Federal Circuit Jurisdiction Requires Resolution of a Patent Law Issue as a Theory of Relief
April 21, 2010
Last Month at the Federal Circuit - May 2010
Judges: Bryson (author), Archer, Prost
[Appealed from: S.D. Fla., Judge Huck]
In ClearPlay, Inc. v. Abecassis, No. 09-1471 (Fed. Cir. Apr. 21, 2010), the Federal Circuit held that it lacked appellate jurisdiction over a case relating to a dispute stemming from the parties’ license agreement, and transferred the case to the U.S. Court of Appeals for the Eleventh Circuit.
Nissim Corp. and Max Abecassis (collectively “Nissim”) accused ClearPlay, Inc. (“ClearPlay”) of infringing its patents relating to systems for filtering objectionable content from video media. As part of their settlement of the lawsuit, the parties entered into a license agreement allowing ClearPlay to distribute its accused products upon payment of royalties to Nissim. After the parties entered into the license agreement, Nissim claimed that ClearPlay violated the agreement, and filed a motion to enforce the agreement in the same district court in which the parties brought the patent action. Meanwhile, Nissim informed retailers selling ClearPlay’s products that those devices were not licensed and that the retailers’ continued sales of those products could constitute patent infringement.
Citing diversity of citizenship, ClearPlay then sued Nissim in the same district court for tortious interference with a contractual relationship, tortious interference with potential advantageous business relationships, breach of the license agreement, breach of the covenant of good faith and fair dealing, and violation of Florida’s Deceptive and Unfair Trade Practices Act. ClearPlay also sought a preliminary injunction barring Nissim from breaching the license agreement by denying its validity and enforceability. The district court agreed with ClearPlay, found the agreement valid, and entered a preliminary injunction against Nissim, ordering that neither Nissim nor its agents shall “suggest or state to potential retailers, purchasers, or manufacturers of ClearPlay’s products that this Court has held that the License Agreement between ClearPlay and Nissim is terminated.” Slip op. at 4. Nissim appealed the preliminary injunction order.
ClearPlay argued that the Federal Circuit lacked jurisdiction over the appeal and that it belonged to the Eleventh Circuit. Nissim responded that the Court had jurisdiction because the dispute raised issues of patent law.
The Federal Circuit explained that its jurisdiction over appeals from district courts is based on 28 U.S.C. § 1295(a), which provides that the Federal Circuit has jurisdiction over an appeal from a final decision of a district court “if the jurisdiction of that court was based, in whole or in part, on section 1338” of title 28. Section 1338 gives district courts original jurisdiction of “any civil action arising under any Act of Congress relating to patents.” 28 U.S.C. § 1338(a). Quoting Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988), the Federal Circuit explained that § 1338 jurisdiction extends to cases where the complaint establishes “ that federal patent law creates the cause of action or  that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law.” Slip op. at 5.
The Federal Circuit found none of the parts of the Christianson test satisfied in this case. First, ClearPlay’s second amended complaint, which was before the district court when the preliminary injunction order was entered and appealed, was entirely devoted to state law causes of action. Second, none of the plaintiff’s claims turned on an issue of federal patent law. ClearPlay’s complaint raised six state law claims: three counts of tortious interference with a contractual relationship between ClearPlay and various retailers and clients; one count of breach of the license agreement; one count of breach of the covenant of good faith and fair dealing; and one count of violation of Florida’s Deceptive and Unfair Trade Practices Act by entering into the license agreement in bad faith, seeking to disrupt ClearPlay’s relationships with its business partners, and threatening its business partners with patent infringement suits.
The Federal Circuit found that none of these claims necessarily turned on an issue of patent law. According to the Court, the breach of contract claim and related claim of breach of the covenant of good faith and fair dealing did not require resolution of a patent law issue, but rather turned on the parties’ conduct and obligations under the agreement. Similarly, the Court explained that the three tortious interference claims alleged at least one theory of relief that would not require the Court to address any patent law issue. Nissim argued that its allegedly false assertions that ClearPlay’s products were unlicensed would constitute meaningful threats only if the products infringed Nissim’s patent. The Federal Circuit explained, however, that if ClearPlay could prove its allegations that Nissim falsely represented that ClearPlay’s products were unlicensed, those representations could be actionable regardless of whether the products fell within the scope of Nissim’s patent. Lastly, the Federal Circuit found that the claim of a violation of Florida’s Deceptive and Unfair Trade Practices Act asserted theories of liability that did not require resolution of a patent law issue.
Nissim argued that the dispute between the parties was founded on patent infringement, and the claims in ClearPlay’s complaint stemmed from that dispute. The Federal Circuit, however, explained that “[i]t is not enough that patent law issues are in the air. Instead, resolution of a patent law issue must be necessary to every theory of relief under at least one claim in the plaintiff’s complaint. And that is not so in this case.” Id. at 10. Consequently, the Federal Circuit held it did not have jurisdiction over the appeal, and transferred the case to the Eleventh Circuit.
Summary authored by Cecilia Sanabria, Esq.