The district court in the Microsoft-Motorola RAND breach of contract case has already decided some unique issues of first impression, and will take on some more in the next phase of the case. And if the parties don’t settle, an appeal is likely to follow. This raises an interesting question, one that doesn’t necessarily have a clear answer — which appellate court would have jurisdiction over an appeal of Judge Robart’s RAND-related rulings?
The Western District of Washington sits within the 9th Circuit Court of Appeals (which, as noted below, has already heard an interlocutory appeal in this case). But as you may know, in order to preserve uniformity in patent law, the U.S. Court of Appeals for Federal Circuit in Washington, DC is the court designated by Congress as the appeals court with exclusive jurisdiction for nearly all patent cases. The Microsoft-Motorola case (at least the part which has garnered the most attention) involves a breach of contract issue relating to patents, standard-setting, and patent licensing issues. So, which is it — the 9th Circuit or the Fed Circuit?
Brace yourselves – this will take a couple thousand words.
The Federal Circuit’s “Exclusive” Patent Jurisdiction
First, a bit of background under 28 U.S.C. § 1295(a), the U.S. Court of Appeals for the Federal Circuit now has exclusive appellate jurisdiction over cases “arising under” the patent laws, or those cases in which a party has asserted a compulsory counterclaim that arises under the patent laws. But for cases filed before September 16, 2011 (the date of implementation for the America Invents Act), the Federal Circuit has exclusive appellate jurisdiction if the jurisdiction of the district court was based “in whole or in part” on 28 U.S.C. § 1338. Section 1338 is the law that provides that district courts have original jurisdiction over any civil action “arising under” the patent laws.
Obviously, typical patent infringement cases “arise under” the patent laws — but the Federal Circuit doesn’t automatically have appellate jurisdiction every time some sort of patent-related claim is involved. The Supreme Court has held (in Christianson v. Colt) that the Federal Circuit will only have exclusive “arising under” jurisdiction over those cases where federal patent law creates the action, or those in which the plaintiff’s right to relief “necessarily depends on the resolution of a substantial question of federal patent law” — in other words, where patent law is a necessary element of one of the claims.
Microsoft’s RAND Complaint
Microsoft’s original complaint against Motorola includes claims for breach of contract, promissory estoppel, waiver, and a declaratory judgment that Motorola breached its RAND obligations — no patent claims. In the jurisdictional section, Microsoft invokes diversity jurisdiction under 28 U.S.C. § 1332 — not § 1338. Microsoft’s Amended and Supplemental complaint, filed in February 2011, includes the same claims and jurisdictional invocation (although it refers to several patent infringement actions filed by Motorola against Microsoft). So based on Microsoft’s complaints alone, this case doesn’t seem to “arise under” the patent laws.
Motorola’s Answer & Counterclaims
Motorola’s Answer and Counterclaims does not include any patent-specific affirmative defenses. But Motorola also counterclaimed for declaratory judgments that (1) it has complied with its RAND obligations; and (2) that by failing to negotiate and filing the breach of contract complaint, Microsoft repudiated its right to a RAND license from Motorola (i.e., it is an “unwilling licensee”). As part of this second counterclaim, Motorola asked the court to declare that “if the Motorola Patents in the Patent Actions [infringement suits against Microsoft] are found by this Court or by the International Trade Commission to comply with the respective Standards, and the patents are valid and enforceable, that Motorola is entitled to seek an injunction.” For these counterclaims, Motorola invoked not just diversity jurisdiction, but also jurisdiction under the Declaratory Judgment Act and — curiously — § 1338(a). Although Motorola cited § 1338(a) as a basis for jurisdiction and sought a declaration regarding its right to seek an injunction for patents involved in other cases, it seems unlikely that the court would need to resolve a “substantial question of federal patent law” to decide the merits of Motorola’s claim. In fact, in Microsoft’s Answer to Motorola’s Counterclaims, Microsoft denied Motorola’s allegation that the court has jurisdiction under the patent laws.
Appeal of the Preliminary Injunction…to the 9th Circuit
As some of you may know, in April 2012 Motorola was awarded an injunction in a German patent litigation against Microsoft over two H.264-essential patents. In May 2012, Microsoft sought and obtained from Judge Robart a temporary restraining order (TRO) and preliminary injunction (PI), preventing Motorola from enforcing the German injunctions. Motorola immediately filed an interlocutory appeal of Judge Robart’s decision, and did so to the 9th Circuit Court of Appeals. In their briefs, both Motorola and Microsoft agreed that the 9th Circuit properly had jurisdiction. In its order denying Motorola’s appeal, the 9th Circuit agreed:
“Not all cases involving a patent-law claim fall within the Federal Circuit’s jurisdiction.” Holmes Group, Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 834 (2002). The Federal Circuit has jurisdiction over an interlocutory appeal only if it would have jurisdiction over a final appeal in the case under 28 U.S.C. § 1295. 28 U.S.C. § 1292(c)(1). Microsoft’s complaint sounds in contract and invokes the district court’s diversity jurisdiction under 28 U.S.C. § 1332. We therefore have jurisdiction over this interlocutory appeal under 28 U.S.C. § 1292(a)(1).
The Ninth Circuit, like the parties, treated the case as a run-of-the-mill breach of contract action. However, as you’ll see below, the Ninth Circuit may not have accounted for something very important.
Consolidation with co-pending patent infringement case
Lost in much of the attention being given to the RAND issues is that there are also patent infringement claims in the very same case. Soon after Microsoft filed its breach of contract case, Motorola filed a patent infringement action in the Western District of Wisconsin (case no. 3:10-cv-699), accusing Microsoft of infringing three H.264-essential patents. (This was one of the cases referred to by Microsoft in its Amended and Supplemental RAND complaint.) That case was subsequently transferred to the Western District of Washington and assigned to Judge Robart.
After transfer, Microsoft moved to dismiss the patent infringement claims, claiming they should have been brought as compulsory counterclaims to Microsoft’s RAND action. While Judge Robart disagreed that the infringement claims were compulsory, he did find enough common questions of law and fact to justify consolidation of the two cases. In a June 1, 2011 ruling on Microsoft’s motion to dismiss, he ordered the two cases consolidated under the RAND breach of contract case number (C10-1823) and closed the infringement case number (C11-343).
The parties litigated claim construction issues, and Microsoft filed (and won) a summary judgment motion on invalidity relating to some of the asserted patent claims. In July 2012, however, Judge Robart granted the parties’ joint motion to stay all of the infringement claims pending resolution of the RAND-related claims, so the infringement portion of the case has been largely dormant (save for Judge Robart ruling on certain pending motions).
The Federal Circuit, not the 9th Circuit, has jurisdiction over the RAND case…probably
The consolidation of Microsoft’s RAND claims and Motorola’s infringement claims means that since June 1, 2011, W.D. Wash. case no. C10-1823 has included not just declaratory judgment claims and claims for breach of contract, but also claims relating to the infringement and invalidity of several patents. Judge Robart’s decision to consolidate the two cases turned the Microsoft-Motorola case from (relatively) simple a breach of contract action that touched on patent issues to a full-blown, jurisdictionally-confusing beast.
The district court’s jurisdiction over the patent infringement case was previously based “in whole” on the patent laws, while its jurisdiction over the breach of contract case was not based in any way on the patent laws. But now, the district court’s jurisdiction over the consolidated case arises “in part” under the patent laws — the infringement/invalidity claims are still there (and, as we noted, Judge Robart has in fact been ruling on them). The Federal Circuit has explained that its jurisdiction is based on entire cases — not individual issues. See, e.g., Atari, Inc. v. JS&A Group, Inc., 747 F.2d 1422, 1435 (Fed. Cir. 1984) (“‘cases’ will be within the jurisdiction of this court”). Therefore, it seems that once the patent infringement claims became part of the same case, exclusive jurisdiction over the appeal of a final judgment (and consequently, over interlocutory appeals such as Motorola’s appeal of the preliminary injunction) became vested with the Federal Circuit.
And in fact, there’s precedent we can look to that supports this view. The Federal Circuit was presented with a very similar issue in In re Innotron Diagnostics, 800 F.2d 1077 (Fed. Cir. 1986). The plaintiff in that case, Innotron, had first filed an antitrust complaint against Abbott Laboratories in the Central District of California. Eighteen days later, Abbott sued Innotron for patent infringement in the same court. Innotron moved to dismiss the infringement claims as compulsory counterclaims, but the court instead consolidated the two cases together. The court later issued an order separating the antitrust issues and patent issues for trial, and Innotron filed a petition for a writ of mandamus with the 9th Circuit. On Abbott’s motion, the 9th Circuit denied the petition, saying the Federal Circuit should be the one to consider the petition, as the case fell within its exclusive jurisdiction. And in doing so, the Federal Circuit confirmed that it had jurisdiction. The court held that:
[W]hether allegations of patent infringement be filed and maintained as a viable, non-frivolous counterclaim in a non-patent case, or as a separate complaint which is then consolidated with the non-patent case, the district court’s jurisdiction is based “in part” on § 1338(a) and this court must exercise its exclusive appellate jurisdiction over the entire case. 28 U.S.C. § 1295(a)(1).
Similarly, in Interpart v. Italia, 777 F.2d 678 (Fed. Cir. 1985), the Federal Circuit held that consolidation of a non-patent Lanham Act unfair competition case with a later-filed patent infringement case vested the Federal Circuit with appellate jurisdiction over the entire action. The court explained that while it did not have appellate jurisdiction over the original Lanham Act action, “[i]t was only after the patent case was transferred from the Illinois federal district court and consolidated with the case in California that the case became one that would fall within our jurisdiction when appealed.” Id. at 681.
But what about Holmes v. Vornado?
In the 2002 case of Holmes Group v. Vornado, 535 U.S. 826 (2002), the Supreme Court overturned the Federal Circuit’s long-standing rule that a patent counterclaim by itself could serve as a basis for Federal Circuit appellate jurisdiction. While the Holmes decision was effectively overturned by the AIA, this change only applies to cases filed after Sept. 16, 2011 — and the Microsoft-Motorola case was well on its way by that date. Thus, Holmes would apply to jurisdictional issues in Microsoft-Motorola — and while the Holmes case did not involve a non-patent action consolidated with an infringement action, one of the Federal Circuit’s reasons for exercising appellate jurisdiction in the Innotron case — that it would be “incongruous” to find patent counterclaims created Federal Circuit jurisdiction, but consolidation with an infringement action does not — was expressly dismissed by the Supreme Court in Holmes.
[UPDATE] (For those of you have gotten this far and still want to read even more about “arising under” jurisdiction and Holmes, you can check out this excellent law review article written by Prof. Chris Cotropria of the University of Richmond School of Law.) [/UPDATE]
In the post-Holmes, pre-AIA era, however, at least one appellate court — the First Circuit, in CytoLogix v. Ventana Med. Sys., 513 F.3d 271 (1st Cir. 2010) — has found that consolidation of a patent infringement action and a separate non-patent antitrust action vested the Federal Circuit with exclusive jurisdiction over the entire consolidated case. The CytoLogix court explained that: “Although the complaint in [the antitrust case] did not arise under patent law, once the [two cases] were consolidated, jurisdiction of the entire case was necessarily based ‘in part’ on section 1338” Id. at 272.
Wrapping this all up it appears that under relevant precedent, any appeals in the Microsoft-Motorola RAND case — whether related to patent issues or others — should fall within the exclusive jurisdiction of the Federal Circuit, not the Ninth Circuit (although, like many things in law, it’s not 100% certain). And because the breach of contract and infringement cases had been consolidated at the time of Motorola’s May 2012 appeal of the preliminary injunction, it seems like that appeal should have gone to Fed Circuit as well. Arguably, then, the Ninth Circut’s ruling affirming Judge Robart’s decision to issue the PI was ultra vires (beyond its power) — and the fact that neither party argued differently doesn’t matter, because subject matter jurisdiction can’t be waived by the parties. (Although now, the issue is largely moot, given Motorola’s FTC settlement foregoing its right to seek injunctive relief for SEPs.)
If the parties don’t settle this case, this is an issue that is almost certain to be examined further in the months ahead.