Ronald Chandler v. Phoenix Services LLC, Appeal No. 2020-1848 (Fed. Cir. June 10, 2021)
In this week’s Case of the Week, the Federal Circuit addressed the ongoing question of its subject matter jurisdiction over cases involving patents, but that do not concern allegations of infringement or invalidity. In this week’s case, the Court determined that it lacked subject matter jurisdiction over an appeal from a Walker Process antitrust claim and transferred the appeal to the Fifth Circuit Court of Appeals. The Court narrowly distinguished a prior case involving a Walker Process claim where it held it did have subject matter jurisdiction.
In 2006, a company called Heat On-The-Fly began using a new fracking technology. Shortly thereafter, Heat On-The-Fly’s owner, Mark Hefley, filed a patent application regarding the fracking process. However, Hefley knowingly “failed to disclose 61 public uses of the process that occurred over a year before the application was filed.” The application led to the ’993 patent, which Heat On-The-Fly asserted against numerous parties. In 2014, defendants Phoenix Services, LLC and Mark Fisher (“Phoenix”) acquired Heat On-The-Fly and the ’993 patent. In 2018, the Court, in an unrelated suit, “affirmed a holding that the knowing failure to disclose prior uses of the fracking process rendered the ’993 patent unenforceable due to inequitable conduct.” Phoenix continued to enforce the ’993 patent. In the present suit, plaintiffs Ronald Chandler, Chandler Manufacturing, LLC, Newco Enterprises, LLC, and Supertherm Heating Services, LLC (“Chandler”) allege that “Phoenix’s assertion of the ’993 patent against Chandler constitutes a Walker Process anti-trust violation.”
Presented with an appeal from Chandler’s Walker Process claim, the Court determined that it lacks subject matter jurisdiction because the claim does not “arise under” the patent laws of the United States. First, in reaching this conclusion, the Court relied on its own precedent, Xitronix I. In Xitronix I, the “plaintiff asserted a standalone Walker Process monopolization claim based on enforcement of a live patent, alleging fraud on the PTO in procuring that patent.” The Federal Circuit held that it lacked subject matter jurisdiction and transferred to the Fifth Circuit. In doing so, the Court relied on the Supreme Court’s decision in Gunn v. Minton where it interpreted the words “arising under.” Pursuant to 28 U.S.C. § 1295(a)(1), the Federal Circuit has jurisdiction over an appeal of a final decision of a district court “in any civil action arising under … any Act of Congress relating to patents.” In Xitronix I, the Federal Circuit concluded that “the risk of another circuit making an erroneous or inconsistent patent law decision within a Walker Process claim is not enough to trigger [Federal Circuit] jurisdiction over federal patent law cases” because resolution of a “patent case within a case” has no effect on the uniform body of patent law in that the results would be “limited to the parties and the patent involved in [the matter].” Here, the Court adopted this reasoning and found that Xitronix I mandated the transfer of Chandler’s Walker Process claims to the Fifth Circuit. The Court emphasized that the “case to invoke [Federal Circuit] jurisdiction [was] even weaker [ ] than in Xitronix I” because the ’993 patent was already held unenforceable and thus, “the appellate court hearing this case [would] have little or no need to delve into patent law issues.”
Next, the Court addressed issues raised by the Fifth Circuit’s decision in Xitronix II. In Xitronix II, the Fifth Circuit found the Federal Circuit’s transfer decision in Xitronix I to be implausible and returned the case to the Federal Circuit. The Federal Circuit concluded that its reliance on Gunn in Xitronix I was correct. The Court explained, “[I]t is clear that Congress intended the link between the statutes to continue rather than end. Thus, we respectfully disagree with the Fifth Circuit’s conclusion that the Supreme Court’s interpretation of § 1331 and § 1338 in Gunn is irrelevant to our interpretation of § 1295.” The Federal Circuit also addressed the Fifth Circuit’s conclusion that Federal Circuit precedent dictates Federal Circuit jurisdiction over standalone Walker Process claims. The Court clarified that while “Walker Process claims usually arise in the context of patent litigation … that does not mean every Walker Process claim gives rise to Federal Circuit jurisdiction.” The Court also distinguished its acceptance of the return transfer from the Fifth Circuit in Xitronix II. In Xitronix II, the patent at issue was “valid and enforceable, so the litigation had the potential to render that patent effectively unenforceable and to declare the PTO proceeding tainted by illegality.” Thus, the Court accepted the return as there was a “plausible” basis for jurisdiction.
In the instant case, the patent had already been held unenforceable in a separate lawsuit, thus, “[a]ny discussion of the ’993 patent would be merely hypothetical, and would not change the result of the prior federal patent litigation.”
Accordingly, the Court found that it lacked subject matter jurisdiction and entered an order to transfer the appeal to the Fifth Circuit.
A copy of the opinion can be found here.
By Annie White
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In an appeal from the United States District Court for the Northern District of California, the Federal Circuit addressed whether the district court erred in finding that plaintiff’s asserted patent claims were patent-ineligible. The Court affirmed the district court’s decision, holding that plaintiff’s patent claims—which described taking two pictures and using one picture to enhance the other in some way—constituted an abstract idea, and that the claims did not include an inventive concept sufficient to transform the abstract idea into a patent-eligible invention. Judge Newman dissented, arguing that plaintiff’s patent claims warranted review under the substantive criteria of patentability, including novelty and non-obviousness.
A copy of the opinion can be found here.
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