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District Court Lacks Discretion to Remand Claims Arising Under Federal Patent Law to State Court

06-1522
March 31, 2010

Decision icon Decision

Last Month at the Federal Circuit - May 2010

Judges: Michel, Gajarsa (author), Holderman (Chief District Judge sitting by designation)

[Appealed from: C.D. Cal., Judge Pregerson]

In HIF Bio, Inc. v. Yung Shin Pharmaceuticals Industrial Co., No. 06-1522 (Fed. Cir. Mar. 31, 2010), the Federal Circuit held that the district court abused its discretion in remanding the amended complaint filed by HIF Bio, Inc. (“HIF”) to California state court because two of the asserted causes of action arose under 28 U.S.C. § 1338(a).  Although it found that the district court had jurisdiction over those causes of action, the Federal Circuit held that the district court could not provide a remedy for those causes of action under federal patent law, and that it therefore should have dismissed those causes of action for failure to state a claim upon which relief can be granted.

HIF is the assignee of a patent application claiming anticancer applications of the compound YC-1 and naming Professors Jong-Wan Park and Yang-Sook Chun as inventors.  While engaged in the research underlying that application, Park and Chun obtained YC-1 for their experiments from defendant Che-Ming Teng.  Park and Chun also discussed their findings with Teng and provided him with copies of their unpublished draft manuscripts relating to the anticancer properties of YC-1.  Unbeknownst to Park and Chun, Teng disclosed their findings to Yung Shin Pharmaceuticals (“Yung Shin”) and filed a provisional application directed to the same subject matter, naming himself and Fang-Yu Lee, the president of Yung Shin, as inventors.  Park and Chun filed their application the following year.

HIF brought suit against Teng, Lee, Yung Shin, Carlsbad Technology, Inc. (“CTI”), Yung Shin’s patent counsel, and an alleged Taiwanese co-conspirator in California state court.  After CTI removed the action to federal court, HIF filed an amended complaint asserting twelve causes of action, including claims for DJ of ownership of “the INVENTION,” DJ of inventorship of “the INVENTION,” and violations of the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).  CTI then moved to dismiss the suit under Fed. R. Civ. P. 12(b)(1) and 12(b)(6).  The district court dismissed HIF’s RICO claim and declined to exercise supplemental jurisdiction over the remaining claims, including those for DJ of ownership and inventorship, which it concluded were state law claims.  CTI then appealed the remand order to the Federal Circuit, which held that 28 U.S.C. § 1447(d) barred appellate review of a district court’s order declining supplemental jurisdiction, and therefore dismissed the appeal for lack of jurisdiction.  The Supreme Court, on appeal, held that § 1447(d) did not bar appellate review of the district court’s remand order, and reversed and remanded the case to the Federal Circuit.  

On remand, the Federal Circuit explained that it reviews a district court’s decision not to exercise supplemental jurisdiction over a state law claim for abuse of discretion.  The Court noted, however, that a district court lacks the discretion to remand a claim arising under federal law.  The Court further noted that a claim will be found to arise under federal patent law where federal patent law creates the cause of action or is a necessary element of the well-pleaded claim.  The Federal Circuit indicated that the question of whether a claim arises under federal patent law is a question of law reviewed without deference.

Next, the Court went on to apply those principles to the second cause of action, which sought DJ as to inventorship of “the INVENTION.”  The Court noted that “the INVENTION,” as used in the amended complaint, only referred to the various patent applications claiming anticancer properties of YC-1.  Therefore, the only theory upon which plaintiffs sought relief required a determination as to the true inventorship of those patent applications.  The Federal Circuit, reasoning that determination of inventorship is unique to patent law, concluded that the second cause of action arose under § 1338(a).  The district court therefore had jurisdiction over this cause of action and erred in finding it to be a state law claim and in remanding. 

The Federal Circuit found, however, that the requested relief was effectively the correction of inventorship of the pending patent applications or an interference proceeding.  The Court clarified that 35 U.S.C. § 116 does not provide a private right of action for correction of inventorship of a pending patent application.  Slip op. at 9.  Rather, under 35 U.S.C. §§ 116 and 135(a) of the patent laws, the requested relief was only available from the Director of the PTO.  Consequently, the Federal Circuit held that the requested relief could not be granted and that the district court should have dismissed the cause of action under Rule 12(b)(6). 

The Federal Circuit went on to address the remaining nine causes of action, which did not arise directly from federal patent law.  It explained that the district court would have jurisdiction over those causes of action where patent law was a necessary element of the well-pleaded claims.  However, where the complaint alleged alternative, nonpatent theories, there would not be a basis for jurisdiction under § 1338(a).  Id. at 10-11.  The Court determined that patent law was essential to the cause of action for slander of title, as the amended complaint set forth a single theory of entitlement to relief, requiring a determination as to inventorship.  Because this cause of action thus invoked federal jurisdiction, the district court abused its discretion in remanding.  However, the Federal Circuit held that the district court should have dismissed the cause of action, as it could not determine the true inventorship of the pending applications and therefore could not grant the requested relief. 

In contrast, the Federal Circuit found that the cause of action for a declaration of ownership did not arise under § 1338(a) because the amended complaint alleged an alternative theory, the existence of an implied contract between the parties, which could affect the parties’ relative ownership rights.  Similarly, the Court concluded that the cause of action for unjust enrichment-constructive trust did not arise under § 1338(a) because the misappropriated “property and assets” alleged in the amended complaint could also be construed as nonpatent property and assets, such as plaintiffs’ experimental results and manuscripts.  Finally, the Federal Circuit determined that the remaining claims for conversion, actual and constructive fraud, intentional interference with contractual relations and prospective economic advantage, negligent interference with contractual relations and prospective economic advantage, breach of implied contract, unfair competition, and fraudulent business practices claims did not invoke federal jurisdiction because patent law was not essential to those claims.

 

Summary authored by Mayssam H. Ali, Ph.D., student associate at Finnegan.