Williams, 482 U.S, 386, 392 (1987); Jim Arnold Corp. v. Hydrotech Systems, Inc., 109 F.3d

1567, 1571 (Fed. Cir. 1997). District courts have original jurisdiction over “any civil action under any
Act of Congress relating to patents.” 28 U.S.C. §1338(a). A claim arises under the patent laws,
however, only if patent law creates the cause of action or is a necessary element of one of the plaintiff's
well-pleaded claims. Christianson v. Colt Industries Operating Corp, 486 U.S. 800, 808-09

(1988); Additive Controls & Measurement Systems, Inc. v. Flowdata, Inc., 986 F.2d 476, 478

(Fed. Cir. 1993) (“section 1338(a) gives district courts jurisdiction over causes of action created by
federal patent law and causes of action whose resolution depends on a substantial question of federal
patent law”).

Under the “well-pleaded complaint” rule, “whether a case ‘arises under’ patent law ‘must be
determined from what necessarily appears in the plaintiff's statement of his own claim in the bill or
declaration ... .”” Holmes Group Inc. v. Vornado Air Circulation Systems, Inc., 122 S.Ct. 1889,

1893 (2002) (quoting Christianson, 486 U.S. at 809). Moreover, “a counterclaim—which appears as
part of the defendant’s answer, not as part of the plaintiff's complaint-cannot serve as the basis for
‘arising under’ jurisdiction.” /d, at 1894; FDIC v, Elefant, 790 F.2d 661, 667 (7" Cir. 1986). The
substance and contents of Flanders’ complaint therefore controls our analysis.

National concedes that none of Flanders claims are made under any provision of federal patent
law. It argues, however, that Flanders’ right to relief is “inextricably intertwined” with the resolution of
a substantial question of patent law. Defendant’s Response at 2. Specifically, National contends that
Flanders cannot recover on its Illinois statutory claims or on its common law claims for defamation and

commercial disparagement without proving the validity and enforceability of the “Flanders Brilliant”


It makes no difference that the validity of Flanders’ patent might be raised as part of National’s
defense. See Christianson, 486 U.S. at 809 (‘‘a case raising a federal patent-law defense does not,
for that reason alone, ‘arise under’ patent law, ‘even if the defense is anticipated in the plaintiff's
complaint, and even if both parties admit that the defense is the only question truly at issue in the case”)
(quoting Franchise Tax Board of California v. Construction Laborer’s Vacation Trust, 463 U.S.
1, 14 (1983)). Moreover, National’s counterclaim, though it is focused directly on Flanders’ patent’s
scope and validity, cannot provide an independent source of “arising under” jurisdiction. See Holmes
Group, 122 S.Ct. at 1893, As the Supreme Court has often explained, the “well-pleaded complaint”
doctrine allows the plaintiff, as the master of the complaint, to have its cause heard in state court so long
as it eschews claims based on federal law. See, e.g., Caterpillar, 482 U.S. at 398-99. Because
patent law forms no essential element of Flanders’ complaint, this Court lacks federal question
jurisdiction over the case.

As noted earlier, National’s Notice of Removal relies only on federal question jurisdiction as
the basis for removal. In its motion to remand, however, Flanders also argued that diversity jurisdiction
is lacking. The parties appear to be of diverse citizenship; according to the pleadings, National is
incorporated in Illinois and has its principal place of business there, whereas Flanders is a New York
corporation and maintains its principal place of business in that state. Flanders argues, however, that
the amount in controversy does not meet the statutory minimum requirement of $75,000.00. Motion to
Remand at 4. In its response, National fails to dispute this argument. The party that removed the case
bears the burden of demonstrating that the jurisdictional requirements have been satisfied. See Chase

y. Shop ‘N Save Warehouse Foods Inc., 110 F.3d 424, 427 (7 Cir. 1997). National has failed to


Elara claims. ... [i]t was supposed to be distributed by Elara, not renamed and patented by them.”
Plaintiffs Exhibit D (emphasis in original). Based on these statements and others contained in
National’s brochure, Flanders filed suit in Illinois state court on June 14, 2002, claiming commercial
disparagement, defamation, tortious interference with prospective business advantage, and violations of
the Uniform Deceptive Trade Practices Act and the Illinois Consumer Fraud Act.

On June 27, 2002, National removed the case to this Court. As its sole basis for removal,
National argued that several of Flanders’ claims arise under federal law. As National characterized
Flanders’ complaint, “‘at least Counts I, III, and VI” ... require Flanders to prove that National’s
statements “regarding the development, inventorship, scope, validity and/or enforceability of
[Flanders’] patent were false.” Notice of Removal, J 6. According to National, “such a showing of
falsity necessarily depends on substantial questions of federal patent law.” Jd.

On July 29, 2002, National answered Flanders’ complaint and filed a counterclaim against
Kuwayama Europe, n.v., a company affiliated with Flanders.’ The counterclaim accused Kuwayama
of falsely asserting the validity the “Flanders Brilliant” patent and also included state law claims for
defamation and commercial disparagement.

DISCUSSION
A civil action brought in state court may be removed to federal court only if a federal court

could have exercised original jurisdiction over the case, 28 U.S.C. §1441(a); Caterpillar Inc. v.

} According to the pleadings, Kuwayama Europe, n.v., is the formal assignee of record of the “Flanders
Brilliant” design patent (U.S. Patent No. Des. 338, 851). Answer to Counterclaim, {ff 21-22. Flanders Diamond U.S.A.,
Inc. was formed by “one or more officers, directors, shareholders and/or employees of Kuwayama” for the purpose
of distributing “Flanders Brilliant” diamonds, and it is licensed to do so. /d. at { 23.

3



design patent. We disagree.

As National correctly points out, Flanders’ actions for defamation and commercial
disparagement require it to prove the falsity of certain statements contained in National’s brochure. See
Barry Harlem Corp. v. Kraff, 273 Ill. App. 3d 388, 396, 652 N.E.2d 1077, 1083 (1995)

(commercial disparagement claim requires plaintiff to show that defendant made false and demeaning
statements regarding plaintiff's goods and services); Parker v. House O'Lite Corp., 324 Ill. App. 3d
1014, 1020, 756 N.E.2d 286, 292 (2001) (defamation claim requires proof that defendant made false
statement about plaintiff). Flanders’ claims under the Illinois Consumer Fraud Act and Uniform
Deceptive Business Practices Act likewise require proof that National’s brochure contained false or
misleading representations of fact. See 815 ILCS 505/2; 815 ILCS 510/2. It is clear to the Court,
however, that Flanders could establish the falsity of each of the statements made in National’s brochure
without reference to any issue involving federal patent law.

National’s brochure makes several assertions of fact regarding the origins and development of
the “Flanders Brilliant” diamond design. Yet the brochure stops short of suggesting that Flanders’
patent is either invalid or unenforceable. This means that Flanders could prove National’s statements
false without affirmatively establishing the validity or enforceability of its patent. For instance,
National’s brochure claims that Flanders “shrouds its Flanders Cut diamonds in the aura of ‘originality’
and patent and copyright protection.” Plaintiffs Exhibit D. In order for Flanders to prove this
statement false, it must show that its Elara diamonds are original. Originality need not involve
patentability. As Flanders points out, it could sustain its burden through proof of the steps taken by the

diamonds’ designer to create the “Flanders Brilliant” design; reference to patent law would be



carry its burden.”
CONCLUSION

For the reasons stated above, the Court grants Flanders’ motion to remand [docket item 7-1].
Kuwayama’s motion to dismiss [docket item 11-1] is denied as moot. Flanders request for an award
of attorney’s fees is denied. The case is hereby remanded to the Circuit Court of Cook County,
Chancery Division.

WALTON WU LA
MATTHEW F. KENNELLY

Date: November 27, 2002 United States District Judge

? Because National has failed to establish the requisite amount in controversy, the Court need not address
the parties’ dispute over the “forum defendant” rule.



Minute Order Form (06/97)

United States District Court, Northern District of Illinois

| rte of ANigned Judge Matthew F. Kennelly Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 02 C 4605 DATE 11/27/2002
CASE Flanders vs. National Diamond Syndicate
TITLE

of the motion being presented.)

[in the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintift, and (b) state briefly the nature

OOFRCP4(m) CLocal Rule 41.1. COFRCP41(a)(1) C1 FRCP41(a)(2).

Circuit Court of Cook County.

ad) [For further detail see order attached to the original minute order.]

MOTION:

DOCKET ENTRY:

(a3) ia) Filed motion of [ use listing in “Motion” box above.]

(2) QO Brief in support of motion due

(3) oO Answer brief to motion due___. Reply to answer briefdue___.

(4) oa Ruling/Hearingon eset for at

(5) Qa Status hearing[held/continued to] [set for/re-set for]on_____—ssetfor___ at

(6) im} Pretrial conference[held/continued to] [set for/re-set for]on___——ssetfor_— at.
(7) Oo Trial[set for/re-set for]on_____at

(8) Oo [Bench/Jury trial] [Hearing] held/continued to___—_at

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

go) [Other docket entry} For the reasons set forth on the attached Memorandum Opinion and Order,
the Court grants Flanders’ motion to remand (7-1). Kuwayama’s motion to dismiss (11-1) is denied as
moot. Flanders request for an award of attorney’s fees is denied. The case is hereby remanded to the

No notices required, advised in open court,
No notices required.
nuitfSer of notices:

“Document

Number.

Notices mailed by judge's staff.

Notified counsel by telephone. DEC Q 2 2002

Docketing to mail notices.

Mail AO 430 form. docktuitg aebuly

: LYADD LOM ESIO sn ae

Copy to judge/magistrate judge. wos .
NEC 9 2 2002

‘date mailed notice

oR Geputy's 804 Hd LZ AON 20

initials MA.
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Ot CEakdaed On Otice bling debut ink



unnecessary. Likewise, Flanders must show that its diamonds are not “shrouded” in an “aura” of patent
protection. But this could be accomplished simply through proof that Flanders has in fact been
awarded a design patent covering its Elara diamonds. Because Flanders can prove the essential
elements of its claims independent of the patent laws, this Court lacks “arising under” jurisdiction. See
Christianson, 486 U.S. at 813 (explaining that “the appearance on the complaint’s face of an
alternative non-patent theory [of recovery] compels the conclusion that the ... claim does not ‘arise
under’ patent law.”).

We reject National’s position that the Federal Circuit’s decisions in Additive Controls and
Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318 (Fed. Cir. 1998), should control the
result here. In each of those cases, the Federal Circuit upheld the removal to federal court of state tort
law actions that turned on questions of patent infringement, validity and enforceability. In both Additive
Controls and Hunter Douglas, however, those substantial questions of patent law were directly at
stake in the proof of the plaintiff's alegations. In Additive Controls, the defendant’s allegedly
disparaging statement was its accusation that plaintiff had infringed defendant’s patent, thus requiring
plaintiff to disprove patent infringement to prove the statement’s falsity. Additive Controls, 986 F.2d
at 476. In Hunter Douglas, the plaintiff's claim was based on defendant’s allegedly false statements
regarding the scope and validity of defendant’s patent, which likewise required the plaintiff to prove
matters involving patent law in order to prevail. Hunter Douglas, 153 F.3d at 1329. Flanders,
however, has not placed any substantial question of patent law at issue by its claims. Though some of
its allegations refer to National’s attacks on the validity of Flanders’ patent, the question of patent

validity need not be resolved in order for Flanders to prevail.



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FLANDERS DIAMOND USA, INC.,
Plaintiff,
vs. Case No, 02 C 4605
NATIONAL DIAMOND SYNDICATE, INC.,

Defendant,

vs.

)
)
)
)
)
)
)
)
)
)
)
)
KUWAYAMA EUROPE, n.v., )
)
)

Counterclaim Defendant.

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:

Flanders Diamond USA, Inc. sued National Diamond Syndicate, Inc. in state court seeking
relief from an allegedly defamatory and disparaging brochure that National distributed at a diamond
trade show in Las Vegas. Flanders asserted several state law claims, most of which require it to prove
the falsity of certain statements in National’s brochure concerning Flanders’ marketing and sale of its
patented “Flanders Brilliant Cut Diamond.” National removed the case to this Court, contending that
Flanders’ claims arise under federal law, in that Flanders’ right to relief “necessarily depends on
substantial questions of federal patent law.” Notice of Removal 6. National also counterclaimed
against Kuwayama Europe, n.v., one of Flanders’ affiliates, asserting state law claims for defamation

and disparagement based on representations Kuwayama made concerning the marketing and sale of



certain of National’s diamonds. Flanders has moved to remand the case to state court, and Kuwayama
secks to dismiss National’s counterclaim. Both parties argue that removal was improper.

The Court agrees with Flanders and Kuwayama that removal was improper. For the reasons
set forth below, Flanders motion to remand is granted, and the case is remanded to the Chancery
Division of the Circuit Court of Cook County.

FACTUAL BACKGROUND

Both Flanders and National are corporations engaged in the marketing and sale of diamonds.
Since at least October 2000, they have been in conflict over their respective rights to market and sell a
certain style of diamond known as the “square brilliant cut-cornered diamond.” Flanders Complaint,
3. Under the trade name “Elara,” Flanders markets and sells a square brilliant cut-cornered diamond
over which it claims patent and copyright protection. National sells similar diamonds and disputes the
scope and validity of Flanders’ patent. On October 12, 2000, National filed an action in federal court
seeking a declaratory judgment that Flanders’ design patent is invalid and that National’s marketing and
sales activities do not infringe on any patent rights that Flanders might assert. That litigation is ongoing.

The facts underlying the lawsuit currently before this Court developed between May 31 and
June 4, 2002, when representatives of Flanders and National attended a diamond trade show in Las
Vegas. During the trade show, National distributed a brochure comparing Flanders’ Elara diamonds
with National’s “Ideal Square Cut, Flanders Cut” diamonds. The brochure made several claims
concerning the originality of Flanders’ diamonds. Specifically, National’s brochure asserted that “Elara
.. Shrouds its Flanders Cut diamonds in the aura of “originality” and “patent and copyright protection,”

and that “[t]he Flanders Cut diamond was designed by a North American gemologist years before

2