ON MOTION TO DISMISS OR TRANSFER
PAULINE NEWMAN, Circuit Judge.
Appellee Schwarzkopf Development Corporation (SDC) moves to dismiss or transfer this appeal under 28 U.S.C. § 1631 for lack of appellate jurisdiction in the Federal Circuit.
The complaint raised claims in contract and (as amended) contract-related tort. The action was initiated by SDC in state court and, before Ti-Coating's answer was filed, was transferred to federal court on diversity grounds. The answer filed in federal court contained patent-related defenses and a counterclaim that included patent counts. The counterclaim was dismissed in its entirety, without objection by the counterclaimant, before the filing of an answer thereto. On this procedural history, the motion to transfer is granted.
Portions of the factual and procedural background of this litigation are pertinent to our decision on jurisdiction. SDC is the owner of U.S. Patent No. 4,101,703 ("the
The patented inventions relate to a multi-layered titanium-containing coating applied to cutting tools to increase their durability. Before November 1982 Ti-Coating had applied the patented coating directly to the surface of its tools. In November 1982 Ti-Coating assertedly changed its product by interposing an additional layer, 1/2 to 1 micron in thickness, of titanium nitride between the multi-layered coating and the tool surface. Ti-Coating paid no royalties for the periods before and after this change.
On November 14, 1983 SDC filed suit in New York state court for royalties due under the license agreement. Ti-Coating, a Michigan corporation, moved on December 13, 1983 to remove the suit pursuant to 28 U.S.C. § 1441 to the U.S. District Court for the Southern District of New York, alleging diversity jurisdiction under 28 U.S.C. § 1332. That motion was granted.
The action in the Southern District of New York was stayed, pending resolution of an earlier-filed action by Ti-Coating in Michigan arising out of the same transaction. The action had been filed in Michigan state court for reformation of the license agreement, and had been removed, because of diversity, to federal court in Michigan on SDC's motion. Although Ti-Coating's Michigan complaint was subsequently amended in the federal court to include counts for declaratory judgment that the '703 and '338 patents were invalid, unenforceable, and not infringed, these and all other aspects of the Michigan action were dismissed. Ti-Coating's appeal to the Sixth Circuit was dismissed for lack of prosecution.
On June 12, 1984, after the dismissal of Ti-Coating's Michigan action, the Southern District of New York reactivated this action. On July 23, 1984 Ti-Coating filed an answer and counterclaim. Ti-Coating admitted that it had at one time practiced the patented inventions but denied doing so after November 1, 1982. Ti-Coating's answer raised nine defenses, including the defenses of patent invalidity, unenforceability, misuse, and noninfringement. Ti-Coating's counterclaim contained five counts: Count I, for which jurisdiction was based on 28 U.S.C. §§ 1338, 2201, and 2202, sought a declaratory judgment that the licensed patents were invalid, unenforceable, and not infringed; Count II alleged Sherman and Clayton Act violations; Count III, based on 28 U.S.C. §§ 1338 and 2202, sought a declaratory judgment that SDC had misused the licensed patents which were therefore unenforceable; Count IV asked for rescission of the license agreement; and Count V asked for its reformation.
All five counts of the counterclaim were dismissed on SDC's motion, without opposition by Ti-Coating. On August 31, 1984, SDC had moved under Fed.R.Civ.P. 12(b)(1) to dismiss Counts I and III for lack of justiciable controversy under the Declaratory Judgment Act, and as res judicata because the same counts had been dismissed in the Michigan action on the same grounds. SDC moved under Fed.R.Civ.P. 12(b)(6) to dismiss Counts II and V for failure to state a claim for which relief could be granted, and as res judicata. Ti-Coating filed no opposition, and on October 4, 1984 the district court dismissed Counts I, II, III, and V of the counterclaim.
SDC filed a separate motion to dismiss Count IV and for partial summary judgment as to Ti-Coating's liability for royalties accrued between June 1, 1982 and November 1, 1982. Ti-Coating did not oppose, and this motion was granted on October 9, 1984.
On December 10, 1984 SDC moved for a second partial summary judgment of royalty liability, based on Ti-Coating's products sold between November 1, 1982 and September 30, 1983. On January 29, 1985 the court conditionally granted this motion, observing that Ti-Coating had offered no evidentiary support for its defense that it did not infringe SDC's patents. The court also granted SDC leave to file an amended complaint introducing a count for fraudulent inducement to enter into the license agreement.
On May 30, 1985 SDC moved for partial summary judgment for damages based on the conditional holding of January 29, 1985. SDC countered Ti-Coating's defense of patent invalidity on the basis that Ti-Coating "had failed to give prior notice of invalidity to Plaintiff and hence the defense of invalidity could not be raised for royalties due prior to the time of notice", which was October 30, 1983.
On July 9, 1985 the district court filed a written opinion on the merits. The court analyzed and interpreted the patent claims in view of the asserted changes to the Ti-Coating product. The court discussed the evidence presented on the defense of noninfringement, and applied the process claims and the product claims to the accused processes and structures. The court also reviewed a Patent and Trademark Office decision of February 27, 1985 denying reexamination, observing that "Claims 3 through 6 of patent '703 were interpreted by the PTO and the petition was denied", and discussed why "this Court will not follow the P.T.O.'s interpretation" of the claims. The district court found that Ti-Coating literally infringed claim 15 of the '703 patent and claim 21 of the '338 patent. Ti-Coating was held liable under the contract. (Neither party had cancelled the contract).
The district court referred the matter to a magistrate for an accounting. The magistrate recommended that SDC be awarded damages of $64,781.13 for the period between June 1, 1982 to November 1, 1982, and $140,700.80 for the period between November 1, 1982 to September 30, 1983. Those amounts would have been payable as royalties under the contract.
On September 26, 1985 the court entered final judgment on the award of $64,781.13. That judgment has been satisfied, and Ti-Coating's liability for that period is not further contested.
On December 5, 1985 the court entered final judgment awarding SDC $140,700.80, pursuant to Fed.R.Civ.P. 54(b). On the same day the court granted, on consent, SDC's earlier motion for leave to file a supplemental complaint seeking damages based on Ti-Coating's failure to pay royalties for its operations between October 1, 1983 and September 30, 1985, and allowed Ti-Coating to file an answer.
On December 19, 1985 Ti-Coating filed a notice of appeal to this court from the judgment awarding $140,700.80. A "protective" appeal to the Second Circuit was also filed, and we have been advised that it has been stayed by the Second Circuit pending our determination of appellate jurisdiction.
On January 21, 1986, after this appeal was filed, Ti-Coating filed its answer in the district court to SDC's supplemental complaint. That answer includes counterclaim counts for declaratory judgment of patent invalidity, unenforceability, and noninfringement.
SDC asserts that because the case does not arise under the patent law, the jurisdiction of the district court was not based on
28 U.S.C. § 1295(a)(1) assigns to the Federal Circuit exclusive jurisdiction
Section 1338 of Title 28 states in relevant part:
The issue is whether the case on appeal "arose" in the district court, in whole or in part, under an "Act of Congress relating to patents". The seemingly simple phrase "arising under" has engendered interpretation for at least a century.
H.R.Rep. No. 12, 97th Cong., 1st Sess. 41 (1981) ("House Report"). We and other courts have done so, as required. Compare Air Products and Chemicals, Inc. v. Reichhold Chemicals, Inc., 755 F.2d 1559, 225 USPQ 121 (Fed.Cir.1985) (jurisdiction in Federal Circuit); Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 223 USPQ 1074 (Fed.Cir.1984) (jurisdiction in Federal Circuit); Chemical Engineering Corp. v. Marlo, Inc., 754 F.2d 331, 222 USPQ 738 (Fed.Cir.1984) (jurisdiction in Federal Circuit) with Beghin-Say International Inc. v. Ole-Bendt Rasmussen, 733 F.2d 1568, 221 USPQ 1121 (Fed.Cir.1984) (jurisdiction denied); Gilson v. Republic of Ireland, 787 F.2d 655, 229 USPQ 460 (D.C.Cir.1986) (jurisdiction in D.C. Circuit); Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282, 223 USPQ 214 (9th Cir.1984) (jurisdiction in Ninth Circuit), cert. denied, 469 U.S. 1190, 105 S.Ct. 963, 83 L.Ed.2d 968 (1985). The variety of procedural and substantive situations that occasioned those decisions required analysis not only of the words of the statute, but also of the intention of our congressional creators. This body of jurisprudence is now sufficiently evolved that we need not repeat its genesis; a few highlights will explain its application to this case.
In Atari, 747 F.2d at 1436, 223 USPQ at 1084, this court implemented Congress' concern that appellate jurisdiction be determined "at the complaint stage of the district court proceeding". This principle is of classical solidity with respect to determinations of original jurisdiction. For example, in The Fair v. Kohler Die and Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411-12, 57 L.Ed. 716 (1913), the Supreme Court stated:
See also Healy v. Sea Gull Specialty Co., 237 U.S. 479, 480, 35 S.Ct. 658, 659, 59 L.Ed. 1056 (1915) ("Jurisdiction generally depends upon the case made and relief demanded by the plaintiff, and as it cannot be helped, so it cannot be defeated by the replication to an actual or anticipated defence contained in what used to be the charging part of the bill.").
The complaint in the case at bar is for failure to pay royalties due under an existing patent license agreement. Such a suit has consistently been viewed as one arising out of state contract law, not "arising under" the patent law. As observed by the Supreme Court in Luckett v. Delpark, Inc., 270 U.S. 496, 502, 46 S.Ct. 397, 399, 70 L.Ed. 703 (1926):
See also Pratt v. Paris Gas Light & Coke Co., 168 U.S. 255, 18 S.Ct. 62, 42 L.Ed. 458 (1897); Wilson v. Sandford, 51 U.S. (10 How.) 99, 13 L.Ed. 344 (1850); Beghin-Say International, 733 F.2d at 1570-71, 221 USPQ at 1123.
Equally long-standing authority has held that raising patent-related defenses in the answer to a complaint does not create the "arising under" jurisdiction provided the district courts in § 1338, although these defenses may require application of the federal patent law. See, e.g., American Well Works Co. v. Layne and Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 586, 60 L.Ed. 987 (1916) ("A suit arises under the law that creates the cause of action."); The Fair, supra. In C.R. Bard, Inc. v. Schwartz, 716 F.2d 874, 879, 219 USPQ 197, 201 (Fed.Cir.1983), this court stated "[i]t is well-settled that a case cannot `arise under' federal law where the [patent] claim is merely a defense to a state court action." The fundamental nature of the action is not changed when it enters the federal system on the sole basis of diversity.
Having reached the federal system based on diversity, the case before us then became subject to patent counts of a counterclaim, that could not have been filed in the state court. A counterclaim, with its own jurisdictional predicate, normally generates its own responsive pleadings, and may remain in the suit even if the complaint is dismissed. Fed.R.Civ.P. 41(a)(2).
Adjudication of a patent counterclaim is the exclusive province of the federal courts. The patent counts of Ti-Coating's counterclaim, for declaratory judgment of patent invalidity, noninfringement, and unenforceability, are within the jurisdiction of the district court under § 1338. Under 28 U.S.C. § 1295(a)(1), when the district court's jurisdiction is based in part on § 1338, the appeal of the entire case, not solely the patent claims, lies in this court. Thus appellate jurisdiction over suits involving a § 1338 counterclaim is assigned to the Federal Circuit. However, this jurisdictional consequence requires something more than the mere filing, followed by the unopposed dismissal, of a counterclaim.
When a § 1338 counterclaim is relied upon to establish appellate jurisdiction, it is subject to the same scrutiny as any other jurisdiction-controlling factor. The House and Senate Reports make clear that
House Report at 41. See also S.Rep. No. 275, 97th Cong., 1st Sess. 19 (1981), reprinted in 1982 U.S.Code Cong. & Ad.News 11, 29 ("Senate Report"). The Senate expressed the concern that our jurisdiction not be manipulated "to create forum shopping opportunities between the Federal
Senate Report at 19-20, 1982 U.S.Code Cong. & Ad.News at 29-30. The Senate Report continued:
Id. at 20, 1982 U.S.Code Cong. & Ad.News at 30.
Ti-Coating asserts that its dismissed counterclaim was bona fide for purposes of determining our appellate jurisdiction, observing that the trial court refused to impose sanctions under Fed.R.Civ.P. 11 based on the absence of "clear evidence" that the counterclaim was made in bad faith. In this case, however, we need not decide whether the pleading of the patent counts of the counterclaim was bona fide, or whether the counts themselves were trivial or substantial.
Accordingly, SDC's motion to transfer the appeal is granted. 28 U.S.C. § 1631.
IT IS SO ORDERED.