CAFC Remands Walker Process Antitrust Issue to Fifth Circuit under Xitronex I Precedent

On June 10, the U.S. Court of Appeals for the Federal Circuit (CAFC) transferred Ronald Chandler et. al. v. Phoenix Services, LLC to the United States Court of Appeals for the Fifth Circuit due to lack of jurisdiction, since the case did not arise under the patent laws of the United States. The CAFC previously affirmed a holding that U.S. Patent No. 8,171,993 (‘993 patent) was unenforceable due to inequitable conduct because Heat On-The-Fly, the company that filed for the ‘993 patent, knowingly didn’t disclose prior uses of the process.

The plaintiffs, Chandler Manufacturing and Supertherm Fluid Heating Services (collectively Chandler), alleged that the defendant, Phoenix Services, continued enforcement of the ‘933 patent on their website and that this conduct constituted an antitrust violation under Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), a 1965 Supreme Court decision that held that enforcement of a patent procured by fraud on the United States Patent and Trademark Office (USPTO) can be the basis for an antitrust claim.

CAFC’s Jurisdiction in Walker Process Matters

Citing 28 U.S.C. § 1295(a)(1), the CAFC outlined their jurisdiction, which extends to any civil action arising from any Act of Congress that is related to patents. The court acknowledged that claims in Walker Process antitrust matters may relate to patents in the colloquial use of the word, however, citing Christianson v. Colt Indus. Operating Corp. (U.S. Supreme Court, 1988), where the Supreme Court ruled the jurisdiction of the CAFC extends “only to those cases in which a well-pleaded complaint establishes either 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, in that patent law is a necessary element of one of the well-pleaded claims.” The CAFC found, in this case, they lacked subject matter jurisdiction because Chandler’s cause of action arises from the Sherman Act rather than from patent law, meaning resolution of Chandler’s claims do not depend on resolution of a considerable question of patent law.

Precedent Applied

The court analyzed a similar situation recently in Xitronix I (CAFC, 2018), where the plaintiff, based on enforcement of a live patent, asserted an individual Walker Process monopolization claim. In that case, the CAFC held that they lacked jurisdiction because a Walker Process claim doesn’t inherently present a considerable question of patent law according to precedent from the Supreme Court, while acknowledging issues regarding misrepresentation to the USPTO will require application of patent law.

Citing to Gunn v. Minton (U.S. Supreme Court, 2013), the CAFC attempted to interpret the words “arising under” in 28 U.S.C. § 1295(a)(1). In Gunn, the Supreme Court held that a patent attorney malpractice case for the purpose of Section 1338 didn’t “arise under” federal patent law, even though it inherently involved resolution to a federal patent law question. The Court reasoned that resolution to the patent “case within a case” wouldn’t affect “the real-world result of the prior federal patent litigation,” and allowing a state court to resolve an underlying patent question wouldn’t undermine the constant body of patent law because federal courts aren’t bound by the patent rulings of state courts.

Returning to their analysis of Xitronix I, the court found the risk of another circuit making a flawed or inconsistent patent law decision under a Walker Process claim is not enough to activate their jurisdiction over federal patent law cases. The CAFC stated that their decision in Xitronix I was precedential, and mandated transfer of the case back to the Fifth Circuit because there were no patent issues separate of the Walker Process antitrust claim. The court explained further that the Fifth Circuit may have little or no need to decide a patent law issue because the ‘933 patent was already declared unenforceable. The CAFC clarified that, since the enforceability of the patent is no longer in dispute, and Chandler’s arguments are based on Phoenix Services’s affiliation to the inventor’s conduct, rather than conduct that occurred in front of the patent office, the case is even weaker than in Xitronix I to invoke jurisdiction.

Fifth Circuit Strikes Back

The Fifth Circuit held in Xitronix II (Fifth Circuit, 2019) that the conclusions reached by the CAFC were implausible and returned the case. The CAFC noted that they disagreed with this interpretation by the Fifth Circuit and continued into detail. The court examined the reasoning by the Fifth Circuit in Xintronix II when they returned the case. After the Fifth Circuit noted that Christianson linked Section 1295 to Sections 1338 and 1331, making Gunn relevant to the court’s analysis of Section 1295, the Fifth Circuit tried to distinguish Gunn by highlighting that when Christianson was decided, Section 1295 expressly referred to Section 1338, but when Gunn was decided the reference to Section 1338 was replaced by the phrase “any civil action arising under … any Act of Congress relating to patents.”

The CAFC did not interpret these changes to Section 1295 as being so sweeping as the Fifth Circuit and thought it was clear that Congress intended the connection between the statutes to continue rather than terminate. Based on this reasoning, the CAFC stated their disagreement with the Fifth Circuit’s conclusion that Gunn is irrelevant to interpretation of Section 1295 because of the Supreme Court’s interpretation of Sections 1331 and 1338. The Fifth Circuit continued their analysis in Xitronix II by stating there is precedent which grants jurisdiction to the CAFC in Walker Process claims, but the CAFC disagreed with this conclusion.

Citing two previous decisions (Nobelpharma AB v. Implant Innovations, Inc. (CAFC, 1998) and In re Ciprofloxacin Hydrochloride Antitrust Litig. (CAFC, 2008)) to support this claim, the Fifth Circuit argued that in Nobelpharma it was appropriate to apply Federal Law instead of regional law in a Walker Process claim. The CAFC noted that the circumstances in Nobelpharma were different than the present facts because the Walker Process claim arose from a patent litigation issue and therefore involved the CAFC’s jurisdiction, but this does not mean every Walker Process claim gives rise to federal jurisdiction. The Fifth Circuit used a footnote in Cipro to support their conclusion that the CAFC has jurisdiction, but the CAFC noted that this footnote needs to be examined with context. Jurisdiction in Cipro was not disputed and the CAFC received the case on transfer, thus reviewing the issue under a plausibility standard rather than de novo. As such, that case did not create a precedent that mandated exclusive jurisdiction over all Walker Process claims.

Third Time’s the Charm

Ultimately, the CAFC accepted jurisdiction in Xitronex III (CAFC 2019), and in their nonprecedential opinion highlighted that the Fifth Circuit’s analysis could be plausible in this case. This analysis, however, did not apply in the present case because the case will not alter the enforceability of the ‘933 patent and any discussion of the patent would be hypothetical. The CAFC concluded by stating:

“Simply put, this is not a patent case. Rather, this case purports to raise novel Fifth Circuit antitrust issues. We find it unpersuasive that we should exercise jurisdiction over such questions merely because a now-unenforceable patent was once involved in the dispute”