The U.S. Supreme Court has held that the U.S. Court of Appeals for the Federal Circuit cannot assert jurisdiction over a case in which the complaint does not allege a patent law claim—even though the answer contains a patent law counterclaim. The Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. ___, 2002 LEXIS 4022 (June 3, 2002). In Holmes, the Supreme Court vacated the judgment of the Federal Circuit and remanded the case to the Tenth Circuit, finding the Federal Circuit erred in asserting jurisdiction over an appeal where the complaint did not allege a claim arising under patent law.
Holmes filed suit in the district court seeking a declaratory judgment that its products did not infringe Vornado’s trade dress. In its answer, Vornado asserted a patent infringement counterclaim. The district court granted Holmes a declaratory judgment of noninfringement and stayed all proceedings related to Vornado’s counterclaim. Vornado appealed to the Federal Circuit. Not withstanding Holmes’ challenge to its jurisdiction, the Federal Circuit vacated the district court’s judgment and remanded the case.
Justice Scalia, writing for the Court, stated that 28 U.S.C. §1295(a)(1) vests the Federal Circuit with exclusive jurisdiction over appeals from a final decision of a district court if the jurisdiction of that court was based, in whole or in part, on 28 U.S.C. §1338. Section 1338(a) provides that district courts shall have original jurisdiction of any civil action "arising under" any Act of Congress relating to patents. Because §1338(a) uses the same operative language as 28 U.S.C. §1331, which confers federal question jurisdiction in district courts for actions arising under federal law, the Court found that "linguistic consistency" requires the application of the well-pleaded complaint rule to determine whether a case "arises under" §1338(a) and vests the Federal Circuit with appellate jurisdiction under §1295(a)(1). Justice Scalia explained that under the well-pleaded complaint rule, the plaintiff’s complaint must establish either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on the resolution of a substantial question of federal patent law. Because Holmes’ complaint did not meet either requirement, the Court held that the Federal Circuit erred in asserting jurisdiction over the appeal.
The Court pointed out that the "well pleaded complaint rule" is intended to preserve the plaintiff’s control over her choice of forum and limit the class of cases that can be removed from federal court, while under the Federal Circuit’s rule, a defendant could defeat a plaintiff’s choice of forum by removing a case brought in state court. The Court also noted that allowing a counterclaim to establish "arising under" jurisdiction would undermine the clarity and ease of administration of the well-pleaded complaint doctrine that serves as a quick rule of thumb for resolving jurisdictional conflicts. Nor was the Court persuaded that effectuating Congress’ goal of promoting uniformity of patent law requires the interpretation of §§1295(a)(1) and 1338(a) to confer exclusive appellate jurisdiction on the Federal Circuit whenever a patent law counterclaim is raised. As Justice Scalia explained, the Court’s task is to determine what the words of the statute must fairly be understood to mean and not what would further Congress’ goal of ensuring patent law uniformity. Although §1295(a)(1) does not use the term "arising under," Justice Scalia noted that it refers to jurisdiction under §1338 where it is well established that "arising under" any Act of Congress relating to patents invokes the well-pleaded complaint rule.
Practice Note: As a result of this ruling, it is likely that adjudicated patent counterclaims (in cases where the complaint does not confer jurisdiction on the Federal Circuit) will now be heard in the regional circuit courts. As noted by Justice Stevens (in his concurring opinion), such a situation may give rise to an occasional conflict; an eventuality that Justice Stevens does not view negatively, noting that it will raise questions for Supreme Court review and "provide an antidote to the risk that the specialized court may develop and institutional bias." It is likely that in most instances, the regional circuits will follow Federal Circuit precedent in matters relating to patent law, although such precedent would only be persuasive, not binding on them. It remains to be seen if the Federal Circuit will rethink the practice of developing its own lines of authority when deciding non-patent issues where it finds that "patent law is effected;"e.g., antitrust issues (Nobelpharma AB v. Implant Innovations, Inc.).
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
