A Dispute Over the Interpretation of Field of Use Limitation in a License Agreement Was Found Not Eligible to Be Litigated in a Federal Court

Authored by Jessica Cox Hill, D. Brian Kacedon, and John C. Paul

District courts have original jurisdiction over "any civil action arising under any Act of Congress relating to patents." But the Supreme Court has found that there is no original jurisdiction unless the right to relief necessarily depends on resolution of a substantial question of federal patent law. This generally turns on whether a particular civil action involves inventorship, infringement, validity, or enforceability of a patent. In Personalized Media Communications, L.L.C. v. Scientific-Atlanta, Inc.,¹ the Federal Circuit addressed whether a district court had original, federal-question patent jurisdiction over a breach-of-contract claim arising out of a license agreement.

Background

PMC owns a group of U.S. patents called "the Harvey Patents," which relate to the distribution and control of media and programming content. Gemstar and PMC signed a license agreement granting Gemstar "the exclusive right, but not the obligation to enforce" the Harvey Patents "against any Person operating in the [interactive programming guide] Field." After having licensed Gemstar rights in the interactive-programming-guide field, PMC sued Scientific-Atlanta for infringement of the Harvey Patents. Scientific-Atlanta responded with counterclaims against Gemstar on the grounds that PMC's suit may adversely affect Gemstar's rights as an exclusive licensee while leaving Scientific-Atlanta "subject to a substantial risk of incurring double, multiple, or other inconsistent obligations."

Gemstar filed cross-claims against PMC for breach of contract and declaratory judgment of the respective rights of PMC and Gemstar in the Harvey Patents. Gemstar also requested injunctive relief to prevent PMC from continuing with its current action against Scientific-Atlanta and from "further interfering with Gemstar's right to enforce and/or defend the Harvey Patents." For the breach-of-contract claims, Gemstar sought damages from PMC's asserted breach, namely, the expense resulting from PMC's infringement case against Scientific-Atlanta. Although Gemstar also filed counterclaims against Scientific-Atlanta for infringement of the Harvey Patents, Gemstar, and Scientific-Atlanta settled their claims.

After trial on Gemstar's claims against PMC, the district court granted PMC's motion to dismiss Gemstar's declaratory-judgment claim as moot because of Gemstar's settlement with Scientific-Atlanta. The district court also declined to exercise supplemental jurisdiction over Gemstar's remaining claims, finding that Gemstar was no longer an appropriate party to the case. Gemstar moved for reconsideration of its dismissal. The district court refused to reconsider Gemstar's declaratory-judgment and injunctive-relief claims, but found that it had original, federal-question jurisdiction over Gemstar's breach-of-contract counterclaims and rejected those claims on their merits because Gemstar had not shown the necessary element of damages. Gemstar appealed.

The PMC Decision

On appeal, the Federal Circuit vacated the district court's decision on the breach-of-contract claim, holding that the district court lacked original jurisdiction over Gemstar's claim. The court reasoned that Gemstar's claim did not involve inventorship, infringement, validity, or enforceability of the Harvey Patents. Rather, the sole issue was the scope of Gemstar's exclusive rights—the interactive-programming-guide field, as defined by the licensing agreement between Gemstar and PMC. That issue, according to the court, did not depend on the scope of the patent claims.

Regarding supplemental jurisdiction, Gemstar argued that it would be an abuse of discretion to decline to exercise supplemental jurisdiction because substantial resources had been invested in this case. The Federal Circuit agreed that a district court should consider judicial economy when deciding whether to exercise supplemental jurisdiction but noted that other factors weighed in favor of dismissal in this case.

Specifically, the court recognized that Gemstar is currently pursuing its claims against PMC in a Texas litigation, where Gemstar was joined as a necessary party in order to resolve the question of the scope of Gemstar's agreement with PMC. Thus, the Texas litigation will achieve the determination of rights that Gemstar sought against PMC, and, if appropriate, damages for breach of the Gemstar-PMC agreement. Indeed, the Federal Circuit reasoned that allowing both claims to proceed simultaneously would create duplicate litigation on the same legal issues, and the potential for inconsistent interpretations of the license agreement that would impair enforcement of the agreement. Such duplicate litigation would also defeat judicial economy as it would task two courts with deciding the same issue. As a result, the Federal Circuit affirmed the district court's dismissal of Gemstar's declaratoryjudgment claim because any error in its decision was rendered harmless by Gemstar's participation in the Texas litigation.

Strategy and Conclusion

Whether a Federal district court has original, federal-question patent jurisdiction necessarily depends on resolution of a substantial question of federal patent law. Interpretation of a patent license agreement may not be sufficient to establish original, federal-question patent jurisdiction. Litigants may want to consider whether a claim involves a clear question of federal patent law, such as inventorship, infringement, validity, or enforceability before seeking relief in Federal district courts.

Endnotes
¹ The PMC decision may be found here (link no longer active).

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