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A Case “Arises Under” Section 1338(a) and Confers Jurisdiction on the Federal Circuit Only If Patent Law Is a Necessary Element of the Complaint

December 08, 2006

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Last Month at the Federal Circuit - January 2007

Judges: Mayer, Bryson, Linn (author)

[Appealed from: E.D. Mich., Judge Tarnow]

In Thompson v. Microsoft Corp., No. 06-1073 (Fed. Cir. Dec. 8, 2006), the Federal Circuit held that it lacked jurisdiction under 28 U.S.C. § 1338(a) to hear the appeal and transferred the case to the U.S. Court of Appeals for the Sixth Circuit.

Robert Thompson conceived and developed software to create programmable and extensible folders for data storage, which he referred to as “SmartFolders.” Thompson encountered a problem while developing the software and posted a question seeking assistance to a computer forum. A representative of Microsoft’s Developer Relations Group contacted him to help him resolve it, and another member of Microsoft’s Developer Relations Group later contacted him about comarketing opportunities. In response, Thompson developed a version of SmartFolders for Microsoft’s upcoming Windows NT operating system. According to Thompson, he shared the technology with Microsoft with the understanding that Microsoft would not appropriate the software for its own use, but they did not enter into any nondisclosure agreement.

Thompson alleges that Microsoft publicly discussed his SmartFolders technology at the OLE 2.0 Conference in May 1993 and claimed it as a Microsoft product. In May 1994, Microsoft filed a patent application for programmable folder technology, which later became U.S. Patent Nos. 5,682,532 and 5,771,384.

In August 2000, Thompson filed a one-count complaint for unjust enrichment against Microsoft in Michigan state court. Thompson alleged misappropriation, patenting, and use of Thompson’s IP. Alleging diversity jurisdiction under 28 U.S.C. § 1332 and federal question jurisdiction under 28 U.S.C. § 1338(a), Microsoft removed the action to federal district court. Thompson then filed an amended complaint, alleging only unjust enrichment under Michigan state law. In its answer, Microsoft urged that Thompson’s claim was preempted by federal law.

The district court denied Microsoft’s motion for SJ in January 2002 and stayed the case in September of that year, pending the outcome of an interlocutory appeal to the Federal Circuit in Ultra-Precision Manufacturing, Ltd. v. Ford Motor Co., 338 F.3d 1353 (Fed. Cir. 2003). Ultra-Precision related to whether an unjust-enrichment claim under Michigan law was preempted by federal patent law; however, the Federal Circuit dismissed the interlocutory appeal for lack of jurisdiction without consideration of the preemption issue. In October 2003, the district court lifted the stay in the present case, and Microsoft renewed its motion for SJ in June 2004. The case was stayed again, however, pending the Federal Circuit’s decision in the appeal from final judgment entered in Ultra-Precision. In June 2005, the Federal Circuit held that the unjust-enrichment claim as pleaded in Ultra-Precision was preempted by federal law and affirmed the district court’s decision on that issue. The Court stated that the appellant’s complaint did not plead that the appellee received any incremental benefit over and above the benefit the general public received from ideas placed in the public domain.

After the decision in Ultra-Precision, Thompson conceded in his supplemental brief in the district court that a substantial part of the original damages claim was preempted by federal law. The district court granted Thompson’s subsequent motion to treat the amended complaint as having included a request for “incremental benefit” damages. The district court then, however, held that the case was preempted by federal law, granted Microsoft’s motion for SJ, and dismissed Thompson’s claim for unjust enrichment. Thompson appealed to the Federal Circuit, alleging his claim involved a substantialquestion of patent law under 28 U.S.C. § 1338(a) and that the Federal Circuit had jurisdiction.

On appeal, the Federal Circuit first considered whether it had jurisdiction over the appeal, specifically, whether this was a case that arose under patent law such that the jurisdiction of the district court was based at least “in part” on § 1338(a). The Court determined that the state law of Michigan, not federal patent law, creates Thompson’s unjust-enrichment claim and, therefore, the relevant question was whether patent law was a necessary element of Thompson’s unjust-enrichment claim.

The Federal Circuit observed that Thompson’s pleading related to Microsoft’s being unjustly enriched by its misappropriation, patenting, and use of proprietary information. Inventorship and patents being obtained were not necessary to the success of Thompson’s unjust-enrichment claim, and patent law was not essential to alternative theories in the complaint. Furthermore, the Court stated that Microsoft’s defense on preemption grounds did not provide the Court jurisdiction either. Thus, the Court held that it lacked jurisdiction to hear the case and transferred it to the U.S. Court of Appeals for the Sixth Circuit.