In deciding whether the district court properly dismissed as moot the defendant’s unenforceability counterclaim on the ground there was no outstanding case or controversy in light of a post-verdict covenant not to sue, the U.S. Court of Appeals for the Federal Circuit distinguished a previous ruling and found that a post-verdict covenant not to sue did not deprive the district court of jurisdiction to hear the defendant’s counterclaim. Fort James Corp. v. Solo Cup Co., Case No. 04-1365, 2005 U.S. App. LEXIS 11924 (Fed. Cir. June 22, 2005) (Gajarsa, J.) (Shell, J., dissenting).
Fort James brought suit against Solo Cup alleging infringement of three patents related to disposable pressed paperboard containers and their methods of manufacture. Solo Cup denied the infringement allegations and counterclaimed for declarations the patents were invalid, unenforceable and not infringed. The district court bifurcated the trial to preclude Solo Cup from presenting evidence to the jury on inequitable conduct and unclean hands, the issues underlying Solo Cup’s unenforceability counterclaim and its request for attorney fees. A jury trial was held, and the jury returned a verdict finding Solo Cup did not infringe any of the patents-in-suit. Immediately after the jury was dismissed, Solo Cup asked the court to schedule a hearing on the bifurcated issues, inequitable conduct and unclear hands. Fort James opposed Solo Cup’s request on the ground the jury verdict negated the controversy underlying the unenforceability counterclaim. As an exhibit to its post-trial brief, Fort James attached a declaration of its general counsel stating Fort James covenanted not to sue Solo Cup on the three patents originally at issue, and it would not seek to overturn the jury's verdict (the post-verdict covenant). The district court, relying on Super Sack Mfg. Corp. v. Chase Packaging Corp., dismissed Solo Cup’s unenforceability counterclaim as moot.
In Super Sack, the Federal Circuit stated "a patentee defending against an action for a declaratory judgment of invalidity can divest the trial court of jurisdiction over the case by filing a covenant not to assert the patent at issue against the putative infringer with respect to any of its past, present, or future acts." However, in the present case, the Federal Circuit found the district court’s literal application of the holding of Super Sack failed to comprehend the unique procedural posture of the instant case. In Super Sack and its progeny, the patentee’s covenant not to sue was filed prior to consideration or resolution of the underlying infringement claim. In such circumstances, the promise not to sue obviated any reasonable apprehension that the declaratory judgment plaintiff might have of being held liable for its acts of infringement. However, the post-verdict covenant had no effect on Fort James’s claim for infringement because that controversy had already been resolved by the jury’s verdict. The question then became whether the court retained jurisdiction to hear Solo Cup’s declaratory judgment counterclaim after the jury determined Solo Cup’s products did not infringe Fort James’s patents.
The Federal Circuit, citing the Supreme Court in Cardinal Chem. Co. v. Morton Int'l, Inc., explained that a counterclaim questioning the validity or enforceability of a patent raises issues beyond the initial claim for infringement that are not disposed of by a decision of non-infringement. The Federal Circuit found the district court erred as a matter of law in holding it did not have jurisdiction to hear Solo Cup’s counterclaim. The Court remanded for resolution of the issues properly before the court prior to its order to bifurcate, including Solo Cup’s claim of unenforceability on the basis of inequitable conduct.
In dissent, Judge Schall agreed this case differed from Super Sack in that Fort James did not issue its covenant until after the jury’s finding of non-infringement, but in his view, that did not create or sustain the controversy between the parties. He reasoned that while the timing of the covenant may have seemed unfair to Solo Cup, the fact remained Solo Cup was no longer at risk of liability for infringement. Judge Shall conceded that while it may seem unfair to allow a patentee to first proceed with its infringement claim and, if the result is not favorable, eliminate the court’s jurisdiction over the accused infringer’s counterclaim by covenanting not to sue, fairness is not part of the jurisdictional inquiry.
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