1 United States Court of Appeals,

Fifth Circuit.

No. 97-20287

Summary Calendar.

Serge A. SCHERBATSKOY, Jr., Jonathan D. Scherbatskoy, Mary N.

Scherbatskoy, and Timothy D. Scherbatskoy, as Trustees and

Beneficiaries of Scherbatskoy Family Trust, Plaintiffs-Appellants,

v.

HALLIBURTON COMPANY, Defendant-Appellee.

Oct. 16, 1997.

Appeal f rom the United States District Court for the Southern

District of Texas.

Before POLITZ, Chief Judge, DAVIS and BENAVIDES, Circuit Judges.

POLITZ, Chief Judge:

Serge A. Scherbatskoy, Jr., Jonathan D. Scherbatskoy, Mary N.

Sch erbatskoy, and Timothy D. Scherbatskoy appeal the summary

judgment in favor of Halliburton Company dismissing their contract

and breach of fiduciary duty claims. The Scherbatskoys challenge

the district court's exercise of jurisdiction over the proceeding

and seek a remand to the st ate court from which the action was

removed. Contending that this circuit does not have jurisdiction

over the appeal, Halliburton moves to dismiss or in the alternative

to transfer to the Court of Appeals for the Federal Circuit. For

the reasons assigned, we conclude that the district court properly

exercised jurisdiction, deny the motion to dismiss, and grant the

motion to transfer.

BACKGROUND

Serge A. Scherbatskoy, Sr., father of the appellants, invented2

and received patents for procedures relating to "measurin g while

drilling" (MWD) technology; a process by which information and

measurements are obtained while a well is being drilled, obviating

the need for costly wire line and logging testing. In 1976,

Scherbatskoy contracted with Gearhart-Owen Industries, Inc.,

granting it a license for the use of his MWD patents. In 1987, as

a result of a dispute concerning the patent rights, another

contract was executed in which Scherbatskoy assigned the ownership

of his patents to the Scherbatskoy Family Trust and G earhart

continued to have a license for same. Gearhart subsequently was

acquired by Halliburton Company a nd new disputes arose about the

rights and obligations related to the licensing of Scherbatskoy's

MWD patents.

On March 31, 1992, Scherbatskoy, individually, the

Scherbatskoy Family Trust, and Hallibu rton entered into a

Settlement Agreement and a Patent License Agreement. Under these

contracts Halliburton was granted a license to use the MWD patents

in return for royalties at an agreed ra te. The Patent License

Agreement also provides that if Halliburton acquires a "New

Company" which offered MWD services prior to the date of its

acquisition, and that new company did not have immunity from suit

or a royalty-free license under the patent rights of Scherbatskoy

or the Scherb atskoy Family Trust, then Halliburton is to pay

additional defined royalties.

On December 11, 1992, Halliburton issued a press release

announ cing its intent to purchase certain assets from Smith3

International, Inc., including all of Smith's MWD technology. In

light of the press release, the Scherbat skoys asked Halliburton

whether the acquisition wou ld trigger the additional royalties

provision of the Patent License Agreement. Halliburton responded

that such a determination was then premature and would not be

considered unless the purchase actually was consummated. The sale

was concluded on January 14, 1993. Thereafter, the Scherbatskoys

again contacted Halliburton about the effect of the purchase on the

Patent L icense Agreement. By letter dated June 16, 1993,

Halliburton responded that the additional royalties provision was

not triggered because the transaction with Smith International did

not result in the acquisition of a "New Company."

On June 27, 1996, the Scherbatskoys, as trustees and

beneficiaries of the Scherbatskoy Family Trust, filed suit against

Halliburton in Texas state court, alleging breach of contract and

breach of fiduciary duty. Halliburton removed the action on the

basis of federal question jurisdiction, asserting that the

co mplaint invokes the patent laws and thus the federal district

court has exclusive jurisdiction under 28 U.S.C. § 1338. The

Scherbatskoys filed a motion to remand, contending that the action

does not arise under patent law, but constitutes a state law

contract claim.

Halliburton filed a second n otice of removal, asserting

diversity of citizenship jurisdiction. Although Halliburton is a

Delaware corporation with its principal place of business in Texas,

discovery revealed that none of the Scherbatskoys were citizens of1 Under 28 U.S.C. § 1441, an action may be rem oved based on

diversity of citizenship jurisdiction only if none of the

defendants are citizens of the state where the action was filed.

McKay v. Boyd Const. Co., 769 F.2d 1084 (5th Cir.1985).

2 We note that the appellants did not file a notice of appeal

from the denial of their motion to remand as required by Federal

Rule of Appellate Procedure 3(c) in order to obtain review of the

district court's exercise of jurisdiction. Nevertheless, we must

examine a district cour t's jurisdiction even if not formally

raised. Mitchell v. Maurer, 293 U.S. 237, 55 S.Ct. 162, 79 L.Ed.

338 (1934).

4 Texas. Based on the second notice of removal and the assertion of

diversity of citizenship jurisdiction, the Scherbatskoys conceded

f ederal jurisdiction and notified the court that their motion to

remand was moot. Thereafter, Halliburton withdrew its second

notice of removal, acknowledgi ng that even though there was

diversity of citizenship, removal was not proper because

Halliburton was a resident of Texas. 1 Although the Scherbatskoys

did not fo rmally re-urge their motion to remand, they contested

federal jurisdiction in a case management plan. Following a

conference with the parties, the court denied the motion to remand.

Thereafter Halliburton moved for summary judgment, maintaining

that there was no breach of contract because Halliburton did not

acquire a "New Company," and that the breach of fiduciary duty

claim was barred by the statute of limitations. The district court

granted this motion. The Scherbatskoys timely appealed. 2

Halliburton moved this court to dismiss or in the alternative to

transfer the appeal for lack of subject matter jurisdiction.

ANALYSIS

We first must resolve whether we have authority to determine3 United States v. United Mine Workers of America, 330 U. S

.

258, 67 S.Ct. 677, 91 L.Ed. 884 (1947).

4 28 U.S.C. § 1295(a)(1).

5 28 U.S.C. § 1338(a).

6 C.R. Bard, Inc. v. Schwartz , 716 F.2d 874 (Fed.Cir.1983).

5 if the district court had jurisdiction under 28 U.S.C. § 1338(a).

If we have jurisdiction to do so, we must then determine if the

action arises under patent law giving the Court of Appeals for the

Federal Circuit exclusive appellate jurisdiction under 28 U.S.C. §

1295. If the Federal Circuit has exclusive jurisdiction, we must

then determine whether to transfer or dismiss the appeal.

This court necessarily has the inherent jurisdiction to

determine its own jurisdiction. 3 Under section 1295, the Federal

Circuit is granted exclusive jurisdiction to review a district

c ourt's final decision if that court's jurisdiction was based in

whole or in part on section 1338. 4 Section 1338 provides that the

district courts shall have exclusive original jurisdiction of any

civil action arising under any Act of Congress relating to

patents. 5

Just as this court has the inherent power to determine is own

jurisdiction, so too does the Federal Circuit. 6 The question we

address is whether the Federal Circuit has the exclusive right to

determine if a district court has jurisdiction under section 1338,

or whether suc h power concurrently exists with the regional

circuits. One panel of the Federal Circuit has stated that it has7 Id . (we are the arbiter of our own jurisdiction).

8 Smith v. Orr, 855 F.2d 1544 (Fed.Cir.1988).

9 Shaw v. Gwatney, 795 F.2d 1351, 1353 n. 2 (8th Cir.1986 ) ;

Chabal v. Reagan, 822 F.2d 349 (3d Cir.1987).

10 Shaw, 795 F.2d at 1353 n. 2.

1 1 Smith, 855 F.2d at 15 48 citing S.Rep. No. 275, 97th Cong.,

2d Sess. 2-3, reprinted in 1982 U.S.Code Cong. & Admin. News 11,

12-13.

6 exclusive jurisdiction to make such a determination. 7 A subsequent

Federal Circu it panel rejected this proposition as dicta and

contrary to Supreme Court precedent and Congress' intent. 8 Of the

two regional circuits that specifically have addressed the issue,

both found that jurisdiction was concurrent. 9

We conclude and hold that we have the requisite jurisdiction

to consider the district court's jurisdiction herein. We decline

to read section 1295 as granting exclusive jurisdiction to the

Federal Circuit over issues of the propriety of a district court's

jurisdiction under section 1338. Such an interpretation conflicts

with the inherent principles that a regional circuit court can

determine its own jurisdiction and supervise the exer cise of

jurisdiction by the district courts within its circuit. 1 0 The

delegation of this authority to the Federal Circuit would

subordinate regional circuits to the Federal Circuit in

contravention of Congress' stated intent that the Court of Appeals

of the Federal Circuit be on line with the other circuit courts and

not constitute a new tier in the federal judicial structure. 11

In addition, our conclusion that jurisdiction exists to review1 2 Christianson v. Colt Indus. Operating Corp., 486 U. S. 800,

108 S.Ct. 2166, 100 L.Ed.2d 811 (1988).

1 3 See Kunkel v. Topmaster Int'l, Inc., 906 F.2d 693

(Fed.Cir.1990).

7 the district court's ju r isdiction coincides with the transfer

principles necessarily invoked under sec tion 1295. The inquiry

into our own jurisdiction requires that we first consider the

district court's jurisdiction. The absence of district court

jurisdiction in this instance would result in the absence of

federal jurisdiction, mandating a remand to state court.

Concluding that we have jurisdiction to dete rmine the

district court's jurisdiction, we address that inquir y. Section

1338(a) grants exclusive juris d iction to the federal district

courts in cases arising under the patent laws. An action arises

under the federal patent laws if the complaint includes allegations

that federal patent law creates the cause of action or federal

patent law is a necessary element of the claim. 12 We are persuaded

that resolution of the Scherbatskoys' substantive claim implicates

the federal paten t laws. Plaintiffs' original petition alleges

Halliburton breached the contract when it failed to pay additional

royalties under the Patent License Agreement after acquiring a new

company, Smith International, which, it is alleged, infringed the

Scherbatskoys' patents. Clearly, determining whether Smith

International infringed the Scherbatskoys' patents is a necessary

element to recovery of additional royalties or a finding that

Halliburton breached the Patent License Agreement. Both issues

require the a pplication of the federal patent laws. 1 3 It is1 4 Kennedy v. Wright, 851 F.2d 963 (7th Cir.1988), aff'd. 867

F.2d 616 (Fed.Cir.1989).

15 28 U.S.C. § 1631.

8 irrelevant that the summary judgment appealed did not address the

patent issue for purposes of section 1338 and section 1295

jurisdiction. 14 Therefore, we conclude and hold that the district

court properly exercised jurisdiction under section 1338 and that

the Court of Appeals for the Federal Circuit ha s exclusive

jurisdiction over this appeal under section 1295.

Finding that appellate jurisdiction lies exclusively with the

Federal Circuit, we decline to dismiss the appeal, but instead

transfer it to that sister court. An appeal may be transferred if

the transfer is in the interests of ju stice. 1 5 Here, a balancing

of equities weighs in favor of transfer because a new appeal by the

Scherbatskoys at this point would be barred as untimely and we find

nothing to indicate that the Scherbatskoys acted in bad faith by

filing the instant appeal.

We therefore deny the appellee's motion to dismiss and grant

the alternative motion of the appellee to transfer the appeal to

the Court of Appeals for the Federal Circuit. The clerk of this

court is directed to transmit the record, briefs, and other

documents relating to this appeal to the clerk of that court.

APPEAL TRANSFERRED.