The US Court of Appeals for the Federal Circuit affirmed a district court's finding that it lacked jurisdiction to hear a case because the issue of patent ownership was a state law concern to be decided before reaching issues of non-infringement. First Data Corp. v. Inselberg, Case No. 16-2696 (Fed. Cir., Sept. 15, 2017) (O'Malley, J).
Eric Inselberg is the inventor of patents covering technology where audience members can interact with live events, such concerts and football games. The patents were formerly held by Inselberg Interactive, but were later assigned to Frank Bisignano to satisfy a $500,000 loan made to Inselberg Interactive. Shortly after the assignment, Bisignano became CEO of First Data. Later, Inselberg threatened suit claiming that First Data was using his patents without a license and that the assignment to Bisignano was invalid. Bisignano and First Data responded by filing a declaratory judgment action in district court claiming that the assignment agreement was valid and that First Data did not infringe.
Shortly thereafter, Inselberg and Interactive filed a complaint in state court asserting various state business tort and contract claims and seeking a declaration that the assignment agreement was invalid and that Interactive owned the patents. Bisignano and First Data filed an answer and counterclaims asserting non-infringement and invalidity of the asserted patents. After filing the answer and counter claims, Bisignano and First Data removed the state court action to district court, invoking the federal court's jurisdiction over patent cases.
In the district court, Inselberg and Interactive filed a motion to dismiss the declaratory judgment action, a motion to dismiss the counterclaims filed in state court, and a motion to remand the state law claims to state court. The district court found that Inselberg and Interactive's claims were all state law claims and that it therefore lacked jurisdiction to determine whether the assignment agreement was invalid. The district court deemed First Data's invalidity and infringement counterclaims "incidental and contingent" to Inselberg and Interactive's ownerships claims, and held that those claims could not be resolved unless or until a state court determined that Inselberg and Interactive owned the patents. First Data and Bisignano appealed.
On appeal, First Data and Bisignano argued that the district court erred in dismissing their declaratory judgment claims and counterclaims of invalidity and non-infringement. Patent ownership, they argued, is a merits issue, not a jurisdictional issue. The Federal Circuit disagreed and affirmed the district court's dismissal of the patent and declaratory judgment claims for lack of jurisdiction. The Court found that by filing the state court action challenging the validity of the assignment agreement, Inselberg and Interactive admitted that they did not own the patents and could not pursue patent claims unless and until a state court found that the assignment agreement was invalid. As a result, Bisignano and First Data's invalidity and non-infringement claims were frivolous because Inselberg and II did not own any patents that Bisignano or First Data could infringe or invalidate. The Court also noted that even if the claims were not frivolous, they were premature because they rested upon "contingent future events that may not occur as anticipated, or indeed may not occur at all."
First Data and Bisignano also challenged the district court's remand of the state law claims. The Federal Circuit noted that under § 1447(d), it cannot review an order remanding a case to the state court from which it was removed if the district court remanded the case after finding that it lacked subject matter jurisdiction over the claims. Because the district court's decision to remand the case to state court was based on a lack of subject matter jurisdiction, the Federal Circuit was precluded from reviewing the remand order.
Ownership Dispute Strips Federal Circuit of Jurisdiction to Review
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