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Has the U.S. Supreme Court grown tired of a single intermediate patent appeals court? Since the U.S. Court of Appeals for the Federal Circuit was established in 1982, the Supreme Court has reversed or vacated the Federal Circuit in substantive patent decisions 70 percent of the time, including four out of the last five decisions since 1996. [FOOTNOTE 1]In its most recent decision, Holmes Group Inc. v. Vornado Air Circulation Systems, Inc., the Supreme Court vacated the Federal Circuit’s ruling that Federal Circuit jurisdiction can be based on a patent law counterclaim, stating that “[n]ot all cases involving a patent-law claim fall within the Federal Circuit’s jurisdiction.” In concurrence, Justice John Paul Stevens opined that patent decisions by regional circuit courts of appeals may be “useful,” providing an “antidote” to the possible “institutional bias” of the Federal Circuit. [FOOTNOTE 2] Adding further insult to injury, the Supreme Court also barely mentioned the 12-year-old en banc opinion of the Federal Circuit, authored by Chief Judge Howard T. Markey, where the Federal Circuit reasoned at length why, contrary to Vornado, it should have jurisdiction over patent law counterclaims. Vornadohas caused quite a stir particularly among antitrust lawyers, since the Federal Circuit has been viewed at times as pro-patent and hostile to antitrust claims. Patent claims are commonly asserted as counterclaims in antitrust cases. In the wake of Vornado, the Court of Appeals has already transferred to a regional circuit court an antitrust suit having patent infringement counterclaims, acknowledging that it would have assumed jurisdiction over the appeal were it not for Vornado. [FOOTNOTE 3] The patent bar is certainly curious to see how the regional circuits will handle patent decisions, which is a certain consequence of Vornado. But, whether or not Vornadohas a dramatic effect on the development of patent law, it is almost certain to introduce some strategic forum shopping, pleading strategies and races to the courthouse, since plaintiffs will now have more ability to direct their non-patent claims to the circuit courts of appeals of their choosing. ASSERTING JURISDICTION In Aerojet-General Corp. v. Machine Tool Works, Oerlikon-Buehrle Ltd., [FOOTNOTE 4]the Federal Circuit, sitting en banc, held in 1990 that it had jurisdiction over the appeal because of the patent law counterclaims in that case. In an opinion by then Chief Judge Markey, the court reasoned that the patent law counterclaim had its own federal jurisdictional basis under 28 U.S.C. � 1338, and therefore, the district court’s jurisdiction in the case arose “in part” under � 1338, giving the Federal Circuit jurisdiction under 28 U.S.C. � 1295(a)(1). The court also relied on the body of existing case law holding that a district court may retain jurisdiction over a counterclaim in a lawsuit when the plaintiff’s claim is dismissed for a jurisdictional defect. Finally, the court found that its decision furthered the Congressional intent of “increasing nationwide uniformity” in the field of patent law, stating: The availability of a clear, stable, uniform basis for evaluating matters of patent validity/invalidity and infringement/noninfringement renders more predictable the outcome of contemplated litigation, facilitates effective business planning, and adds confidence to investment in innovative new products and technology. The Federal Circuit predicted that directing appeals involving compulsory patent law counterclaims to the 12 regional circuits could “frustrate Congress’ desire to foster uniformity and preclude forum shopping.” [FOOTNOTE 5]And through Aerojet, the Federal Circuit validated its monopoly over patent decisions. ‘VORNADO’: A TRADE DRESS CASE In Vornado, plaintiff Holmes Group Inc. brought a complaint in the District of Kansas, seeking a declaratory judgment that its products did not infringe defendant Vornado Air Circulation Systems Inc.’s trade dress. Vornado’s answer included a compulsory counterclaim alleging patent infringement. The district court gave Holmes the declaratory judgment (and injunction) it sought, and Vornado appealed to the Federal Circuit. Notwithstanding Holmes’ challenge to its jurisdiction, the Federal Circuit vacated the district court’s judgment and remanded for reconsideration in light of intervening Supreme Court trade dress case law. Vornado then petitioned for certiorari, which the Supreme Court granted. The Supreme Court vacated the Federal Circuit’s judgment, holding that the patent counterclaim alone did not confer jurisdiction on the Federal Circuit. For Justice Antonin Scalia, writing for the majority, it was a simple case. Under 28 U.S.C. � 1295(a)(1), the Federal Circuit’s patent-related jurisdiction is over 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″ (emphasis in original). The statute, 28 U.S.C. � 1338(a), in turn, provides in relevant part that “[t]he district courts shall have original jurisdiction of any civil action arising underany Act of Congress relating to patents” (emphasis added). The Court read its prior ruling on Federal Circuit jurisdiction, Christianson v. Colt Industries, [FOOTNOTE 6]as requiring the ” arising under” language of � 1338(a) to be interpreted in the same manner as it is interpreted under 28 U.S.C. � 1331, the statute conferring general federal question jurisdiction. “ Arising under,” in the context of � 1331, the Court held, has long been governed by the “well-pleaded complaint rule,” whereby the basis for jurisdiction must be presented “on the face of the plaintiff’sproperly pleaded complaint” (emphasis in original), such that a federal counterclaim cannot support general federal question jurisdiction. Because plaintiff’s complaint in Vornadoasserted only a trade dress claim, and not a claim arising under patent law, jurisdiction of the district court was not based in whole or in part on patent law. Consequently, appellate jurisdiction did not lie in the Federal Circuit. In addition to vacating the Federal Circuit’s judgment, the Court remanded with instructions to transfer the case to the 10th Circuit. In support of its holding, the Court argued that its decision advanced several “longstanding policies underlying our precedents”: 1) allowing plaintiff, “the master of the complaint,” the choice of a state court forum, “by eschewing claims based on federal law,” 2) respecting “the rightful independence” of state courts by refusing to expand the class of removable cases (which would occur if a patent counterclaim would establish federal jurisdiction), and 3) maintaining “the clarity and ease of administration of the well-pleaded-complaint doctrine” which would be undermined by allowing responsive pleadings by the defendant to establish “arising under” jurisdiction. The Court refused to bite at the policy argument that allowing Federal Circuit jurisdiction, based solely on patent counterclaims, would further Congress’ goal, in creating the Federal Circuit, of ensuring patent law uniformity. Because, in its view, case law required that the phrase “arising under” invoke the well-pleaded-complaint rule with respect to � 1338, the Court concluded that it “would be an unprecedented feat of interpretive necromancy” to say that this phrase means something completely different when referred to by � 1295(a)(1), the statute conferring Federal Circuit jurisdiction. Interestingly, the Federal Circuit’s contrary en banc decision, Aerojet, [FOOTNOTE 7]was mentioned by Justice Scalia only in a footnote, and there, only to respond to Justice Stevens’ concurrence which supported the reasoning, if not the conclusion, of that decision. Justice Stevens authored a separate opinion, concurring in the judgment. First, Justice Stevens stated his view that the proper time to examine the plaintiff’s pleadings for application of the well-pleaded-complaint rule is when the notice of appeal, and not just the complaint, is filed. Thus, for example, if plaintiff’s initial complaint had only had an antitrust claim but later added a patent claim before the notice of appeal was filed, then appellate jurisdiction would lie in the Federal Circuit. Conversely, if the sole patent claim were dismissed from a multi-count complaint before the appeal, Justice Stevens stated his view that the appeal should then lie in the regional circuit. The majority had expressly declined to decide this issue. [FOOTNOTE 8] Also, Justice Stevens felt compelled to defend the Federal Circuit’s en banc Aerojetdecision against Justice Scalia’s dismissive analysis of its reasoning as “an unprecedented feat of interpretive necromancy,” stating that “although I am in agreement with the Court’s ultimate decision … , I find it unnecessary and inappropriate to slight the contrary reasoning of the Court of Appeals.” [FOOTNOTE 9] Justice Stevens, however, was not ready to defend the desirabilty of having the Federal Circuit decide all cases that include patent claims. According to Justice Stevens, having other circuits decide patent cases may be a healthy development for patent law, in that any future conflicts between the circuits “may be useful in identifying questions that merit this Court’s attention.” Interestingly, he also saw the other circuits’ participation in patent decisions as providing “an antidote to the risk that the specialized court may develop an institutional bias.” Justice Ruth Bader Ginsburg, joined by Justice Sandra Day O’Connor, filed a brief concurrence, advocating a test that would give the Federal Circuit exclusive appellate jurisdiction over any decision in which a patent claim had actually been adjudicated. Because only a trade dress claim had been adjudicated below, Justice Ginsburg joined the Court’s judgment. In the majority opinion, Justice Scalia quickly dismissed this suggestion, stating that the Court had “rejected precisely this argument in Christianson.” [FOOTNOTE 10] RACE TO THE COURTHOUSE? Those who like to read the tea leaves may see in Vornadosome doubt in the Supreme Court about the Federal Circuit’s performance during the time it has monopolized patent decisions. Justice Scalia all but ignored the Federal Circuit’s contrary en banc decision in Aerojet, mentioning it expressly only in a footnote, while implicitly, and rather starkly, criticizing its reasoning as “interpretive necromancy.” And though Justice Stevens took issue with the strength of that criticism, he clearly seemed to welcome that, as a result of Vornado, the regional circuits once again will have an opportunity to help shape patent law, seeing that outcome as “antidote” to the risk of possible Federal Circuit “institutional bias.” Although much of the discussion of Vornado’sfallout has centered on patent jurisprudence, and the effect of allowing the regional circuits to now decide patent cases, a major impact of the decision may be seen in the shopping that will now occur to control the forum that decides, on both the district court and appellate level, those counterclaims that traditionally accompany patent cases. In particular, forum shopping may be seen to a much greater extent than before Vornadoin connection with antitrust claims, which are commonly asserted as counterclaims in patent cases. One reason why antitrust plaintiffs will likely take a hard look at their increased forum options, is the perception in the bar that the “patent-friendly” Federal Circuit is more hostile to antitrust claims compared to some other regional circuits, particularly the 9th U.S. Circuit Court of Appeals. Indeed, this difference was clearly seen in the Federal Circuit’s decision in CSU v. Xerox. [FOOTNOTE 11] In CSU, plaintiff CSU brought antitrust claims against Xerox alleging, among other things, that Xerox’s refusal to sell or license its patented copier parts violated antitrust laws. Xerox counterclaimed for patent and copyright infringement. The district court granted summary judgment to Xerox on the antitrust claims, holding as a matter of law that if a patent is lawfully acquired, it is not a violation of antitrust laws to unilaterally refuse to sell or license the invention covered by that patent. Appeal went to the Federal Circuit, which affirmed. In doing so, the Federal Circuit expressly refused to follow the 9th Circuit’s holding in Image Technical Services v. Eastman Kodak. [FOOTNOTE 12]In that case, the 9th Circuit had adopted a more antitrust-plaintiff friendly “rebuttable presumption,” whereby the refusal to sell or license is presumed to have a valid business justification, but the antitrust plaintiff is given the opportunity to rebut that presumption. In that case, the 9th Circuit affirmed the jury’s finding of antitrust liability on the refusal to license claim, holding that there was sufficient evidence that Kodak’s business justification was merely a “pretext.” As a result of Vornado, if it went up on appeal today, the Federal Circuit would likely not decide CSU v. Xerox, since its appellate jurisdiction there was based only on the presence of the patent law counterclaim. Today, a plaintiff looking to bring a “refusal to license” antitrust claim would be much more motivated to file its complaint first in a circuit that followed the 9th Circuit’s more favorable refusal to license law, before a related patent claim could be asserted against it, since the regional circuit would decide the appeal, even if a patent counterclaim were then filed by the antitrust defendant. Note also that, at least in the 9th Circuit, even if Xerox had won the race to the courthouse and had filed its patent infringement complaint before an antitrust claim were filed against it, Vornadowould still have given CSU today an opportunity to have the appeal of its antitrust claim decided by the regional circuit. Specifically, even though CSU’s antitrust claims were arguably logically related to the patent infringement claims, and thus should be brought as compulsory counterclaims in an earlier patent infringement suit under the general test for compulsory counterclaims, they may fall under an exception to the general compulsory counterclaim rule in the 9th Circuit. Specifically, the 9th Circuit has held that antitrust claims arising from the initiation of patent litigation are permissive, and may be brought in a subsequent suit, based on a broad reading of the Supreme Court decision in Mercoid. [FOOTNOTE 13]This is in contrast to other circuits that have limited Mercoidto its facts, holding that most antitrust counterclaims, if logically related, are still compulsory, and only those based on patent misuse (like classic tying) are permissive. [FOOTNOTE 14]Thus, if Xerox had filed a patent suit first in the 9th Circuit, CSU could then still file a separate litigation asserting its refusal to license antitrust claims. And, whereas pre- Vornado, Xerox could have engineered Federal Circuit appellate review of those claims by counterclaiming for patent infringement in CSU’s lawsuit, and then dismissing its earlier-filed patent case, today that trick is no longer available. The 9th Circuit would likely hear the appeal of CSU’s antitrust case whether or not there was a patent infringement counterclaim. A WAY AROUND ‘VORNADO’? Patentees may have a possible counter-strategy. In Christianson, the Supreme Court explained that there are two ways in which “arising under” jurisdiction may be established. Arising under jurisdiction may exist where the well-pleaded complaint establishes either (1) that “federal law creates the cause of action” or (2) that “the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal law.” [FOOTNOTE 15] Vornadospecifically reaffirmed this two-prong test, though it did not discuss them in any detail because the parties admitted that the well-pleaded complaint did not assert any claim arising under the patent law and focused instead on whether a counterclaim could support jurisdiction. [FOOTNOTE 16] In several cases, however, the Federal Circuit has taken an expansive view of the second prong of Christianson. In fact, the court has opined that Christianson“sets a lenient standard for jurisdiction under 28 U.S.C. � 1338(a).” [FOOTNOTE 17]For example, in Hunter Douglas, Inc. v. Harmonic Design, Inc., the Federal Circuit held that a state law tort claim of “injurious falsehood” actually arose under patent law, where the claim alleged that defendants had falsely stated that they held exclusive rights to manufacture certain products covered by their patents and the falsity occurred because the patents were invalid and unenforceable. [FOOTNOTE 18]Similarly, in Additive Controls & Measurement Systems, Inc. v. Flowdata, Inc., the court held that a state law business disparagement claim arose under federal patent law, where the plaintiff alleged that defendant made false statements that plaintiff was infringing its patents and the falsity occurred because there was no infringement. [FOOTNOTE 19] Similarly, in University of West Virginia v. VanVoorhies, the Federal Circuit held that a state law contract claim arose under federal patent law, where the plaintiff alleged that defendant was required by contract to assign its patent application and resolution of the contract issue required the court to determine how the patent application should be classified under patent law. [FOOTNOTE 20]In another breach of contract action, U.S. Valves, Inc. v. Dray, the Federal Circuit held that the claim arose under federal patent law, where the plaintiff alleged that defendant violated an exclusive license granted to plaintiff by selling products covered by his patent and the allegation depended on whether the products were in fact covered by the patent. [FOOTNOTE 21] In light of these rulings, a party in a case involving non-patent-law claims may still seek to try to notice its appeal to the Federal Circuit by arguing that the case arose under patent law under the second prong of Christianson– that is, that the plaintiff’s right to relief necessarily depended on resolution of a patent law claim. For example, a losing patentee-defendant in an antitrust suit would have a good argument for Federal Circuit jurisdiction if the antitrust claims had alleged that the defendant sought to enforce a patent which the defendant-patentee knew was invalid or unenforceable [FOOTNOTE 22]or otherwise engaged in sham patent enforcement or refusal to license. [FOOTNOTE 23] This strategy is not fool-proof, however, because the antitrust plaintiff can avoid Federal Circuit jurisdiction by alleging alternative non-patent theories in its complaint such as tying or group boycotts, in which case the right to relief would not necessarily depend on the patent law issues. [FOOTNOTE 24] CONCLUSION While the patent bar holds its breath waiting to see what the regional circuits do with their first patent decisions in 20 years, this may not be the area where Vornadohas its greatest effect. Regional circuit courts will likely attempt to decide cases applying established Federal Circuit patent law jurisprudence, just as the district courts do. Instead, the greater effect of Vornadomay be seen in the forum shopping that results, as parties with non-patent claims now have more options to steer those claims to the regional circuits of their choosing. Bruce M. Wexler and Joseph M. O’Malley, Jr. are partners at Fitzpatrick, Cella, Harper & Scinto ( www.fitzpatrickcella.com) ::::FOOTNOTES:::: FN1 Festo Corp. v. Shoketsu Kinzuku Kogyo Kabushiki Co., 122 S.Ct. 1831 (2002) (vacatur); Holmes Group, Inc. v. Vornado Air Circulation Sys., 122 S.Ct. 1889 (2002) (vacatur); Dickinson v. Zurko, 527 U.S. 150 (1999) (reversal); Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17 (1997) (reversal); Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83 (1993) (vacatur); Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1989) (vacatur); Dennison Mfg. v. Panduit Corp., 475 U.S. 809 (1986) (vacatur); Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661 (1990) (affirmance); Markman v. Westview Instruments, 517 U.S. 370 (1996) (affirmance); Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998) (affirmance). FN2 Holmes Group, Inc. v. Vornado Air Circulation Sys., 122 S.Ct. 1889 (2002). FN3 Telcomm Technical Servs., Inc. v. Siemens Rolm Communications, Inc., 2002 WL 1425237, at *2 (Fed. Cir. 2002). FN4 Aerojet-General Corp. v. Machine Tool Works, Oerlikon-Buehrle Ltd., 895 F.2d 736 (Fed. Cir. 1990) (en banc). FN5 Id.at 742-45. FN6 Christianson v. Colt Industries, 486 U.S. 800 (1989). FN7 Aerojet, 895 F.2d 736. FN8 Vornado, 122 S. Ct. at 1894. FN9 Id.at 1896, 1897 n.1 (Stevens, J., concurring). FN10 Id.at 1894 n.3. FN11 CSU, L.L.C. v. Xerox Corp., 203 F.3d 1322 (Fed. Cir. 2000). FN12 Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997). FN13 Hydranautics v. FilmTec Corp., 70 F.3d 533 (9th Cir. 1995); Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661 (1994). FN14 See, e.g., Critical-Vac Filtration Corp. v. Minuteman Int’l, Inc., 233 F.3d 697 (2d Cir. 2000). FN15 Christianson, 486 U.S. at 808. FN16 Vornado, 122 S. Ct. at 1893. FN17 U.S. Valves, Inc. v. Dray, 212 F.3d 1368, 1372 (Fed. Cir. 2000). The Federal Circuit has, at times, found that the plaintiff’s right to relief did not depend on resolution of the patent law issue and refused jurisdiction. In re Oximetrix, Inc., 748 F.2d 637, 642 (Fed. Cir. 1984); Ballard Med. Prods. v. Wright, 823 F.2d 527 (Fed. Cir. 1987); Speedco, Inc. v. Estes, 853 F.2d 909 (Fed. Cir. 1988); American Tel. & Tel. Co. v. Integrated Network Corp., 972 F.2d 1321 (Fed. Cir. 1992); Jim Arnold Corp. v. Hydrotech Sys., Inc., 109 F.3d 1567 (Fed. Cir. 1997); Uroplasty, Inc. v. Advanced Uroscience, Inc., 239 F.3d 1277 (Fed. Cir. 2001). FN18 Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1329-31 (Fed. Cir. 1998), overruled on other grounds by Midwest Indus., Inc. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359 (Fed. Cir. 1999) . FN19 Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc., 986 F.2d 476, 478-79 (Fed. Cir. 1993). FN20 University of West Virginia v. VanVoorhies, 278 F.3d 1288, 1295 (Fed. Cir. 2002). FN21 U.S. Valves, 212 F.3d at 1372-73. FN22 Walker-Process Equip., Inc. v. Food Machinery & Chem. Corp., 382 U.S. 172 (1965); Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979) and 743 F.2d 1282 (9th Cir. 1984). FN23 See Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1067-68 (Fed. Cir. 1998) (en banc) (holding, in case involving both patent and antitrust claims, that “whether conduct in procuring or enforcing a patent is sufficient to strip a patentee of its immunity from the antitrust laws is to be decided as a question of Federal Circuit law”). FN24 Christianson, 486 U.S. at 811-13.

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