Written by Peter E. Heuser, Schwabe, Williamson & Wyatt, P.C.

The Supreme Court’s ruling in Impression Products v. Lexmark will force patentees to get what ‎they can in their initial sale or licensing of patented products in both the U.S. and abroad, ‎knowing that they will have to rely on breach of contract remedies to prevent resale in the U.S. ‎Lack of privity with the original purchaser will undoubtedly complicate such actions. Read our full ‎report on Lexmark here. ‎

The Federal Circuit rules in Preston v. Nagel that it cannot hear the appeal of a remand following ‎removal to federal court.

Any precedential cases decided tomorrow will be included in next ‎week’s report.‎

Pete

Preston v. Nagel, Fed. Cir. Case 2016-1524 (June 1, 2017)‎

The Circuit dismisses for lack of subject matter jurisdiction an appeal of a district court decision ‎remanding a removed case back to state court. ‎

A fight between former business partners resulted in a state court lawsuit filed by Preston based on ‎state law claims. Nagel counterclaimed for declaratory judgment of noninfringement of patents ‎assigned to the company he had owned with Preston, and removed the case under the general ‎removal statute 28 U.S.C. § 1441 and the patent removal statute 28 U.S.C. § 1454. The district court granted Preston’s motion to remand, ruling that it lacked ‎subject matter jurisdiction because the state law claims did not arise under federal law, and ‎Nagel’s patent counterclaims did not present a justiciable case or controversy.‎

Nagel appealed the district court’s remand. The panel first points out that under 28 U.S.C. ‎‎§ 1447(d), “an order remanding a case to the State court from which it was removed is not ‎reviewable on appeal or otherwise….” Recognizing that § 1447(d) would ordinarily bar ‎reviewability here, Nagel asks the Circuit to hold that an exception exists where defendants ‎invoked § 1454, the patent removal statute, to remove patent claims over which federal courts ‎have exclusive jurisdiction. In support, Nagel relies on the 2007 Supreme Court case Osborn v. ‎Haley to argue that the America Invents Act (AIA) overrides § 1447(d)’s bar. ‎

Noting that because appellate review is “scarcely” permitted, Osborn held that courts should ‎review remand orders ordinarily governed by § 1447(d) only “in the extraordinary case in which ‎Congress has ordered the intercourt shuttle to travel just one way—from state to federal court.” ‎According to Nagel, the AIA makes this case similarly “extraordinary.” ‎

Congress included several provisions in the AIA to strengthen federal courts’ jurisdiction over ‎patent claims in response to the Supreme Court’s 2002 decision in Holmes Group v. Vornado, ‎which held that the Federal Circuit lacked jurisdiction to hear appeals from cases “in which the ‎complaint does not allege a claim arising under federal patent law, but the answer contains a ‎patent-law counterclaim.” These AIA provisions included the following: (1) 28 U.S.C. § 1338(a) ‎was strengthened to clarify that state courts had no jurisdiction over “any claim for relief arising ‎under any Act of Congress relating to patents”; (2) the Federal Circuit’s exclusive jurisdiction ‎was extended to include cases with compulsory patent counterclaims, 28 U.S.C. § 1295(a)(1); ‎and (3) a provision was added to permit a party to remove to federal court a case in which any ‎party asserts a patent claim, 28 U.S.C. § 1454. ‎

Nagel argues that the “Holmes Group fix” created the one-way “intercourt shuttle” that Osborn ‎described. According to Nagel, by depriving the state court of jurisdiction to hear patent claims ‎‎(including counterclaims) and by creating a removal provision targeted at patent claims (and ‎counterclaims), Congress created a vehicle for patent counterclaims to be heard in federal court ‎alongside a plaintiff’s state-law claims. But the panel rules that nothing in the AIA operates like ‎the situation that resulted in the ruling in Osborn. Rather, here the district court was still required ‎to undertake a threshold inquiry of whether complete diversity exists or whether the complaint ‎raises a federal question. Having done so, the district court concluded that it lacked subject-‎matter jurisdiction because Preston’s claims arose under state law and Nagel did not establish ‎that the counterclaims satisfied the Article III case-or-controversy requirement. Since the district ‎court’s task was that of the “typical case,” the narrow exception of Osborn does not permit the ‎Circuit to review the district court’s remand decision.‎

Nagel further argued that the Circuit must be able to review the district court’s remand here to ‎avoid a problem that the Supreme Court identified as potentially “serious: the death knell of a ‎claim subject to exclusive federal jurisdiction without federal review.” But Nagel’s concern rings ‎hollow here, where, unlike in Osborn, Nagel has an alternative way to present his patent claims ‎on the merits in federal court: a separate federal declaratory judgment action.‎

Read the full opinion

This article was originally published on Schwabe, Williamson & Wyatt's Ideas Fuel Industries Section