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Latest Federal Court Cases, 9/23/19

September 23, 2019

Overview

PATENT CASE OF THE WEEK

Inspired Development Grp, LLC v. Inspired Products Grp., LLC, Appeal No. 2018-1616 (Fed. Cir. Sept. 18, 2019)

Our first patent case of the week is not, according to the Federal Circuit, a patent case after all. Rather, applying the subject matter jurisdiction test in Gunn v. Minton, 568 U.S. 251, 256 (2013), the Federal Circuit held that the case was a garden variety state law dispute. And because there was no diversity between defendants, the Federal Circuit ordered the case dismissed three years after it was brought.

The dispute started as a business dispute involving a license for a patent. The plaintiff sued defendant (aka KidsEmbrace) for breach of contract and unjust enrichment concerning the agreements by which the patent was licensed. KidsEmbrace asserted counterclaims, including breach of contract, fraud, negligent misrepresentation, restitution, and breach of fiduciary duty. Both parties relied on diversity for jurisdiction. The case was ultimately resolved in KidsEmbrace’s favor, and Inspired Development appealed to the Eleventh Circuit.

“On appeal, the Eleventh Circuit spotted a potentially fatal problem with the case: diversity of citizenship might not exist.” Specifically, under Eleventh Circuit law, where LLCs are involved, diversity is met only if there is diversity between all members of both LLCs. The Eleventh Circuit required the parties to answer a question concerning diversity jurisdiction. After reviewing the issue, both parties agreed that there was no diversity. But “KidsEmbrace attempted to anchor jurisdiction on a different basis,” arguing for the first time on appeal that the case involved a federal question concerning patent law. The Eleventh Circuit remanded to the district court to resolve the jurisdictional question in the first instance, and the district court agreed that the case involved a federal question and thus there was federal subject matter jurisdiction. The case then returned to the Eleventh Circuit, which transferred the case to the Federal Circuit to decide whether there was federal subject matter jurisdiction.

The Federal Circuit held that the case did not “arise under” federal law. There was little dispute that the case did not involve causes of action that were created by federal law. Rather, the analysis was focused on where the claims fit into the “special and small category” of cases where state law claims are deemed to “arise under” federal law, applying the four part test in Gunn.

With respect to the first factor, the Court held that resolving infringement was not a “necessary element” of the pleaded unjust enrichment claim. The second factor requires assessing whether the federal issue is actually disputed. The court found that patent infringement was actually disputed, but was again not a “necessary element” of any of the claims. The third factor is whether the federal issue is “substantial.” Quoting Gunn, the Federal Circuit held that “[e]ven if the state law claim here ‘necessarily raised’ an issue of patent law that was ‘actually disputed,’ ‘the federal issue in this case is not substantial in the relevant sense.’” The Court clarified that the substantiality requirement does not measure how substantial the issue is to the case, but rather how substantial the issue is in “the development of a uniform body of patent law.” The Federal Circuit adopted the Eleventh Circuit’s three factor framework for establishing substantiality:

A “substantial federal issue is more likely to be present” if:

  1. “a pure issue of [federal] law is dispositive of the case,”
  2. “the court’s resolution of the issue will control numerous other cases,”
  3. “[t]he Government … has a direct interest in the availability of a federal forum to vindicate its own administrative action.”

The Court then engaged in a lengthy, nine-page analysis of these three factors, holding that the third Gunn factor was not satisfied.

Finally, the Court found that the fourth Gunn factor was also not satisfied—it would “upset the balance of federal and state judicial responsibilities” to find federal subject matter jurisdiction.

The Court also analyzed other subject matter jurisdiction arguments raised by KidsEmbrace in this 26-page opinion, but ultimately found all of them unavailing. Thus, having found no federal subject matter jurisdiction, the Court ordered the case dismissed.

The opinion can be found here.

ALSO THIS WEEK

Intra-Cellular Therapies, Inc. v. Iancu, Appeal No. 2018-1849 (Fed. Cir. Sept. 18, 2019)

In an appeal from a district court decision upholding the Patent Office's determination of Patent Term Adjustment (PTA), the Court reviewed whether an applicant submission, filed after a final Office action to continue to argue the merits of the examiner’s rejection, may accrue applicant delay under the PTA statute (applicant delay offsets Patent Office examination delay and may effectively decrease patent term adjustment). The Court held that the Patent Office did give permissible construction of the PTA statute when interpreting an after-final submission that continued to argue the merit of the examiner’s final rejection as a “fai[lure] to engage in reasonable efforts to conclude prosecution.” Accordingly, the Court concluded that the district court did not err in granting summary judgement in favor of the Patent Office.

The opinion can be found here.

Mayo Foundation for Med. Educ. & Research v. Iancu, Appeal No. 2018-2031 (Fed. Cir. Sept. 16, 2019)

In a second case this week concerning Patent Term Adjustment, the dispute concerned continued examination of a patent after an interference was brought and concluded. Mayo had argued that the declaration of interference was equivalent to a Notice of Allowance, thus triggering PTA for all time after the examination concluded. The PTO disagreed, and awarded no time for post-interference examination. The district court agreed with the PTO and the Federal Circuit agreed, relying on PTO procedures and interpretation of the statute.

The opinion can be found here.

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