United States: Federal Subject Matter Jurisdiction Under 28 U.S.C. § 1338 Requires A "Substantial" Issue Of Patent Law

In Forrester Environmental Services, Inc. v. Wheelabrator Technologies, Inc., No. 12-1686 (Fed. Cir. May 16, 2013), the Federal Circuit vacated and remanded the district court's grant of SJ on tort law claims involving questions of patent law, because the district court lacked subject matter jurisdiction under 28 U.S.C. § 1338.

Forrester Environmental Services, Inc. and Keith E. Forrester (collectively "Forrester") and Wheelabrator Technologies, Inc. ("Wheelabrator") are competitors in the market for phosphate-based treatment systems for stabilizing heavy metals in municipal and industrial waste, with each owning patents on their respective treatment systems.  In 2010, Forrester sued Wheelabrator in New Hampshire state court, asserting four state law causes of action based on Wheelabrator's actions regarding a mutual Taiwanese customer, Kobin Environmental Enterprise Co., Ltd. ("Kobin"):  violation of the New Hampshire Consumer Protection Act, tortious interference with a contractual relationship, tortious interference with Forrester's prospective advantage, and trade secret misappropriation.  Forrester alleged that Wheelabrator made false representations to Kobin about the scope of Wheelabrator's patents, leading Kobin to believe Wheelabrator's patents covered Forrester's system, and causing Kobin to terminate its relationship with Forrester.

Wheelabrator removed the case to the U.S. District Court for the District of New Hampshire.  Forrester moved to remand the case to state court based on lack of subject matter jurisdiction, but the district court denied the motion.  Proceeding with the case, the district court granted SJ for Wheelabrator, and Forrester appealed.

"In sum, we conclude that even if the allegations contained in Forrester's complaint necessarily raise a question of patent law, the patent law issues are not 'substantial in the relevant sense' under Gunn."  Slip op. at 12 (quoting Gunn v. Minton, 133 S. Ct. 1059, 1066 (2013)).

On appeal, the Federal Circuit concluded that removal was improper because the district court lacked original subject matter jurisdiction under § 1338.  The Court reasoned that for a state law cause of action to qualify for jurisdiction under § 1338, it must "involve[] a patent law issue that is '(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.'"  Slip op. at 6-7 (quoting Gunn v. Minton, 133 S. Ct. 1059, 1065 (2013)).

The Court distinguished the Supreme Court's recent decision in Gunn that the legal malpractice claim did not involve a substantial question of patent law from two Federal Circuit decisions that disparagement claims for false statements about U.S. patent rights did involve substantial questions of patent law.  The Court explained that if decided under state law, the disparagement claims "could result in inconsistent judgments between state and federal courts," whereas the legal malpractice claim was "purely 'backward looking.'"  Id. at 9 (quoting Gunn, 133 S. Ct. at 1066-67).

The Court concluded that the case here did not give rise to the possibility of future conflict, because the allegedly inaccurate statements concerned conduct taking place entirely in Taiwan and did not concern activities that could infringe U.S. patent rights.  Because there was no prospect of a future U.S. infringement suit arising out of Kobin's conduct in Taiwan, there was no prospect of inconsistent judgments between state and federal courts.  The Court also noted that for the three patents that had already expired, there was no prospect that future conduct in the United States could lead to an infringement suit.  The Court found that, as in Gunn, any potential federal-state conflict here was "purely 'hypothetical.'"  Id. at 10 (quoting Gunn, 133 S. Ct. at 1067).

The Federal Circuit rejected Wheelabrator's argument that claim construction would have potential preclusive effect in future litigation involving the patents, noting that the Supreme Court rejected a related argument in Gunn because such fact-bound and situation-specific effects are not sufficient to establish federal "arising under" jurisdiction.  The Court also rejected Wheelabrator's argument that Forrester sought remedies that might be preempted by federal law.  The Court explained that because federal preemption is ordinarily a defense that does not appear on the face of the complaint, it does not authorize removal to federal court.  The Federal Circuit concluded that Wheelabrator's jurisdictional arguments were without merit and that "even if the allegations contained in Forrester's complaint necessarily raise a question of patent law, the patent law issues are not 'substantial in the relevant sense' under Gunn."  Id. at 12 (quoting Gunn, 133 S. Ct. at 1066).  The Court thus vacated the judgment and remanded the case, with instructions for the district court to remand the case to New Hampshire state court.

This article previously appeared in Last Month at the Federal Circuit, June 2013

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