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License Agreement Does Not Establish Federal Jurisdiction Under 28 U.S.C. § 1338(a)

March 02, 2006

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Last Month at the Federal Circuit - April 2006

Judges: Newman (author), Lourie, Rader

In Bonzel v. Pfizer, Inc., No. 05-1114 (Fed. Cir. Mar. 2, 2006), the Federal Circuit affirmed the district court’s dismissal of an action for breach of a patent license agreement for lack of jurisdiction and forum non conveniens.

Dr. Tassilo Bonzel is the inventor of patented catheters, which are widely used in coronary angioplasty. He is a German citizen, residing in Germany. In 1986, he granted an exclusive worldwide license to Schneider AG (“Schneider”), a Swiss corporation that was a subsidiary of Pfizer, Inc. (“Pfizer”). The license was negotiated in Germany, in the German language, and was to be construed according to German law. A 1995 modification to the agreement, negotiated under the same conditions, provided that the licensee would pay Dr. Bonzel a portion of any monetary recovery in any infringement action brought by the licensee.

In 1998, Pfizer sold Schneider to Boston Scientific Corporation (“Boston Scientific”). Boston Scientific acquired the exclusive license with this purchase, and its subsidiaries, both Minnesota corporations, are successors of Schneider. Dr. Bonzel contended that the sale was at least partially in settlement of an infringement suit brought by Schneider in Massachusetts, and as such, he is entitled to monetary compensation in accordance with the license agreement.

Therefore, Dr. Bonzel filed suit in Minnesota state court against Pfizer and Schneider, and joined Boston Scientific as an involuntary plaintiff, alleging breach of contract. The defendants removed the case to the federal district court, asserting diversity and federal jurisdiction. Dr. Bonzel asserted that the case involved a contract dispute, not patent infringement or patent rights, and on Dr. Bonzel’s motion, the district court remanded the case to state court, holding thatthere was no federal question and that diversity did not apply because foreign entities were opposing each other. Upon return of the case to state court, the Minnesota court dismissed the suit on the ground of forum non conveniens. The Minnesota Court of Appeals affirmed.

Dr. Bonzel then filed a new action in the U.S. District Court for the District of Minnesota, alleging that issues of patent infringement required determination. He asserted subject matter jurisdiction under 28 U.S.C. § 1338, a general federal question under 28 U.S.C. § 1331, diversity jurisdiction under 28 U.S.C. § 1332, and supplemental jurisdiction under 28 U.S.C. § 1367. The
district court dismissed the case, finding no basis for federal jurisdiction and, alternatively, that the case should be dismissed for forum non conveniens.

On appeal, the Federal Circuit affirmed the district court’s holding that there was no federal jurisdiction. The Court first addressed subject matter jurisdiction under 28 U.S.C. § 1338. Although the district court held that Dr. Bonzel was estopped from arguing that the case arose under patent law, the Federal Circuit declined to decide the jurisdictional issue on estoppel grounds. Dr. Bonzel had sufficiently changed his complaint to warrant a “fresh look” in the district court; however, the Court held that the suit was still a contract and tort case, not a patent case.

The Federal Circuit also affirmed the district court’s holding that diversity jurisdiction under 28 U.S.C. § 1332 does not apply in this case. Dr. Bonzel argued that Schneider was simply a shell and owned by Pfizer, a U.S. company. However, the Court agreed that Schneider was the original licensee, had negotiated the agreement, and was a necessary party, thereby defeating diversity jurisdiction.

In addition, the Federal Circuit rejected Dr. Bonzel’s argument that the Paris Convention and Treaty of Friendship, Commerce, and Navigation required the U.S. courts to provide access to foreigners. The Court noted that these treaties require the courts to provide equal protection under the law, but do not establish jurisdiction under 28 U.S.C. § 1331. Further, the Federal Circuit agreed with the district court’s dismissal for forum non conveniens. The Court held that the district court correctly found that the threshold issues in Dr. Bonzel’s claims require contract interpretation and application under German law. Because the case had been properly dismissed for forum non conveniens, Dr. Bonzel had not been denied equal protection under the law.

Therefore, the Court found no basis for jurisdiction and, alternatively, that the case should be dismissed for forum non conveniens.