Court Opinion

ID: 9608881
Source: CourtListenerOpinion
Date Created: 2023-08-22 03:19:20.025398+00
Date Added: 2024-06-11T18:02:47.888688
License: Public Domain

DYK, Circuit Judge,
dissenting.
At its heart, this case involves the question whether the res judicata effect of our *1287earlier 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 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, 59 S.Ct. 134, 83 L.Ed. 104 (1938); Deposit Bank v. Frankfort, 191 U.S. 499, 514-15, 24 S.Ct. 154, 48 L.Ed. 276 (1903); see also Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. *1288497, 507-08, 121 S.Ct. 1021, 149 L.Ed.2d 32 (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, 121 S.Ct. 1021. Similarly, under Vaden v. Discover Bank, — U.S. -, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009), the Supreme Court approved the “look through” 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 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 *1289to 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 1283-84. 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: 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 11.58-65. Metabolite’s theory at the first trial was apparently that the Abbott assays were licensed assays because Lab-Corp 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 Lab-Corp.
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 11.58-65. The inducement issue with 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 homo-cysteine assays were not “Licensed As*1290says” 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, 123 S.Ct. 1655, 155 L.Ed.2d 643 (2003); St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289-90, 58 S.Ct. 586, 82 L.Ed. 845 (1938) (“Events occurring subsequent to the institution of suit ... do not oust jurisdiction.”); Minneapolis & St. Louis R.R. Co. v. Peoria & Pekin Union Ry. Co., 270 U.S. 580, 586, 46 S.Ct. 402, 70 L.Ed. 743 (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, 11 S.Ct. 449, 34 L.Ed. 1078 (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, 6 L.Ed. 154 (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.

. 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).

. 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 abo 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1235, at 388-91 (3d ed.2004).

. 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, 9 S.Ct. 173, 32 L.Ed. 543 (1888).