused them of infringing Miale’s patents.  They also allegedly asked the convention director to remove the Campbell products and told customers of the infringement.

The district court originally dismissed the case – finding that Miale’s contacts were not sufficient for either general jurisdiction or specific jurisdiction.  

“[T]he [district] court found that the defendants had purposely engaged in transactions in Washington during the three-day convention in June 2007, and the court found that the cause of action for a declaratory judgment of patent noninfringement and invalidity arose from or was connected with those transactions. However, relying on our decision in Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 2003), the court found that due process considerations barred the court from exercising personal jurisdiction over the defendants based on the activities at the June 2007 convention in Seattle.

The district court noted that the notion of “fair play and substantial justice” should “afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum.”

On appeal, the Court of Appeals for the Federal Circuit reversed – finding that constitutional due process considerations of International Shoe do not bar the suit.  For the Federal Circuit, “sending letters to another state” is not sufficient to satisfy the requirements of due process and thus personal jurisdiction – even if those letters threaten litigation.  Here, the facts asserted show more than simply “attempts to inform.”

“Of critical importance to the issue of personal jurisdiction, Ms. Miale’s attempts at “extra-judicial patent enforcement” were targeted at Campbell’s business activities in Washington and can fairly be characterized as attempts to limit competition from Campbell at the Seattle convention.”

Reversed: The district court does have the power to hear this case.

 

 

Bayh-Dole Act is Not a “Patent Law” Sufficient to Create CAFC Jurisdiction

ScreenShot065WARF v. Xenon Pharmaceuticals (Fed. Cir. 2007) (nonprecedential opinion).

In 2006, WARF won a $1 million verdict in a breach of contract case against Xenon. Although contracts are normally issues of state law, WARF’s original complaint also raised technology transfer issues under the Bayh-Dole Act. (35 U.S.C. §§ 200, et seq.).

On appeal, the CAFC found that it lacked subject matter jurisdiction over the appeal because it did not arise under the patent laws. In this vein, the court first concludes that Bayh-Dole’s inclusion in Title 35 does not necessarily indicate that it is a “patent law.” Rather, the general rule is that contract or licensing disputes do not implicate patent laws unless they require some determination of patent issues such as validity or infringement.

“[M]ere inclusion in Title 35 of the United States Code does not make a statute a patent law under which a claim may arise. At its heart, the Bayh-Dole Act concerns government funding agreements – contracts in the language of 35 U.S.C. § 201 – an area that is outside our section 1295(a) jurisdiction.”

Of course, if Title 35 contains non-patent laws, it makes sense that there may also be patent laws not found in Title 35.

Even if Bayh-Dole was a “patent law,” the appellate panel found that it would still not have jurisdiction over the case because the provisions of Bayh-Dole (1) did not create WARF’s cause of action and (2) are not necessary to determine any other rights of relief.

Case transferred to the Seventh Circuit Court of Appeals.

Supreme Court: Licensee in Good Standing May File Declaratory Judgment

MedImmune v. Genentech (Supreme Court 2007).

Declaratory judgment (DJ) actions are often used by potential defendants to obtain a declaration that a patent is invalid, unenforceable, or not infringed.  Under Federal Circuit law, a licensee cannot challenge a patent without first breaching the license.  The CAFC's reasoning was that a licensee in good standing feels no apprehension of suit since the license is essentially a settlement between the parties. Without an apprehension of suit, the DJ action would not rise to an actual controversy as required by the Constitution.

In a broadly worded opinion, the Supreme Court has scrapped the Federal Circuit's "reasonable-apprehension" test on declaratory judgment standing in favor of a rule that allows licensee's in good-standing to file DJ actions.

We hold that petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed.

There are several things to note immediately:

Not Limited to Patents: This case at least extends to all licensing issues and likely to most contracts -- whether or not they involve patents or intellectual property.

Suggested Contractual Work-Around: Reading between the lines, the opinion may indicate that a contractual "prohibition against challenging the validity of the patents." may serve to block challenges by licensee's in good standing. Without the clause, however, the Court found no such prohibition:

To begin with, it is not clear where the prohibition against challenging the validity of the patents is to be found. It can hardly be implied from the mere promise to pay royalties on patents

Regarding apprehension of suit, the Opinion's footnote 11 is a complete divergence from common practice -- finding that a licensee who pays royalties either in fear of an injunctions or for fear of treble damages is being coerced in a way that creates an Article III case or controversy.

Links:

Plumtree: DJ Jurisdiction, On-Sale Bar

UntitledPlumtree v. Datamize (Fed. Cir. 2006)

Declaratory Judgment Jurisdiction: The Datamize patents cover software authoring tools for creating software kiosks. Datamize had earlier sued Plumtree for patent infringement and had also told Plumtree that it would be infringing the soon-to-issue continuation application. When the continuation did issue, Plumtree filed a declaratory judgment action — giving the CAFC one last opportunity to opine on its reasonable apprehension test before the Supreme Court issues its MedImmune decision in early 2007.

A declaratory judgment action requires an actual controversy between interested parties. The DJ plaintiff must show (1) some action by the patentee that creates a reasonable apprehension of facing a patent infringement lawsuit and (2) some activity on the part of the DJ plaintiff that could constitute infringement. With a few bright-line exceptions (such as that seen in MedImmune), the court looks to the totality of the circumstances when determining whether a reasonable apprehension of suit exists. 

Here, the court found that the prior suit on similar technology exhibited a “course of conduct” indicating a “willingness to protect [its patented] technology”and thus “created a reasonable apprehension of suit.”

On Sale Bar: Once jurisdiction was established, the CAFC looked to determine whether the Datamize patents were invalid for being on-sale more than one year prior to the filing of the application. Here, the appellate panel found that sale of a kiosk did not violate the on-sale bar because the patents did not cover the kiosks themselves.  The court noted, however, that the on-sale bar would be triggered if either (1) the sales contract required use of the patented method or (2) the patented method was actually used to complete the contract prior to the critical date.  Plumtree, however, could not prove either of those — the agreement “did not unambiguously require use of the patented method” and there was no evidence that the patented method was actually performed prior to the critical date.

Notes: This is the second CAFC opinion involving these two parties. The earlier case involved the same technology but a different patent.  That patent was invalid as indefinite because the claims included the terms “aesthetically pleasing.”

Unjust Enrichment For Stealing Ideas Does Not Create Patent Jurisdiction

PatentlyO2006014Thompson v. Microsoft (Fed. Cir. 2006).

Thompson sued Microsoft for unjust enrichment under Michigan law.  Arguing that Microsoft stole his idea, patented it, and implemented it in various products. In its motion to dismiss, Microsoft argued that the claim was preempted by federal patent law. (citing Ultra-Precision).

Instead of hearing the appeal, however, the CAFC declined jurisdiction because the case did not arise under federal patent laws as required by Christianson & Holmes v. Vornado.

Thompson’s well-pleaded complaint does not establish that the right to relief necessarily depends on resolution of a substantial question of federal patent law. Thus, the district court’s jurisdiction does not “aris[e] under” section 1338.

In particular, the court noted that preemption alone does not create jurisdiction. An inventorship issue might create an issue, but Thompson’s claim could have theoretically succeeded without proving inventorship (in the strict patent sense).

Case transferred to the Sixth Circuit Court of Appeals.