Vornado Hits the Midwest: Federal Circuit Jurisdiction in Patent and Antitrust Cases after Holmes V. Vornado*
McLean, Gentry Crook, Texas Law Review
Much controversy has attended the Court of Appeals for the Federal Circuit in its relatively short lifetime. Congress established the court in 1982 by combining the previous Court of Customs and Patent Appeals with the previous Court of Claims,1 intending the Federal Circuit to "receive all patent appeals" in addition to inheriting the dockets of its predecessor courts.2 The Senate Judiciary Committee expected this consolidation of all patent appeals to the Federal Circuit to "increase doctrinal stability in the field of patent law,"3 and identified patent law as presenting a "special need for national uniformity."4 The very idea of a "specialty court" was controversial;5 indeed, proposals to create a court for patent appeals were repeatedly debated and defeated over a period of nearly a century before the creation of the Federal Circuit.6 As is discussed further below, the most vigorous criticism of the Federal Circuit since its creation has come in the last few years, and has largely been in response to both the court's handling of certain antitrust issues and the court's application of its own interpretation of law to issues at the boundary between patent law and other areas of law.7 The Federal Circuit most generally announced this use of its own interpretation of law for boundary issues in Midwest Industries, Inc. v. Karavan Trailers, Inc.8
This Note argues that Midwest is linked in important ways to a recent Supreme Court case involving jurisdiction of the Federal Circuit, Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc.9 Most appeals heard by the Federal Circuit include a patent claim asserted by the plaintiff, but the Federal Circuit has also heard appeals in which the patent issues arose only in a counterclaim.10 In June 2002, the Supreme Court held in Vornado that the Federal Circuit does not have jurisdiction over appeals of cases in which the only patent claim is raised in a counterclaim.11 By restricting the jurisdiction of the Federal Circuit, the Vornado decision promises to lessen the impact of the Federal Circuit's recent expansion, articulated in Midwest, of the areas to which it applies its own interpretation of the law. Furthermore, as discussed below, Vornado arose in part from Midwest and other similar cases, in that these cases helped set up the forum-shopping opportunity that motivated Vornado and they may have also fueled a perception of overreaching by the Federal Circuit.12
The Vornado-Midwest link is instructive in exploring both the form that Federal Circuit jurisdiction should take in the future and the proper treatment by both the Federal Circuit and the regional courts of appeals of cases at the boundary between patent law and other areas of law. The Vornado decision effectively overruled twelve-year Federal Circuit precedent,13 and apparently came as a surprise to much of the patent bar.14 Multiple law review articles and student notes analyzing the decision have appeared.15 Some of these pieces argue that Vornado was incorrectly decided,16 and almost all of them advocate legislation to effectively reverse the decision.17 A committee of the Federal Circuit Bar Association has also proposed a legislative fix.18 In assessing the desirability of such legislation, there are several underlying questions to consider. First of all, was Vornado correctly decided? Furthermore, does the decision represent a rebuke of the Federal Circuit on additional grounds not stated in the opinion-a perceived overreaching of the court in areas outside of patent law, particularly in antitrust law? Is alarm over the Federal Circuit's treatment of antitrust claims justified? Finally, what are the likely implications of the Vornado ruling for patent and antitrust claims? This Note considers these questions. Part II reviews Federal Circuit jurisdiction in the time leading up to Vornado, while Part III considers the Supreme Court's Vornado opinion. I address the Federal Circuit's treatment of antitrust claims in Part IV, and likely implications of the Vornado decision for patent and antitrust claims in Part V. Part VI considers what, if anything, should be done in the wake of the decision.
II. Federal Circuit Jurisdiction Leading Up to Vornado
Congress defined the jurisdiction of the Federal Circuit with respect to patent appeals by adding § 1295 to Title 28 of the United States Code. Section 1295 states in relevant part that the Federal Circuit "shall have exclusive jurisdiction . . . of an appeal from a final decision of a district court . . . if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title," except that copyright and trademark claims under § 1338 do not in themselves invoke Federal Circuit jurisdiction.19 Section 1338 provides that "district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks."20 The question of whether a patent issue in a counterclaim would be sufficient to invoke appellate jurisdiction in the Federal Circuit was considered by commentators virtually immediately upon the court's inception.21 It took some time, however, for the issue to be squarely addressed by the Federal Circuit itself. In 1984, despite being requested to address this issue in Atari, Inc. v. JS & A Group, Inc.22 the court declined to do so on the ground that such circumstances were not at that time before it.23 Then, in two 1986 decisions, the Federal Circuit alluded to the question in dicta.
A, Schwarzkopf Development Corp. v. Ti-Coating, Inc.
In Schwarzkopf Development Corp. v. Ti-Coating, Inc.,24 the complaint was for royalties due under a patent licensing agreement, and the defendant filed counterclaims including one for a declaratory judgment of invalidity, unenforceability, and noninfringement of the licensed patents.25 The counterclaims were dismissed on the plaintiff's motion without opposition by the defendant.26 Because a suit involving payment of royalties under a patent license is recognized as a contract suit rather than a patent suit, the only possible basis for Federal Circuit jurisdiction was the patent-law counterclaim.27 The Federal Circuit held that "the transient appearance of the counterclaim did not give it irrevocable control of the jurisdictional basis of the case."28 However, the court indicated that the result would be different had the counterclaim not been dismissed: "Thus appellate jurisdiction over suits involving a § 1338 counterclaim is assigned to the Federal Circuit. However, this jurisdictional consequence required something more than the mere filing, followed by the unopposed dismissal, of a counterclaim."29
B. In re Innotron Diagnostics
In another 1986 case, In re Innotron Diagnostics,30 the plaintiff sued the defendant-patentee for antitrust violations.31 Subsequently, the defendant filed a separate suit in the same district court for patent infringement.32 When the plaintiff moved to dismiss the defendant's complaint as being a compulsory counterclaim to the antitrust action, the cases were consolidated.33 When the district court ordered that the patent issues be separated from the antitrust issues and tried before trial of the antitrust issues, the plaintiff petitioned the Ninth Circuit for a writ ordering the district court to reconsolidate the cases.34 The Ninth Circuit ordered that the petition be presented to the Federal Circuit instead.35 In arguing before the Federal Circuit that it did not properly have appellate jurisdiction over the case, the plaintiff apparently asserted that "[t]he district court's consolidation of the cases produced the same status as that which would have obtained if [the defendant] had filed its patent claim as a counterclaim."36 The court agreed with this characterization and stated that either situation would invoke its appellate jurisdiction:
Thus, whether 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.37
C. Xeta, Inc. v. Atex, Inc.
The First Circuit, in Xeta, Inc. v. Atex, Inc., relied on Schwarzkopf and Innotron in deciding to transfer an appeal to the Federal Circuit.38 The plaintiff in Xeta alleged an antitrust claim, and the defendant counterclaimed for patent infringement.39 In citing Schwarzkopf and Innotron, the First Circuit noted: "Notwithstanding the conventional requirement that the plaintiff's case establish the basis of district court jurisdiction, the Federal Circuit has issued two decisions acknowledging its potential appellate jurisdiction where a plaintiff files a non-patent complaint which is met with a patent-related counterclaim."40 Upon determining that the defendant's counterclaim was not frivolous or otherwise illegitimate, the First Circuit transferred the appeal to the Federal Circuit.41
D. Christianson v. Colt Industries Operating Corp.
The Supreme Court first ruled on the jurisdiction of the Federal Circuit in 1988 in Christianson v. Colt Industries Operating Corp.42 This case is unusual in that the Federal Circuit had initially found that it did not have jurisdiction and transferred the case to the Seventh Circuit;43 the Seventh Circuit, however, transferred the case back to the Federal Circuit.44 Despite maintaining that it did not have jurisdiction, the Federal Circuit went on to address the merits of the case, presumably to aid the parties by ending the ongoing "game of jurisdictional ping-pong."45 There were no patent-law claims in the Christianson complaint or in any counterclaim, but at least one theory of the antitrust violations alleged in the complaint involved patent law issues.46 In fact, the plaintiff's summary judgment motion, which the district court granted, relied solely on a theory of patent invalidity.47 The Court held that the "arising under" language of § 1338 must be interpreted in the same way as the "arising under" language of 28 U.S.C. § 1331, which establishes general federal question jurisdiction.48 In particular, the Court held that the well-pleaded complaint rule governing federal question jurisdiction applies to district court jurisdiction under § 1338, and therefore to Federal Circuit jurisdiction (under 35 U.S.C. § 1295).49 Adapting language from an earlier decision regarding federal question jurisdiction,50 the Court stated that "§ 1338(a) jurisdiction likewise extend[s] 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."51 According to the Court, the Christianson plaintiff's complaint did not necessarily depend on federal patent law because the complaint encompassed possible alternative theories not depending upon patent law.52
E. Aerojet-General Corp. v. Machine Tool Works, Oerlikon-Buehrle Ltd.
In the wake of Christianson, Aerojet finally presented the Federal Circuit with a case having a patent claim raised only as a counterclaim.53 The complaint in Aerojet included various state law claims along with a claim for a declaratory judgment that trade secrets were not misappropriated.54 The defendant filed counterclaims, including one for patent infringement which the parties agreed was compulsory.55 In holding that it did have appellate jurisdiction over the case, the Federal Circuit reviewed its earlier statements in Schwarzkopf56 and Innotron57 and then considered the position embraced in the decisions-that the "in whole or in part" language of § 1295 encompasses cases invoking patent-law jurisdiction through a compulsory counterclaim-in view of Christianson.58
The Federal Circuit first distinguished Christianson on its facts, since Christianson did not involve a counterclaim.59 Furthermore, the court found no conflict between "proper application of the well-pleaded complaint rule and our holding that this court has appellate jurisdiction when a nonfrivolous well-pleaded compulsory patent-law counterclaim is present in a case originally and properly filed in the district court."60 In particular, the court did not consider a counterclaim to be meaningfully different from a complaint in this context: "It would seem at best incongruous to hold that we have appellate jurisdiction when a well-pleaded patent infringement claim is the basis of a pleading labeled 'complaint' but not when the identical well-pleaded claim is the basis of a pleading labeled 'counterclaim.'"61 Further, the court considered a counterclaim having an independent federal jurisdictional basis as not being defeated by the well-pleaded complaint rule, noting that counterclaims having an independent jurisdictional basis have repeatedly been retained when courts had no jurisdiction over the complaint or the complaint had otherwise been dismissed.62 The court also argued that "the basic purpose underlying the well-pleaded complaint rule is to avoid 'potentially serious federal-state conflicts,'" and that such conflicts were not at issue in the instant case.63 Finally, the court stated that ignoring counterclaims for the purposes of its appellate jurisdiction would be counter to congressional intent in creating the Federal Circuit.64 Noting the desire of Congress to foster uniformity in patent law and eliminate forum shopping in patent cases, the court opined that "[directing appeals involving compulsory counterclaims for patent infringement to the twelve regional circuits could frustrate Congress's desire to foster uniformity and preclude forum shopping."65 The Federal Circuit later extended the holding of Aerojet to apply to permissive as well as compulsory counterclaims in DSC Communications Corp. v. Pulse Communications, Inc.66
III. Holmes v. Vornado and the Court's Decision
Both Holmes and Vornado sell fans and heaters.67 Prior to the lawsuit between Holmes and Vornado, Vornado had sued another competitor, Duracraft, claiming that a Duracraft fan's grill design infringed Vornado's trade dress.68 Vornado had patented a fan with the grill design at issue, but no claims regarding the validity or infringement of the patent were raised.69 The district court found that Duracraft had copied Vornado's grill design and infringed Vornado's trade dress, and it awarded injunctive relief to Vornado.70 The Tenth Circuit reversed the district court, however, holding that a product configuration claimed in a utility patent and constituting "a described, significant inventive aspect of the invention" is ineligible for trade dress protection.71
Four years after the Tenth Circuit Duracraft decision, Vornado filed a complaint against Holmes with the International Trade Commission (ITC), alleging trade dress infringement of the same spiral grill design, as well as patent infringement.72 Holmes responded by filing a request for declaratory judgment that its products did not infringe Vornado's trade dress.73 This declaratory judgment action was filed in the same court-the United States District Court for the District of Kansas-that had tried the earlier Duracraft case.74 Vornado filed a counterclaim for patent infringement with its answer.75 Holmes argued in a motion for summary judgment that the judgment of the Tenth Circuit in Duracraft collaterally estopped Vornado from asserting the same trade dress infringement claim against Holmes.76 Vornado responded that collateral estoppel should not be applied because the intervening Federal Circuit decision in Midwest Industries, Inc. v. Karavan Trailers, Inc.77 constituted a significant change in the relevant law.78 This argument relied on the assumption that Vornado's patent-infringement counterclaim would cause the appeal to be directed to the Federal Circuit rather than the Tenth Circuit.79 The district court granted summary judgment to Holmes based on collateral estoppel, while declining to "stray into [the] procedural thicket" of determining to which circuit the appeal would be directed.80
Vornado appealed the summary judgment to the Federal Circuit, and Holmes filed a brief with the Federal Circuit contesting its jurisdiction.81 In an unpublished order which did not discuss its jurisdiction, the Federal Circuit vacated the district court's judgment and remanded with instructions for the district court to reconsider the application of collateral estoppel in view of the Supreme Court's intervening decision in TrafFix Devices, Inc. v. Marketing Displays, Inc.82 The Supreme Court granted Holmes's petition for certiorari with regard to the question of whether the Federal Circuit had jurisdiction over the appeal.83
The Supreme Court, in a majority opinion written by Justice Scalia, held that the Federal Circuit does not have jurisdiction over appeals of cases in which the only patent claim is raised as a counterclaim. The Court therefore vacated the judgment of the Federal Circuit and remanded with instructions to transfer the case to the Tenth Circuit.85 justices Ginsburg and O'Connor concurred in the judgment only because Vornado's patent claim was never adjudicated in the district court, but apparently would otherwise have found jurisdiction over the appeal in the Federal Circuit.86
The majority in Vornado clearly rejected the Federal Circuit's view, as set out in Aerojet, that appellate jurisdiction based upon a counterclaim was distinguishable from the holding of Christianson. Instead, the Court found a lack of Federal Circuit jurisdiction based on a counterclaim to result from a rather straightforward application of the well-pleaded complaint rule described in Christianson.81 The Court associated a counterclaim squarely with the defendant's answer, as opposed to the Federal Circuit's interpretation of a counterclaim as not meaningfully different from a complaint for this purpose.88 Furthermore, the Court emphasized the policy of the plaintiff as '"the master of the complaint'"89 underlying the well-pleaded complaint rule, and noted that a "well-pleaded complaint-or-counterclaim rule" would undermine this policy.90
Was Holmes v. Vornado properly decided? This Note first addresses issues considered by the Court, then discusses other issues not specifically addressed by the Court but which may have impacted its ruling nonetheless.
A. Issues Addressed in the Court's Opinion
1. Is Application of the Well-Pleaded Complaint Rule to Exclude Counterclaims Required by the Court's Christianson Decision?-As discussed in Part II above, the Federal Circuit distinguished the Christianson decision in its Aerojet decision, both on the facts and by opining that a counterclaim is indistinguishable from a complaint for the purposes of applying the well-pleaded complaint rule to its appellate jurisdiction. Similar arguments were made in Vornado's brief to the Supreme Court in Vornado.91 For example, the brief characterizes Christianson as distinguishing between claims and defenses, rather than between complaints and other pleadings.92 In addition, several cases are cited in which counterclaims were found to have independent jurisdictional basis when the complaint was dismissed, or in which counterclaims were considered in calculating the amount in controversy for diversity jurisdiction.93 The brief emphasizes a phrase in Christianson-"the well-pleaded complaint rule, as appropriately adapted to § 1338(a)"94-and suggests that this adaptation to § 1338(a) properly includes recognition of a well-pleaded counterclaim as well.95
These arguments, however, take a rather tortured view of Christianson. As discussed in Part II above, Christianson clearly holds that jurisdiction under § 1338(a) should be determined using the well-pleaded complaint rule as applied to § 1331.96 Although counterclaims are not mentioned, presumably because they are not at issue, the Christianson opinion clearly states that "whether a claim 'arises under' patent law 'must be determined from what necessarily appears in the plaintiffs statement of his own claim.'"97 As noted in Holmes's brief to the Supreme Court, multiple cases have established that a counterclaim cannot support federal question jurisdiction under § 1331 and the well-pleaded complaint rule.98 It is therefore unlikely that the requirement in Christianson that jurisdiction be determined from the plaintiff's complaint was meant to leave open the possibility of jurisdiction being determined through a counterclaim. Furthermore, as pointed out in Holmes's reply brief, the alleged distinction in Christianson between a claim and an answer is not particularly significant in practice, since filing a counterclaim rather than asserting a defense is a "simple expedient."99 With respect to "adapting" the well-pleaded complaint rule to § 1338(a), the only such adapting contemplated in Christianson appears to be the substitution of "patent law" for "federal law," as opposed to any application of the rule beyond the plaintiffs complaint.100 The fact that counterclaims may be retained by a court when a complaint is dismissed does not change the precedent holding that a counterclaim does not support "arising under" jurisdiction on its own.101 For example, the practice of retaining a counterclaim in the court where it was filed does not involve disturbing "the original plaintiff's choice of law or forum."102 The Court was therefore correct in finding that application of its Christianson opinion resulted in a finding that a counterclaim did not confer appellate jurisdiction on the Federal Circuit.103
2. Does the Question of the Proper Appellate Forum for Cases Involving Patent Questions Have to Be Treated Identically to the Question of Trial Forum in the Case of General Federal Question Jurisdiction?-Setting aside Christianson for the moment, it could be argued that the standard for determining Federal Circuit appellate jurisdiction should be different than that for district court jurisdiction under § 1338. In other words, the Christianson holding could be circumscribed narrowly to its particular facts, and a counterclaim could be allowed to provide a basis for Federal Circuit appellate jurisdiction, if not necessarily for district court jurisdiction under § 1338. Commentators have advocated similar approaches,104 and the idea finds support in the concurrences of Justices Stevens and Ginsburg to the Vornado decision. Justice Stevens notes that case law involving the Temporary Emergency Court of Appeals (TECA) provides precedent