Opinion ID: 3005074
Heading Depth: 1
Heading Rank: 3

Heading: jurisdiction

Text: The parties dispute our jurisdiction over this appeal. The State asserts that we have none and asks that we dismiss the appeal. MPHJ argues that we do have jurisdiction over this appeal and correctly points out that, even if we disagreed with that contention, the appropriate remedy would be a transfer to the Second Circuit, not dismissal. 28 U.S.C. § 1295 defines the scope of this court’s jurisdiction. Specifically, it provides that this court has jurisdiction “in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1). Because we find jurisdiction on the basis of at least one of MPHJ’s counterclaims, counterclaim 5, we have jurisdiction over this appeal. We, therefore, do not need to assess whether this court could exercise jurisdiction on the basis of MPHJ’s other counterclaims or Vermont’s claim. Counterclaim 5 seeks a declaratory judgment that the VCPA is invalid or preempted as applied under the First, Fifth, and Fourteenth Amendments, the Supremacy and Patent Clauses of the Constitution, and Title 35 of the U.S. Code. Ultimately, MPHJ seeks to prevent the State from relying on the VCPA in its action against it. 1 1 The State is correct that MPHJ did not argue counterclaim 5 as the basis of this court’s jurisdiction. Appellee Br. 27. See Appellant Br. 22-23; Appellant Reply 10 STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS “[A] plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is preempted by a federal statute which, by virtue of the Supremacy Clause of the Constitution must prevail, thus presents a federal question over which the federal courts have jurisdiction under 28 U.S.C. § 1331 to resolve.” Lawrence Cty. v. Lead-Deadwood Sch. Dist. No. 40-1, 469 U.S. 256, 259 n.6 (1985) (quoting Shaw v. Delta Air Lines Inc., 463 U.S. 85, 96 n.14 (1983)). Thus, while the Supremacy Clause does not itself create a cause of action for its violation, Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1384 (2015), a claim that a state law contravenes a federal statute remains “basically constitutional in nature” because “the application of preempted state law is . . . unconstitutional.” Id. at 1391 (Sotomayor, J., dissenting). Based on these principles, we have concluded that this court has jurisdiction over a complaint alleging that the state law is preempted by the patent laws. Biotechnology Indus. Org. v. Dist. of Columbia, 496 Br. 4-6. According to the State, this failure “defeats any claim of jurisdiction based on [that] counterclaim[ ].” Appellee Br. 27. The case the State cites in support of this assertion, Palmer v. Barram, 184 F.3d 1373, 1377 (Fed. Cir. 1999), however, does not stand for the proposition that this court can relinquish jurisdiction where it clearly possesses it based on the factual allegations and causes of action claimed in the case. We must always fulfill our obligation to satisfy ourselves of our jurisdiction over any appeal. See Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). The State also argues that we are bound by the mo- tions panel determination that this court lacked jurisdiction to consider the first remand order. Appellee Br. 24. That argument merits scant attention. The order relating to the appeal of the first remand was predicated on § 1447(d), which is not at issue here. STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS 11 F.3d 1362, 1368 (Fed. Cir. 2007) (deciding under preAmerica Invents Act (“AIA”) version of § 1295(a)(1) that, where a complaint seeks to enjoin enforcement of state law on grounds that it is preempted by the patent laws, this court has jurisdiction) (citing Shaw, 463 U.S. at 96 n.14). Before the passage of the AIA, it was also well established that only complaints filed by one seeking to prevent enforcement of state law would give rise to federal jurisdiction under either 28 U.S.C. § 1331 or § 1338, or to this court’s appellate jurisdiction under 28 U.S.C. § 1295(a)(1). See Vaden v. Discover Bank, 556 U.S. 49, 60 (2009) (“Federal jurisdiction cannot be predicated on an actual or anticipated defense . . . Nor can federal jurisdiction rest upon an actual or anticipated counterclaim.”); Holmes Group, Inc. v. Vornado Air Circulation Sys., 535 U.S. 826, 831 (2002) (“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” under § 1295(a)(1)). The AIA amended 28 U.S.C. §§ 1338 and 1295(a)(1) and added 28 U.S.C. § 1454, however. Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011). § 1338(a) originally read: The district courts shall have original jurisdiction of any civil action arising under any Act of Con- gress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent . . . cases. and now, post-AIA, reads: The district courts shall have original jurisdiction of any civil action arising under any Act of Con- gress relating to patents, plant variety protection, copyrights and trademarks. No State court shall 12 STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS have jurisdiction over any claim for relief arising under any Act of Congress relating to patents . . . . § 1295(a)(1) was changed from: (a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction— (1) of an appeal from a final decision of a district court of the United States . . . if the jurisdiction of that court was based, in whole or in part, on section 1338 of this ti- tle . . . ; to: (a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction— (1) of an appeal from a final decision of a district court of the United States . . . in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to pa- tents . . . . The AIA also added § 1454, a new removal provision, which reads: (a) In general. A civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents . . . may be removed to [federal] district court . . . . These changes are commonly referred to as the “Holmes Group fix.” See, e.g., MPHJ, 2015 U.S. Dist. LEXIS 3309 (citing Andrews v. Daughtry, 994 F. Supp. 2d 728, 731-32 (M.D.N.C. 2014) (citing Joe Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 FED. CIR. B.J. 539, 539 (2012))). See generally Paul M. Schoenhard, Gaps, Conflicts and Ambiguities in STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS 13 the Federal Courts’ Post-AIA Patent Jurisdiction, INTELL. PROP. & TECH. L.J., July 2013, at 20-23. In other words, they were intended to provide federal courts, and this court specifically, with a broader range of jurisdiction; that is, with jurisdiction over claims arising under the patent laws even when asserted in counterclaims, rather than in an original complaint. At the same time, the changes to § 1338 expressly remove such claims from the ambit of state court jurisdiction. Taken together, these provisions mean that seeking relief from application of state law on preemption grounds in a compulsory counterclaim will vest jurisdiction in this court as long as it “arises under” the patent laws. Turning to counterclaim 5, we first assess whether it is a compulsory counterclaim. Under Second Circuit law: Whether a counterclaim is compulsory or permis- sive turns on whether the counterclaim arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim, and this Circuit has long considered this standard met when there is a logical relationship between the coun- terclaim and the main claim. Jones v. Ford Motor Credit Co., 358 F.3d 205, 209 (2d Cir. 2004) (internal citations and quotation marks omitted). The “logical relationship” test does not require “an absolute identity of factual backgrounds,” but the “essential facts of the claims [must be] so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.” Id. (internal citations and quotation marks omitted); see also id. at 210 (“The essential facts for proving the counterclaims and the ECOA claim are not so closely related that resolv- 14 STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS ing both sets of issues in one lawsuit would yield judicial efficiency.”). 2 Counterclaim 5 meets the requirements of the “logical relationship” test. The State’s claims are premised on the alleged unlawful nature of MPHJ’s patent infringement inquiry letters under the VCPA. According to the State’s amended complaint, the essential facts involved in proving whether MPHJ violated the VCPA include whether MPHJ in fact “[s]tat[ed] that litigation would be brought against the recipients, when Defendant was neither prepared nor likely to bring litigation,” “[t]arget[ed] small businesses that were unlikely to have the resources to fight patent-litigation, or even pay patent counsel,” and “[s]en[t] letters that threatened patent-infringement litigation with no independent evidence that the recipients were infringing its patents,” among a series of other allegations. First Amended Consumer Protection Compl. at 8, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv00192), ECF No. 7. In counterclaim 5, MPHJ asserts that the VCPA would be preempted on the basis of the same essential facts. For example, MPHJ asserts that, “[u]nder at least some circumstances, federal law permits a patent owner to threaten suit even if the patent owner does not 2 Because the concept of what constitutes a “com- pulsory counterclaim” now directly impacts our jurisdiction, it is governed by Federal Circuit law, rather than by that of the regional circuits. Arlington Indus. v. Bridgeport Fittings, Inc., 759 F.3d 1333, 1336 (Fed. Cir. 2014) (“[w]e apply our own law, rather than regional circuit law, to questions relating to our own appellate jurisdiction”) (quoting Int'l Elec. Tech. Corp. v. Hughes Aircraft Co., 476 F.3d 1329, 1330 (Fed. Cir. 2007)). Because this court has not yet adopted a body of law governing what constitutes a compulsory counterclaim, we turn to Second Circuit law for guidance in this case. STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS 15 intend to bring suit.” MPHJ’s Answer and Counterclaims at 26, MPHJ, 2015 U.S. Dist. LEXIS 3309 (No. 2:14-cv00192), ECF No. 20. MPHJ further contends that, “[u]nder federal law, a patent owner may communicate an intention to bring suit for infringement without having conducted, or completed, such investigation as is necessary to satisfy FED. R. CIV. P. 11.” Id. at 27. MPHJ also asserts that “Counterclaim Defendants have no basis to allege that 35 U.S.C. § 271 exempts from liability for infringement those companies that are smaller than a certain size . . . .” Id. The same underlying facts are involved in both the State’s claim and counterclaim 5. The acts that the State alleges entitle it to relief under the VCPA are the same acts that MPHJ claims are pro- tected under federal law. We find, therefore, that counterclaim 5 is a compulsory counterclaim. Second, we must determine whether counterclaim 5 “aris[es] under” the federal patent laws, as 28 U.S.C. § 1295(a)(1) requires. We conclude that it does. As noted, we concluded in BIO that a preemption claim does “arise under” the patent laws. BIO, 496 F.3d at 1368. Since BIO, however, the Supreme Court has provided additional guidance on whether and when an action arises under the patent laws. Gunn, 133 S. Ct. 1059 (2013). We, thus, consider anew whether a claim such as that in counterclaim 5 arises under the patents laws for purposes of § 1295(a)(1). An action “aris[es] under” federal law: (1) where “federal law creates the cause of action asserted,” and (2) in a “special and small category of cases” in which arising under jurisdiction still lies.” Gunn, 133 S. Ct. at 1064. For this second category of cases, “federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” Id. at 1065. “Arising under” is interpreted identi- 16 STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS cally and interchangeably under 28 U.S.C. § 1331 and 28 U.S.C. § 1338(a). Id. at 1064. This court recently clarified that the interpretation of § 1338(a) necessarily implicates interpretation of § 1295(a)(1), and vice versa. Madstad Eng’g, Inc. v. U.S. Patent & Trademark Office, 756 F.3d 1366, 1370-71 (Fed. Cir. 2014) (“Through 28 U.S.C. § 1338(a), Congress placed the resolution of actions arising under an Act of Congress relating to patents exclusively within the federal courts. Through 28 U.S.C. § 1295(a)(1), Congress placed appeals from such matters exclusively within the province of the Federal Circuit”). This court has since applied the Gunn test to assess “arising under” jurisdiction under § 1295(a)(1). See Jang v. Boston Sci. Grp., 767 F.3d 1334, 1337–38 (Fed. Cir. 2014) (state law contract dispute regarding royalties under patent license met Gunn test because analysis required determination of infringement and validity of underlying patents); Krauser v. BioHorizons, Inc., 753 F.3d 1263, 1268–70 (Fed. Cir. 2014) (state law claim for ownership over a dental implant system did not meet Gunn test). Because counterclaim 5 is not a cause of action created by the federal patent laws, we ask whether it falls into the “special and small category of cases” in Gunn. Gunn, 133 S. Ct. at 1064. Resolution of a federal question is clearly “necessary” to MPHJ’s counterclaim, as proving preemption of the VCPA by federal patent laws would necessarily require proving that the patent laws preclude enforcement of the VCPA as applied. Thus, MPHJ’s right to relief on the counterclaim depends on an issue of federal law. The federal issue is also “actually disputed.” Indeed, the federal issue here “is the central point of dispute.” Id. at 1065. Under Gunn, the “substantiality” inquiry looks to “the importance of the issue to the federal system as a whole” and not the significance “to the particular parties in the immediate suit.” Id. at 1066 (citing Grable & Sons Metal STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS 17 Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005)). In other words, we focus on the broader significance of the federal issue and ask ourselves whether allowing state courts to resolve these cases undermines “the development of a uniform body of [patent] law.” Id. at 1066-67 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989)). Counterclaim 5 also passes this test. Whether federal patent laws preempt or invalidate the VCPA as applied has considerable significance beyond the current case. A hypothetical finding that the VCPA is not invalid or preempted in state court would affect the development of a uniform body of patent law, as such a decision would be binding in Vermont, but would not be in other states with similar laws or in federal court. The facts of this case are fundamentally unlike Gunn, in which the Court recognized that the federal issue was a “backward-looking . . . legal malpractice claim” that would be unlikely to have any “preclusive effect” on future patent litigation and was, therefore, not substantial. Id. at 1067. As an “as applied” challenge, counterclaim 5 depends to a certain extent on the specific facts of this case, but the resolution of this case would assist in delineating the metes and bounds of patent law and clarifying the rights and privileges afforded to patentees in pursuing patent infringement claims. Finally, we find that the last prong of the Gunn test, “capable of resolution in federal court without disrupting the federal-state balance,” is satisfied. Gunn, 133 S. Ct. at 1065; see Grable, 545 U.S. at 310. Allowing a state court to resolve a patent law preemption question risks “inconsistent judgments between state and federal courts.” Jang, 767 F.3d at 1337 (quoting Forrester Envtl. Servs. v. Wheelabrator Techs., Inc., 715 F.3d 1329, 1334 (Fed. Cir. 2013)). We cannot permit such a result when Congress has vested exclusive appellate jurisdiction over patent cases in this court. We conclude 18 STATE OF VERMONT v. MPHJ TECHNOLOGY INVESTMENTS that, because the requirements of § 1295(a)(1) are satisfied, we have jurisdiction over this appeal.