Disputes Over Product Ownership Are Not Appealable To The Federal Circuit Unless They Require Resolution Of A Substantial Question Of Patent Law

In Krauser v. BioHorizons, Inc., No. 13-1461 (Fed. Cir. June 4, 2014), the Federal Circuit held that it lacked jurisdiction over the district court's decision that Jack T. Krauser did not have any ownership rights to a dental implant system manufactured by BioHorizons, Inc., BioLok International, Inc. ("BioLok"), and BioHorizons Implant Systems, Inc. (collectively "BHI").  The Court then transferred the appeal to the Eleventh Circuit. 

Krauser is the named inventor of U.S. Patent No. 5,316,476 ("the Krauser patent"), which claims a component of a dental implant system that Krauser allegedly developed with Leon Shaw, President of Minimatic Implant Technology, Inc. ("Minimtic"), BHI's predecessor.  Minimatic also secured two patents covering dental implant systems, naming Shaw as the sole inventor ("the Shaw patents").  Following a dispute over royalties, Krauser filed multiple lawsuits against Minimatic, including a suit for ownership rights in state court, all of which settled after Minimatic filed for bankruptcy.  Under the settlement, Krauser conditionally granted Minimatic a ten-year license to the Krauser patent and to "any and all rights he may have . . . [to] the dental implant system currently before manufactured by [Minimatic]" in exchange for royalties from sales of the dental implant products.  Slip op. at 5 (alterations in original) (citation omitted).  Minimatic emerged from bankruptcy as BioLok and later issued several patents on dental implant systems ("the BioLok patents").

After BHI allegedly failed to pay royalties, Krauser sued BHI in Florida state court, seeking a declaration that Krauser was the inventor and owner of subject matter set forth in the Shaw and BioLok patents.  BHI removed the case to federal district court based on diversity of citizenship and patent jurisdiction based on Krauser's inventorship claims.  After removal, Krauser filed a Second Amended Complaint, withdrawing his inventorship claims and restricting his claims to ownership rights in BHI's dental implant system.  After the district court granted BHI's motion for SJ, Krauser appealed to the Eleventh Circuit, which transferred the case to the Federal Circuit based on the Court's exclusive appellate jurisdiction over matters arising under federal patent law.

"Given that there is no federal issue in this case, an exercise of federal question jurisdiction would certainly disrupt 'Congress's intended division of labor between state and federal courts.'"  Slip op. at 11 (quoting Gunn v. Minton, 133 S. Ct. 1059, 1065 (2013)).

On appeal, the Federal Circuit revisited the jurisdictional question and refused to recognize the Eleventh Circuit's transfer decision as law of the case, concluding that there was no plausible basis for the Court's jurisdiction.  The Court first held that the existence of inventorship claims in Krauser's original complaint did not support the Court's exercise of jurisdiction.  The Court explained that, although it was undisputed that Krauser's original inventorship claim arose under federal patent law and was subject to the Court's appellate jurisdiction, because Krauser's "Second Amended Complaint did not contain any claims which depended 'on resolution of a substantial question of federal patent law,'" it deprived the Court of jurisdiction over the case.  Id. at 10 (quoting Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 809 (1988)). 

The Federal Circuit next held that Krauser's ownership theories, while not entirely clear, also did not support the Court's jurisdiction since the theories did not rest on a theory of inventorship or require resolution of any issue of patent law.  According to the Court, "[t]he resolution of the inventorship question is neither 'necessary' nor 'substantial' to the case" since other claims may entitle Krauser to royalties "even if he is not listed as an 'inventor' on the face of the patent."  Id. at 11. 

Finally, the Federal Circuit held that even if Krauser's ownership claims were preempted by federal patent law, this did not give the Court jurisdiction.  The Court explained that because federal preemption is ordinarily a federal defense, "it does not appear on the face of a well-pleaded complaint, and, therefore, does not authorize removal to federal court."  Id. at 11-12 (quoting Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987)). 

Accordingly, the Court held that it did not have jurisdiction over Krauser's appeal and transferred the case back to the Eleventh Circuit.

This article previously appeared in Last Month at the Federal Circuit, July 2014.

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