Patent Owner May Not Be Able to Remove Case to Federal Court When Sued in State Court for Alleged Unfair and Deceptive Trade Practices Involving Enforcement of Patent Rights

Authored by D. Brian Kacedon, Michael E. Kudravetz, and John C. Paul

Abstract

The U.S. Court of Appeals for the Federal Circuit recently held that it lacked jurisdiction to hear an appeal of a district court's remand of a case to a state court where the district court determined that the suit, which alleged unfair and deceptive trade practices against a patent owner, failed to raise a question of federal law. Thus, the district court lacked subject-matter jurisdiction to review the case.

The U.S. Court of Appeals for the Federal Circuit recently held that a district court's remand of jurisdiction to a state court is not reviewable by an appellate court when the district court decides that it lacks subject-matter jurisdiction under 28 U.S.C. § 1447(c). In particular, the Federal Circuit found that 28 U.S.C. § 1447(d) provides an absolute bar to a review of the district court's ruling, even if the district court's ruling constituted clear legal error.

Background

MPHJ owns patents relating to network scanner systems. Through subsidiary licensees, MPHJ sent letters to several Vermont¹ businesses and nonprofit organizations and requested that the recipients either confirm that they were not infringing MPHJ's patents or purchase a license. If a recipient took no action, a Texas law firm sent a letter threatening a patent-infringement suit. The State of Vermont filed suit against MPHJ in a Vermont state court, alleging unfair and deceptive trade practices under the Vermont Consumer Protection Act.

MPHJ removed the suit to federal district court, asserting federal-question jurisdiction and diversity jurisdiction. The State moved to remand the suit back to state court. In opposing the State's motion, MPHJ filed (1) a motion to dismiss for lack of personal jurisdiction and (2) a motion for sanctions against the State, which also requested dismissal on the basis that the State's complaint was frivolous and preempted by MPHJ's right to enforce its patents under federal patent law.

The district court granted the State's motion to remand the suit back to state court without deciding any of MPHJ's other motions. According to the district court, the State's complaint did not raise a substantial question of patent law because the State sought to target bad-faith conduct generally, irrespective of the patents' validity or infringement by the recipients. Further, the district court found, as a defense to the State's unfair-and-deceptive-practices claim, MPHJ's patent-preemption argument did not provide a basis for federal-question jurisdiction.

MPHJ appealed on several bases, arguing that the district court abused its discretion by not deciding MPHJ's motion to dismiss for lack of personal jurisdiction before deciding subject-matter jurisdiction and for remanding the case without first deciding a controlling federal question of preemption.

The Decision

The Federal Circuit's inquiry began and ended with whether appellate jurisdiction existed over the district court's remand order. Federal law provides that an order remanding a case to the state court from which it was removed is not reviewable on appeal or otherwise. This statutory bar against appellate review applies, so long as the district court's basis for remanding the suit is "colorably characterized" as lacking subject-matter jurisdiction.

Because the district court's remand order was based on its determination that it lacked subject-matter jurisdiction, the Federal Circuit concluded that the statutory bar precluded it from second-guessing the district court's determination. Further, the Federal Circuit noted, the statutory bar against appellate review applies even if the district court committed clear legal error. The statutory bar likewise precluded the Federal Circuit from reviewing all aspects of MPHJ's appeal, including whether the district court should have decided MPHJ's other pending motions before deciding the State's motion to remand.

Strategy and Conclusion

This case shows that a patent holder who engages in certain conduct to enforce its patent rights may be subject to suit in state court for alleged unfair and deceptive trade practices. It also demonstrates the importance of establishing a strong case for subject-matter jurisdiction, if the patent holder attempts to remove the action to federal court. If the district court finds subject-matter jurisdiction lacking, it can remand the suit back to state court, which is not an appealable order.

Endnotes

¹ The Vermont v. MPHJ decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2014/StateofVermont_v_MPHJTechnologyInvestments.pdf.

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