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The U.S. Court of Appeals for the Federal Circuit does not have jurisdiction over peripheral patent disputes, the U.S. Supreme Court has concluded in a unanimous decision. In its June 4 ruling in Holmes Group v. Vornado Air Circulation Systems, 01-408, the Supreme Court held that the Federal Circuit does not have the authority to decide cases in which defendants in a non-patent suit raise a counterclaim of patent infringement. Instead, the court indicated such cases belong in federal district courts, as advocated by many IP and antitrust lawyers. The ruling limits the reach of the Federal Circuit — which Congress established in 1982 to handle appeals of federal patent cases — into non-patent areas of law. Some lawyers contend that that court over the years has overstepped its authority, deciding antitrust, trademark, copyright and other non-patent issues that fall under the jurisdiction of regional district courts. “Not all cases involving a patent law claim fall within the Federal Circuit’s jurisdiction,” wrote Justice Antonin Scalia in the Supreme Court opinion. The attempt by fan and heater maker Vornado to have the Federal Circuit take up its dispute with Holmes “would allow a defendant to remove a case brought in state court under state law, thereby defeating a plaintiff’s choice of forum, simply by raising a federal counterclaim,” Scalia said. The case before the Supreme Court arose in 1999 when Vornado filed a complaint with the U.S. International Trade Commission, claiming that the grill design in Holmes’ fans and heaters infringed its patent and trade dress. Holmes asked a federal court in Kansas to find that its products did not infringe Vornado’s trade dress. In response, Vornado filed a counterclaim with the court alleging patent infringement. At that point, the U.S. District Court found in Holmes’ favor and Vornado appealed to the Federal Circuit, which vacated the lower court’s ruling. The Supreme Court overturned the Federal Circuit’s ruling and remanded the case to the U.S. 10th Circuit Court of Appeals. James Dabney, a partner at New York’s Pennie & Edmonds and counsel to The Holmes Group, says the Supreme Court decision could affect other cases previously decided by the Federal Circuit. “The decision overrules a very substantial body of Federal Circuit case law,” says Dabney. “What happens when you find out the court had no jurisdiction to decide those cases?” Dabney says one such case is In re Independent Services Organizations Antitrust Litigation, 2003 F.3d 1322. The Federal Circuit’s ruling — that Xerox Corp., as a patent holder, could refuse to sell its parts to another company — was in opposition to a decision by a 9th Circuit decision. In a concurring opinion in the Holmes case, Justice John Paul Stevens alluded to the conflicts that have arisen between the Federal Circuit and regional district courts, suggesting that the Federal Circuit’s view on patent issues may be skewed. “Other circuits will have some role to play in the development of this area of the law,” Stevens wrote. “Moreover, occasional decisions by courts with broader jurisdiction will provide an antidote to the risk that the specialized court may develop an institutional bias.” Peter Gowdey, a partner at Washington, D.C.’s Shook, Hardy & Bacon who represents Vornado, says the Supreme Court ruling undermines Congress’ intent to have patent issues decided by one court. “Do you want to have a situation with two appellate courts reviewing different parts of a case? That doesn’t make a lot of sense,” he says. But Neil Smith, a partner at Howard, Rice, Nemerovski, Canady, Falk & Rabkin in San Francisco, says the Holmes decision would apply to a limited number of cases. “I think it’s more saying the Federal Circuit will not be getting other-issue cases than it is saying regional circuit courts will get patent cases,” says Smith. “Legitimate patent infringement issues in cases will still go to the Federal Circuit.” Edward Reines, a partner at Weil, Gotshal & Manges in Redwood Shores, California, says the ruling could place additional burdens on appellate judges and lawyers. “The clear losers in this case are the appellate judges around the country who thought that with the creation of the Federal Circuit they would not have to hear another patent case — with all the esoteric questions of law and technology that tend to come with them,” says Reines. Other losers, he adds, “are the attorneys in the country who now have to become familiar with patent decisions in all 11 regional circuits, in addition to the decisions of the Federal Circuit.”

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