Court Opinion

ID: 104
Source: CourtListenerOpinion
Date Created: 2010-03-14 00:00:00+00
Date Added: 2024-06-11T10:58:50.820163
License: Public Domain

United States Court of Appeals for the Federal Circuit
                                       2008-1597

              LABORATORY CORPORATION OF AMERICA HOLDINGS
                        (doing business as LabCorp),

                                                       Plaintiff-Appellee,

                                           v.

                         METABOLITE LABORATORIES, INC.,

                                                       Defendant-Appellant.

       Gregory A. Castanias, Jones Day, of Washington, DC, argued for plaintiff-
appellee. With him on the brief was Leon F. DeJulius, Jr., of Pittsburgh, Pennsylvania.
Of counsel on the brief were Natalie Hanlon-Leh and Nina Y. Wang, Faegre & Benson
LLP, of Denver, Colorado.

      Mark A. Perry, Gibson, Dunn & Crutcher LLP, of Washington, DC, argued for
defendant-appellant. With him on the brief were Glenn K. Beaton and Kourtney M.
Mueller, of Denver, Colorado.

Appealed from: United States District Court for the District of Colorado

Senior Judge Zita L. Weinshienk
 United States Court of Appeals for the Federal Circuit

                                       2008-1597

              LABORATORY CORPORATION OF AMERICA HOLDINGS
                        (doing business as LabCorp),

                                                       Plaintiff-Appellee,
                                            v.

                         METABOLITE LABORATORIES, INC.,

                                                       Defendant-Appellant.

   Appeal from the United States District Court for the District of Colorado in
   case no. 04-CV-1662, Senior Judge Zita L. Weinshienk.

                            _________________________

                             DECIDED: March 11, 2010
                            _________________________

Before GAJARSA, DYK, and MOORE, Circuit Judges.

Opinion for the court filed by Circuit Judge GAJARSA.         Dissenting opinion filed by
Circuit Judge DYK.

GAJARSA, Circuit Judge.

      Metabolite appeals from the United States District Court for the District of

Colorado’s grant of summary judgment. See Lab. Corp. of Am. Holdings v. Metabolite

Labs., Inc., 571 F. Supp. 2d 1199 (D. Colo. 2008). The district court granted LabCorp’s

motion for summary judgment on its complaint for declaratory judgment that it did not
breach a license agreement for failure to pay know-how royalties on homocysteine

assays performed after judgment had been entered in a prior patent infringement and

breach of contract action brought, in part, by Metabolite. Because the present cause of

action does not arise under federal patent law nor does Metabolite’s right to relief

necessarily depend on resolution of a substantial question of federal patent law, this

court does not have jurisdiction over this appeal. The action is a state law contract

dispute over know-how royalties brought pursuant to the district court’s diversity

jurisdiction. Therefore, we transfer the appeal to the United States Court of Appeals for

the Tenth Circuit.

                                    BACKGROUND

       Competitive Technologies, Inc. (“CTI”) owns U.S. Patent No. 4,940,658 (the “’658

patent”). The ’658 patent claims a method for detecting deficiencies of vitamin B12 and

folate by assaying total homocysteine levels and correlating an elevated level of total

homocysteine with a deficiency in either cobalamin or folate.      Metabolite is a non-

exclusive licensee of the ’658 patent with the right to sublicense. It also developed

know-how technology, including software, to automate the testing process. In 1991,

Metabolite granted LabCorp a license to the know-how and a sublicense to the ’658

patent (“License Agreement”). The License Agreement covered four assays, including

a total homocysteine assay referred to as the “homocysteine-only assay.” In 1998,

LabCorp began using an alternative homocysteine-only assay in serum samples using

an immunoassay kit developed by Abbott Laboratories (the “Abbott Test”) and stopped

paying both patent and know-how royalties on just the serum-based homocysteine-only

2008-1597                                  2
assays. 1 Metabolite and CTI brought an action against LabCorp for breach of contract

and patent infringement.    Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 2001

WL 34778749 (D. Colo., Dec. 3, 2001) (“Metabolite I”) (jury trial) aff’d, 370 F.3d 1354

(Fed. Cir. 2004) (“Metabolite II”), cert. granted, 546 U.S. 999 (2005), cert. dismissed as

improvidently granted, 548 U.S. 124 (2006).

                                                A.

       In the first case, Metabolite claimed breach of contract with respect to the

homocysteine-only assay for failing to pay know-how royalties and sought contract

damages, and CTI claimed patent infringement and sought infringement damages. The

case was tried before a jury (Metabolite I). LabCorp contended that because the Abbott

Test did not infringe the ’658 patent it was not a Licensed Assay as defined by the

License Agreement.     The termination provision of the License Agreement states in

relevant part:

       4.02 [LabCorp] shall have the right . . . to terminate this Agreement with
       respect to a particular Licensed Assay if (i) in the case of Licensed Assays
       of homocysteine, a more cost effective commercial alternative is available
       that does not infringe a valid and enforceable claim of the Licensed
       Patents; . . . . 2
J.A. 8999. Thus, LabCorp argued, it did not violate its contractual obligations for the

homocysteine-only assay as to either the know-how license or the patent sublicense.

       1
               LabCorp tests for total homocysteine in both urine and plasma. LabCorp
continued to pay royalties for its urine-based assays utilizing Metabolite’s gas
chromatography/mass spectrometry know-how.            LabCorp also continued to pay
royalties on the three other licensed assays that tested for deficiencies in vitamin B12
and/or folate also using the royalty-bearing GCMS method. Only the serum-based
homocysteine-only assay was the subject of the lawsuits below.
        2
               Pursuant to § 4.02 of the License Agreement, LabCorp could sever and
terminate the License Agreement as to individual Licensed Assays. Subsections (ii)-
(iv), not quoted above, provide how LabCorp could selectively terminate the remaining
three Licensed Assays.

2008-1597                                   3
      A Special Verdict Form was submitted to the jury. It was asked the threshold

question of whether the License Agreement had been terminated with respect to the

homocysteine-only assay.

      Do you find, by a preponderance of the evidence, that LabCorp breached
      its license agreement by terminating it with respect to its performance of
      the Abbott [T]est?

J.A. 21072-73. The jury found in the affirmative. It awarded infringement damages to

CTI of $1.02 million and breach of contract damages to Metabolite of $3.65 million.

      Upon Metabolite’s and CTI’s post-verdict motions in Metabolite I, the district court

granted a permanent injunction to enjoin LabCorp from performing any homocysteine-

only assay, including any homocysteine-only assay performed using the Abbott Test.

LabCorp moved for a stay pending appeal, and the court entered the stay subject to

LabCorp paying a 6% royalty to CTI for all homocysteine-only assays performed after

entry of judgment.    LabCorp was further required to provide Metabolite with an

accounting of the 21.5% of the sales attributable to the homocysteine-only assays that

LabCorp performed after entry of judgment.

      This court affirmed the jury’s finding that LabCorp breached the License

Agreement holding that LabCorp’s refusal to pay royalties was a material breach that

constitutes termination even if the contract requires written notice. See Metabolite II,

370 F.3d at 1370.     Once the stay of the injunction was lifted, LabCorp stopped

performing the homocysteine-only assays itself but outsourced the assay by entering

into an agreement with Specialty Laboratories, Inc. (“Specialty”) that was independently

licensed by CTI to perform the homocysteine-only assays referred by LabCorp.            In

response, Metabolite filed a post-judgment motion in Metabolite I asserting that

2008-1597                                  4
LabCorp’s referral of the assays to a third party violated the injunction. LabCorp also

filed a post-judgment motion in Metabolite I seeking clarification of the injunction.

       Simultaneously, LabCorp filed a new action in the same district court seeking a

declaratory judgment that it had not violated the License Agreement. Lab. Corp. of Am.

Holdings v. Metabolite Labs., Inc., 571 F. Supp. 2d 1199 (D. Colo. 2008) (“Metabolite

III”) (instant matter below). On September 21, 2006, the district court ruled on the post-

judgment motions, filed in Metabolite I, and stated in relevant part:

       [T]here has never been a legal determination that LabCorp actually
       committed any breach after the date of the Amended Judgment, or of the
       amount of any resulting damages. Because there are no claims remaining
       in this case, the issue of whether actions taken by LabCorp subsequent to
       the Amended Judgment constitute breach of contract, and the amount of
       damages for any such breach, cannot be resolved herein as a matter of
       procedure. As a result, the Court is not able to state in this case, at this
       juncture, that the amount stated on the letter of credit is now “due and
       owing to Metabolite Laboratories.” However, LabCorp has filed a separate
       action [Metabolite III], seeking “a declaratory judgment that LabCorp has
       not violated the Agreement with various conduct occurring since the time
       period covered by the Amended Judgment and occurring into the future.”
       Whether LabCorp committed a contract breach after the date of the
       Amended Judgment is appropriately resolved in [Metabolite III].

J.A. 21124-25 (emphasis added). The ’658 patent expired on July 9, 2007.

                                             B.

       As noted above, in Metabolite III, LabCorp brought a declaratory judgment

action, premised upon diversity jurisdiction, under 28 U.S.C. § 1332, seeking a

judgment on “whether Metabolite can recover damages for activity occurring after the

time period covered by the Amended Judgment with respect to a part of an Agreement

that has been terminated,” and “whether LabCorp’s outsourcing activity violates any

existing contract between LabCorp and Metabolite.” In response to the declaratory

2008-1597                                    5
judgment action, Metabolite counterclaimed for breach of contract, among other state-

law claims, including breach of obligation of good faith and fair dealing, unjust

enrichment, promissory estoppel, fraud, and equitable estoppel. The breach of contract

claim was premised on LabCorp’s continued referral of homocysteine-only assays to a

third party without paying know-how royalties after entry of the jury’s verdict.      The

parties filed cross motions for summary judgment. LabCorp moved for judgment on its

contract claim and on each of Metabolite’s counterclaims, and Metabolite moved for

judgment on LabCorp’s declaratory judgment claim and its breach of contract

counterclaim. The Metabolite III district court held that no further royalties were due

under the License Agreement. The court further stated that “[a] plain reading of the

verdict form, coupled with the language of the License Agreement, leads to the

conclusion that the License Agreement was both breached and terminated,” and

resulted in the loss of all rights (both patent and know-how) under the contract, albeit

limited to the homocysteine-only assay. Metabolite appeals.

      On appeal, LabCorp filed a motion to dismiss or, in the alternative, transfer the

appeal to the Tenth Circuit, for lack of jurisdiction. On February 2, 2009, a motion panel

of this court denied the motion without prejudice to allow the parties to raise the

jurisdictional issues in their merits briefs. The issue of this court’s jurisdiction over

Metabolite’s appeal is now squarely before us.

                                     DISCUSSION

      Before reaching the merits of this case, we must, however, first address whether

we have appellate jurisdiction under 28 U.S.C. § 1295(a) (1).

2008-1597                                   6
       Under 28 U.S.C. § 1295(a)(1), this circuit has exclusive jurisdiction over an

appeal from a final decision of a district court “if the jurisdiction of that court was based,

in whole or in part, on § 1338.” See Bd. of Regents, Univ. of Tex. v. Nippon Tel. & Tel.

Corp., 414 F.3d 1358, 1361 (Fed. Cir. 2005). Section 1338(a) confers the district courts

with original jurisdiction over “any civil action arising under any Act of Congress relating

to patents.” The Supreme Court in Christianson v. Colt Industries Operating Corp., 486

U.S. 800 (1988) outlined a two-part test for § 1338 jurisdiction. Under Christianson,

“arising under” jurisdiction “extend[s] only to those cases in which a well-pleaded

complaint establishes either that federal patent law creates the cause of action or that

the plaintiff’s right to relief necessarily depends on resolution of a substantial question of

federal patent law, in that patent law is a necessary element of one of the well-pleaded

claims.” Christianson, 486 U.S. at 808-09. The Supreme Court in Christianson and

also in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826, 830

(2002), grafted § 1331 precedent onto its § 1338 analysis and equated the statutory

“arising under” standard under § 1338 for patent cases with that established for claims

invoking general federal question under § 1331. Christianson, 486 U.S. at 808-09;

Vornado, 535 U.S. at 830. Accordingly, the Supreme Court’s decision in Grable & Sons

Metal Products, Inc., v. Darue Engineering & Manufacturing., 545 U.S. 308, 314 (2005),

addressing general federal question jurisdiction refined the Christianson two-part test for

§ 1338 jurisdiction by requiring a determination of whether “a state-law claim

necessarily raise[s] a stated federal issue, actually disputed and substantial, which a

federal forum may entertain without disturbing any congressionally approved balance of

2008-1597                                     7
federal and state judicial responsibilities.” Grable, 545 U.S. at 314; see also Empire

Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 689-90 (2006).

      Under the well-pleaded complaint rule, “arising under” jurisdiction is determined

from the plaintiff’s statement of his or her own claim “unaided by anything alleged in

anticipation or avoidance of defenses which it is thought the defendant may interpose.”

Christianson, 486 U.S. at 809 (internal quotation marks and citation omitted). In an

action for declaratory judgment, we look “not to the declaratory judgment complaint, but

to the action that the declaratory defendant would have brought.”       Speedco Inc. v.

Estes, 853 F.2d 909, 912 (Fed. Cir. 1988); Cedars-Sinai Med. Ctr. v. Watkins, 11 F.3d

1573, 1578 (Fed. Cir. 1993).

      Metabolite, as the appellant, bears the burden of demonstrating that its

hypothetical claim depends on resolution of a substantial question of federal patent law.

Christianson, 486 U.S. at 808-09. The question is, does Metabolite’s hypothetical claim

necessarily raise a stated patent law issue that is actually disputed and substantial.

See Grable, 545 U.S. at 314. Metabolite does not meet this burden.

                                           A.

      Metabolite’s hypothetical claim would have been a breach of contract claim

premised on LabCorp’s continued referral of homocysteine-only assays to a third party

without paying know-how royalties on its post-judgment “Net Sales of Licensed Assays.”

Under the License Agreement, the payment of royalties to Metabolite was for

performance by LabCorp or referral of a Licensed Assay by LabCorp to Metabolite.

      Section 2.02 In consideration of the grants made in Article 1, [LabCorp]
      agrees to pay to [Metabolite] a royalty of 21.5% in respect to [LabCorp’s]
      Net Sales of Licensed Assays other than Referral Assays.

2008-1597                                  8
J.A. 20784 (emphasis added). The Licensed Assays cover four types of assays:

       (i) assays of homocysteine using methods and materials falling within the
       claims of the Licensed Patents; . . . (ii) [methylmalonic acid]. . . (iii) [2-
       methylcritic acid] . . . (iv) [cystathionine]. . . .

J.A. 20782-83 (emphasis added). “Licensed Patents” is defined as the ’658 patent and

any patents issuing from any continuations, continuations-in-part, divisions, and/or

reissues therefrom.

       We have held “that issues of inventorship, infringement, validity and

enforceability present sufficiently substantial questions of federal patent law to support

jurisdiction under section 1338(a).”      Bd. of Regents, 414 F.3d at 1363.             In its

hypothetical claim, Metabolite would be required to prove the elements of a breach of

contract cause of action under New Jersey law—existence of a valid contract, breach,

and damages. See, e.g., Grow Co., Inc., v. Chokshi, 959 A.2d 252, 269 (N.J. Super. Ct.

App. Div. 2008). Metabolite contends that its entitlement to royalties requires it to prove

infringement as a necessary component of the breach element, i.e., “whether the

homocysteine[-only] assays performed by LabCorp fell within the claims of the Licensed

Patents and therefore were Licensed Assays.”            Petr.’s Rep. Br. 19.      Because

infringement of the ’658 patent was determined in Metabolite I, here Metabolite’s

hypothetical action does not require resolution of a disputed question of patent law

central to the disposition of the breach of contract claim. See Grable, 545 U.S. at 314-

15 (conferring federal jurisdiction where plaintiff’s state-law complaint, which sought to

quiet title to property that the IRS seized and sold at auction, depended solely on a

dispute about the adequacy of the IRS’s compliance with seizure notification procedures

set forth in the federal tax law). To be clear, we are not setting forth a new rule of law

2008-1597                                    9
that a concession after the filing of a complaint operates to defeat jurisdiction. Such a

rule would be contrary to established precedent. See Keene Corp. v. United States,

508 U.S. 200, 207 (1993)(citing Mollan v. Torrance, 22 U.S. 537, 539 (1824)(“It is quite

clear, that the jurisdiction of the Court depends upon the state of things at the time of

the action brought, and that after vesting, it cannot be ousted by subsequent events.”)).

       Grable and Empire Healthchoice guide our analysis. First, for jurisdiction to exist

in our court, the substantial question of patent law must be disputed and require

resolution on the merits.    Christianson, 486 U.S. at 808-09; Empire Healthchoice,

547 U.S. at 700-01. Here, the jury verdict and subsequent judgment in Metabolite I

determined that the homocysteine-only assay is a Licensed Assay because it infringes

the ’658 patent, and LabCorp materially breached the License Agreement by performing

assays without paying know-how royalties. See Special Verdict Form at J.A. 21072-74.

We affirmed. See Metabolite II, 370 F.3d at 1370. The issue of infringement, therefore,

has been resolved and is no longer disputed. Accordingly, Metabolite’s hypothetical

breach of contract claim presents this court with no disputed issue of patent law. See

Speedco, 853 F.2d at 912-13 (citing Franchise Tax Bd. v. Constr. Laborers Vacation

Trust for S. Cal., 463 U.S. 1, 13 (1983), for the proposition that “original federal

jurisdiction is unavailable unless it appears that some substantial, disputed question of

federal law is a necessary element of one of the well-pleaded state claims”).

       This is not a case in which the contract claim requires resolution of a related

question of patent law. Cf. Air Measurement Tech., Inc. v. Akin Gump Strauss Hauer &

Feld, LLP, 504 F.3d 1262, 1272 (Fed. Cir. 2007) (finding a disputed, substantial issue of

patent law exists when a party is required to prove its patent infringement suit to satisfy

2008-1597                                   10
the “but for” causation requirement of a state legal malpractice claim); Immunocept, LLC

v. Fulbright & Jaworski, LLP, 504 F.3d 1281, 1285 (Fed. Cir. 2007) (same);

U.S. Valves, Inc. v. Dray, 212 F.3d 1368, 1372 (Fed. Cir. 2000) (holding that the

exercise of § 1338 jurisdiction by a district court is proper when a plaintiff, in order to

succeed on a breach of contract action, is required to prove that certain of defendant’s

products infringe). Such cases are distinguishable because the instant matter does not

present a “case within a case.” Here, it is undisputed that the post-trial conduct falls

within the scope of the ’658 patent. While the finding of breach is based on a finding of

infringement, the district court would not have to conduct an infringement analysis

because Metabolite I established infringement and neither party contests that decision.

Moreover, in Board of Regents, we clarified the scope of Valves and made clear that not

“all breach of contract actions involving patents require” a determination of patent

infringement. Bd. of Regents, 414 F.3d at 1364.

      Second, the mere presence of a patent as relevant evidence to a claim does not

by itself present a substantial issue of patent law. See Excelstor Tech., Inc. v. Papst

Licensing GMBH & Co. KG, 541 F.3d 1373, 1376-77 (Fed. Cir. 2008) (affirming

dismissal for lack of § 1338 jurisdiction when declaratory judgment claim raised patent

exhaustion to challenge royalties due under a license agreement). Like the declaratory

defendant in Speedco, Metabolite’s claim would concern only state law contract claims.

Speedco, 853 F.2d at 912-13 (dismissing the declaratory judgment complaint for lack of

§ 1338 jurisdiction because defendant’s hypothetical claim would be to recover

damages under a contract to transfer patent ownership and plaintiff’s patent claims only

related to possible state law defenses).      This case is even more attenuated than

2008-1597                                   11
Speedco because here the subject of the contractual dispute is not a patent, but rather

know-how rights that refer to a patent. Id. at 912.

       Unlike Grable where the “meaning of the federal tax provision . . . [was] an

important issue of federal law that sensibly belongs in federal court,” breach of contract

is a fact specific application of state law.      Empire Healthchoice, 547 U.S. at 700.

Though significant to Metabolite’s claim, a breach of contract analysis would not require

“resort to the experience, solicitude, and hope of uniformity that a federal forum offers.”

Grable, 545 U.S. at 312. Hearing a context-driven, state law contract issue in this court

provides no “hope of uniformity” in the patent laws. And adjudication of patent law

issues in the decisions of a regional circuit court would not defeat Congress’s goal of

uniformity in the patent laws.     See Speedco, 853 F.2d at 913-14 (“[T]he statutory

limitations on the jurisdiction of this court and the federal district courts, in conjunction

with the well-pleaded complaint rule, can and do result in state courts resolving patent

issues.”); Green v. Hendrickson Publishers, Inc., 770 N.E. 2d 784, 793 (Ind. 2002)

(relying on Vornado to conclude in dicta that state courts can hear patent law claims

included in the answer and/or counterclaims because post-Vornado a patent law

counterclaim does not “arise under” within the meaning of § 1338). Because the issue

of patent law is not disputed and substantial, we do not have jurisdiction over this

appeal. See Grable, 545 U.S. at 314-15.

       The dissent’s argument is based on a fundamental misunderstanding that

because LabCorp began to outsource the homocysteine-only assays after this court

issued its decision finding infringement, this court could not have resolved the issue of

whether LabCorp’s outsourced assays infringe the ’658 patent. Dissent, Op. at 4-5. But

2008-1597                                    12
at the time of filing of the complaint, neither party contended that the outsourced

homocysteine-only assays were different from the infringing in-house Abbott Test. See

Minneapolis & St. Louis R.R. Co. v. Peoria & Pekin Union Ry. Co., 270 U.S. 580, 586

(1926) (Jurisdiction depends upon “the state of things existing at the time the suit was

brought.”). The dissent cites to LabCorp’s statement in the second case’s Final Pretrial

Order, where LabCorp stated that “the homocysteine-only assays at issue in this case

are not ‘Licensed Assays,’” as a concession that Metabolite would have to establish that

the outsourced homocysteine assays were in fact covered by the ’658 patent in order to

prevail on its claim. However, the pretrial order is not relevant because jurisdiction over

a declaratory judgment action must be derived from Metabolite’s hypothetical claims.

The one-count complaint requested resolution of a contract dispute—a declaration

regarding whether the judgment in Metabolite I terminated the know-how license, and if

the agreement was still valid whether it was contractually obligated to pay a royalty on

homocysteine-only assays performed by a third party. Thus, Metabolite’s hypothetical

claims could not involve resolution of a substantial question of patent law because it

was undisputed that the outsourced conduct is the same as the in-house performance

of the Abbott Test. 3 Therefore, the issue is not whether the outsourced assays fall

within the claims of the ’658 patent but whether LabCorp breached the terms of the

License Agreement by its outsourcing activity.

       Also, we do not agree that the res judicata effect of a prior judgment under a

       3
              At oral argument, counsel for Metabolite acknowledged that the
outsourced assays are the same as the infringing, in-house assays. Oral Arg. at 10:12-
11:00 (“We took the position, and still take the position, that the fact that these assays
are covered by the patent can’t be disputed because the judgment of the first case is
that these assays are covered by the patent.”).

2008-1597                                   13
“look through” approach provides the missing jurisdictional predicate under § 1338.

Dissent, Op. at 3. Relying on Semtek Int’l, Inc. v. Lockheed Martin Corp., 531 U.S. 497

(2001), and Vaden v. Discover Bank, 129 S. Ct. 1262 (2008), the dissent claims that “if

a claimant is bringing a suit to enforce or determine the res judicata effect of a prior

judgment ‘arising under’ federal patent laws, that is a suit that itself arises under the

federal patent laws.” Dissent, Op. at 4. However, in Semtek, the Supreme Court simply

recognized that “federal common law governs the claim-preclusive effect of a dismissal

by a federal court sitting in diversity” and then announced as a matter of federal

common law that such an effect is governed by “the law that would be applied by state

courts in the State in which the federal diversity court sits.” 531 U.S. at 507-08. Semtek

is inapposite here because the Metabolite I court’s jurisdiction was not based on

diversity. Furthermore, in Vaden, the Supreme Court interpreted § 4 of the Federal

Arbitration Act, which authorizes a district court “to entertain a petition to compel

arbitration if the court would have jurisdiction, ’save for [the arbitration] agreement,’ over

’a suit arising out of the controversy between the parties.’”       129 S. Ct. at 1267-68

(alteration in original); see 9 U.S.C. § 4. According to the Vaden Court, “a complaint

purporting to rest on state law, we have recognized, can be recharacterized as one

‘arising under’ federal law if the law governing the complaint is exclusively federal.” 129

S. Ct. at 1273. The Court then approved this so-called “look through” approach in the

context of § 4, explaining that “[a] federal court may ‘look through’ a § 4 petition to

determine whether it is predicated on an action that ‘arises under’ federal law.” Id. The

present case, by contrast, does not invoke § 4 of the Federal Arbitration Act and cannot

be recharacterized as one arising under federal patent law. Thus the “look through”

2008-1597                                    14
approach does not support the dissent’s position.

       All federal courts are courts of limited jurisdiction, and we do not take jurisdiction

over cases simply because they relate to the res judicata effect of our prior judgment.

We have considered the remainder of Metabolite’s arguments and find them

unpersuasive.

                                      CONCLUSION

       Metabolite has thus failed to show that we have jurisdiction under 28 U.S.C.

§ 1338 to resolve this case on the merits. Accordingly, pursuant to 28 U.S.C. § 1631,

we consider it in the interest of justice to transfer the present appeal to the Tenth Circuit.

                          TRANSFERRED TO TENTH CIRCUIT

                                          COSTS

       Costs to Appellee.

2008-1597                                    15
 United States Court of Appeals for the Federal Circuit

                                       2008-1597

              LABORATORY CORPORATION OF AMERICA HOLDINGS
                        (doing business as LabCorp),

                                                        Plaintiff-Appellee,
                                            v.

                         METABOLITE LABORATORIES, INC.,

                                                        Defendant-Appellant.

Appeal from the United States District Court for the District of Colorado in case no.
04-CV-1662, Senior Judge Zita L. Weinshienk.

DYK, Circuit Judge, dissenting.

       At its heart, this case involves the question whether the res judicata effect of our

earlier decision in Metabolite Laboratories, Inc. v. Laboratory Corp. of America

Holdings, 370 F.3d 1354 (Fed. Cir. 2004) (“Metabolite II”), requires that the contract

provision here be treated as terminated. The majority finds that we lack jurisdiction over

that question and transfers to the 10th Circuit, so that the 10th Circuit must determine

the res judicata effect of our prior judgment. In my view, jurisdiction over this case lies

in this court for at least two reasons. First, we have jurisdiction because a suit to

enforce or determine the res judicata effect of a prior judgment “arising under” the

federal patent laws is itself a suit that arises under the federal patent laws. Second, the

determination of contract entitlement rests on a substantial question of patent law.
                                              I

        The present case arises from a declaratory judgment action filed in 2005,

Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., 571 F. Supp. 2d

1199 (D. Colo. 2008) (“Metabolite III”), subsequent to our decision in Metabolite II,

affirming Metabolite Laboratories, Inc. v. Laboratory Corp. of America Holdings, No. 99-

CV-870, 2001 WL 34778749 (D. Colo. Dec. 3, 2001) (“Metabolite I”).                Laboratory

Corporation of America Holdings (“LabCorp”) sought a declaration that Metabolite

Laboratories, Inc. (“Metabolite”) was not entitled to recover breach of contract damages

for activity occurring after the time period covered by the Amended Judgment in

Metabolite I, because the jury in Metabolite I had found that the License Agreement had

been terminated as to the homocysteine-only assay. Metabolite III, 571 F. Supp. 2d at

1204.       Metabolite opposed declaratory relief, contending that the jury had not

terminated the License Agreement as to homocysteine assays, and that LabCorp

breached the still-valid license through its post-judgment performance of the

homocysteine-only test and refusal to pay know-how royalties. Id. Thus, the scope of

the prior judgment in Metabolite II is part of Metabolite’s hypothetical claim in this case, 1

        1
              In a declaratory judgment action, the court must look to the hypothetical
action that the declaratory defendant would have brought, rather than the complaint, in
order to determine whether jurisdiction attaches. See Speedco, Inc. v. Estes, 853 F.2d
909, 912 (Fed. Cir. 1988).

2008-1597                                     2
because the existence of a valid contractual obligation is a necessary predicate to

recovery of damages for breach of such contractual obligation. 2

       In order to adjudicate Metabolite’s claim on the merits in this case, we would be

required to determine the scope of our prior judgment in Metabolite II, and assess

whether it would be entitled to res judicata effect. The issue of the res judicata effect of

the prior judgment suffices for the exercise of “arising under” jurisdiction.      The res

judicata effect of a prior federal court judgment is itself determined by federal law. See,

e.g., Stoll v. Gottlieb, 305 U.S. 165, 171-72 (1938); Deposit Bank v. Frankfort, 191 U.S.

499, 514-15 (1903); see also Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497,

507-08 (2001). A suit to determine the res judicata effect of a judgment thus arises

under federal law. 3 The question is whether it also “arises under” federal patent law.

See 28 U.S.C. § 1338(a).

       That question depends on whether we should “look through” the prior judgment

to determine whether it is predicated on an action that “arises under” the federal patent

laws. The Supreme Court’s decision in Semtek International (which looked through the

original judgment to determine that it rested on diversity) supports looking through the

prior judgment to determine the original source of jurisdiction in order to characterize the

judgment for res judicata purposes. 531 U.S. at 508-09. Similarly, under Vaden v.

Discover Bank, 129 S. Ct. 1262 (2009), the Supreme Court approved the “look through”
       2
             See, e.g., Persson v. Scotia Prince Cruises, Ltd., 330 F.3d 28, 34 (1st Cir.
2003) (“A breach of contract complaint must allege (1) the existence of a valid and
binding contract; (2) that plaintiff has complied with the contract and performed his own
obligations under it; and (3) breach of the contract causing damages.”); see also 5
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1235, at 388-
91 (3d ed. 2004).
       3
              In contrast, a suit to collect on a federal law judgment does not present a
federal question. See Metcalf v. Watertown, 128 U.S. 586, 588 (1888).

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approach to “arising under” jurisdiction in the context of the Federal Arbitration Act. Id.

at 1273 (“A federal court may ‘look through’ a § 4 petition to determine whether it is

predicated on an action that ‘arises under’ federal law . . . .”). Under the look through

approach, since the original judgment here depended in part on patent jurisdiction, we

have jurisdiction over the appeal. In other words, if a claimant is bringing a suit to

enforce or determine the res judicata effect of a prior judgment “arising under” federal

patent laws, that is a suit that itself arises under the federal patent laws.

                                              II

       Even putting to one side the res judicata issue, the majority has adopted an

erroneous construction of “arising under” jurisdiction under 28 U.S.C. § 1338(a) as to

the underlying contract claim. When filed, this case presented a substantial disputed

issue of patent law that had not been determined in our earlier decision in Metabolite II.

It is undisputed that the contract between LabCorp and Metabolite does make an issue

of patent law a determinative issue in this case.         The royalties under the License

Agreement are tied to net sales of “Licensed Assays,” and licensed assays for

homocysteine are defined as “assays . . . using methods and materials falling within the

claims of the Licensed Patents.” J.A. 20782. Thus, royalties are only due under the

agreement if the assays LabCorp sold fall within the scope of the licensed patents, i.e.,

only if the unauthorized sales would be infringing.

       Under very similar facts in U.S. Valves, Inc. v. Dray, 212 F.3d 1368 (Fed. Cir.

2000), we concluded that the case raised a substantial question of federal patent law,

and that jurisdiction existed. See id. at 1372. In Valves, the plaintiff (an exclusive

patent licensee) brought an action against the licensor, alleging breach of contract

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based on the licensor’s sale of allegedly equivalent valves in contravention of the

exclusive license agreement. We held that in order to show that the licensor sold valves

in contravention of the agreement, the licensee was required to show that the licensor

sold valves that were covered by the licensed patents. Consequently, “a court must

interpret the patents and then determine whether the . . . valve[s] infringe[] these

patents. Thus patent law is a necessary element of U.S. Valves’ breach of contract

action.” Id.

       In this case, as in Valves, the question of whether LabCorp breached the

agreement to pay “know-how” royalties necessarily turns on the question of

infringement of the ’658 patent, and this implicates a substantial question of patent law.

The majority does not appear to dispute this point.      Instead, the majority points to

Supreme Court cases stating that the federal issue must be “actually disputed” and

concludes that there is no substantial disputed issue of patent law here because

infringement of the ’658 patent was determined in our earlier decision and is now not

contested.      Majority Op. at 10.   The majority’s reasoning is flawed in two critical

respects: (1) our decision in Metabolite II did not in fact determine whether the

outsourced assays were covered by the patent claims, and (2) the fact that the federal

issue becomes undisputed after the case was filed does not deprive a court of

jurisdiction.

       The original Metabolite case involved the question of whether LabCorp induced

infringement of claim 13 of the ’658 patent. See Metabolite II, 370 F.3d at 1358-59.

Claim 13 of the ’658 patent claims the total homocysteine test: “[a] method for detecting

a deficiency of cobalamin or folate in warm-blooded animals comprising the steps of:

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assaying a body fluid for an elevated level of homocysteine; and correlating an elevated

level of total homocysteine in said body fluid with a deficiency of cobalamin or folate.”

’658 patent col.41 ll.58-65. Metabolite’s theory at the first trial was apparently that the

Abbott assays were licensed assays because LabCorp had induced infringement of

claim 13 of the patent with respect to the Abbott assays.         See Appellee’s Br. 50,

Metabolite II, 370 F.3d 1354 (No. 03-1120).

       Once we issued our mandate in Metabolite II on August 12, 2004, and the

injunction stay was lifted, LabCorp stopped performing homocysteine-only tests itself

and instead entered into an agreement with Specialty Laboratories, Inc. (“Speciality”),

which is licensed by Competitive Technologies, Inc. under the ’658 patent, for Specialty

to perform homocysteine-only tests for LabCorp. Metabolite Labs., Inc. v. Lab. Corp. of

Am. Holdings, No. 99-cv-870-ZLW-CBS, slip op. at 8-9 (D. Colo. Sept. 21, 2006). This

court in Metabolite II did not address the question of whether the outsourced assays

were licensed assays. At the time the complaint was filed in this case, there was a

substantial, disputed issue of patent law, because the issue of whether the outsourced

homocysteine assays were in fact covered by the ’658 patent claims was contested by

LabCorp.

       The theory in Metabolite I was not (as the majority assumes) that the Abbott

assays standing alone were “licensed assays” protected by the ’658 patent, but that the

Abbott assays were “licensed assays” because LabCorp had induced infringement of

claim 13 of the patent using those assays; claim 13 of the patent did not in fact specify

use of a patented assay. See ’658 patent col.41 ll.58-65. The inducement issue with

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respect to the outsourced assays could well have been different than the original

inducement question resolved in Metabolite I.

       In its initial complaint in this case in the district court, LabCorp sought a

declaratory judgment that it was not liable for any royalties with respect to the newly

outsourced homocysteine-only assays.         First Amended Complaint for Declaratory

Judgment at 5, Metabolite III, 571 F. Supp. 2d 1199 (No. 04-cv-1662). As referenced in

the Final Pretrial Order signed by both parties, LabCorp asserted that the homocysteine

assays were not “Licensed Assays” because they did not fall within the claims of the

’658 patent. Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., No. 04-cv-1662, slip

op. at 3 (D. Colo. Feb. 7, 2008) (final pretrial order). At oral argument, counsel for

LabCorp conceded that “it is possible that the court could have had to decide [the

question of whether the outsourced homocysteine assays fell within the claims of the

’658 patent] in this case.” Oral Arg. at 22:58-23:01. In order for Metabolite to prevail on

its hypothetical claim for royalties, it would have had to establish that the outsourced

homocysteine assays were in fact covered by the ’658 patent.

       The fundamental error of the majority is that, while it claims otherwise, it fails to

look at the controversy prevailing at the time that the complaint was filed.         Under

established Supreme Court authority, later concessions (such as those ultimately made

in this case that the outsourced assays were licensed assays) do not operate to defeat

jurisdiction that rightfully attached at the outset of the case. See, e.g., Dole Food Co. v.

Patrickson, 538 U.S. 468, 478 (2003); St. Paul Mercury Indemnity Co. v. Red Cab Co.,

303 U.S. 283, 289-90 (1938) (“Events occurring subsequent to the institution of

suit . . . do not oust jurisdiction.”); Minneapolis & St. Louis R.R. Co. v. Peoria & Pekin

2008-1597                                    7
Union Ry. Co., 270 U.S. 580, 586 (1926) (“The jurisdiction of the lower court depends

upon the state of things existing at the time the suit was brought.”); Anderson v. Watt,

138 U.S. 694, 702-03 (1891) (“And the [jurisdictional] inquiry is determined by the

condition of the parties at the commencement of the suit.”); Mollan v. Torrance, 22 U.S.

(9 Wheat.) 537, 539 (1824) (“[T]he jurisdiction of the Court depends upon the state of

things at the time of the action brought, and . . . after vesting, it cannot be ousted by

subsequent events.”).

       Thus, I think that the district court had jurisdiction over this case under 28 U.S.C.

§ 1338(a), and we accordingly can and must address the merits. I respectfully dissent

from the majority’s contrary holding.

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