State and Federal Court Adjudication of Federal Patent Issues
Published By Principles of Patent Law 1998

Only federal courts may decide patent cases, but state courts may decide patent issues. Either court system will apply its own or the other’s law or a combination, depending on several factors. Because the correct answer can be unexpected, practitioners need to consult the case law to know what claims or issues will be tried in which system, under whose law, and where the appeal may be taken. Practitioners also need to consider choosing opponents or co-parties carefully to preserve or preclude federal diversity jurisdiction as they may desire in a particular case.

The starting point is simple. The United States Judicial Code provides: “The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trade marks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.” 28 U.S.C. § 1338(a) (1993). Thus, it is clear that “cases” and “civil action[s]” (meaning really, claims) enforcing patents are tried exclusively in federal district court under federal law. The Court of Appeals for the Federal Circuit, similarly, has exclusive jurisdiction over appeals in such cases, i.e., those “arising” at least partly under the Patent Act, and therefore the Federal Circuit can establish a uniform, national body of patent law. Then simplicity ends.

A patent issue in a non-patent case may be decided in a state court or in a federal district court sitting solely in diversity jurisdiction and relying on state law to adjudicate the state claims. In such a case, the Court of Appeals for the Federal Circuit would not review the decision; either the state appellate court or the regional United States circuit court would. Such situations are not infrequent because both contract and tort cases at times involve patents and therefore patent issues. The most common example may be actions under license agreements, which, of course, are simply contracts. Because those claims are based on state law, those cases do not qualify for the “arising under” jurisdiction of 28 U.S:C. § 1338, and therefore may be decided by a state court, or a federal district court applying state law to parties of diverse citizenship. However, while state law applies to the state claim, federal patent law applies to the patent issue. Moreover, the question may arise of which body of a state’s law applies. Here are three examples of unexpected jurisdictional outcomes:

I. State Contract Law Governs Damages in Federal Court for Breach of Agreement Settling a Patent Case When Breach and Infringement Are Not Identical

As has been shown in the excerpt from Gjerlov v. Schulyer Laboratories, Inc., 131 F.3d 1016, 1025, 44 USPQ2d 1881, 1090 (Fed.Cir.1997), patent damages under 35 U.S.C. §§ 284, 285 are not available for a violation of a settlement agreement concluding an earlier patent infringement action when violation of that agreement did not require infringement of the patent. Given the absence of a finding of infringement in Gjerlov, the patentees were only entitled to breach of contract damages under state law.

The litigants in Gjerlov stipulated in the consent decree that the federal district court retained jurisdiction to enforce the settlement agreement. Under the same factual scenario, but without the specific provision in the consent decree and absent diversity jurisdiction, the patentee would have had to file an action in state court for breach of contract.

II. Ownership and Validity of a Patent Can Be Determined in State Court But Primarily Under Federal Law

Ownership and inventorship of a patent may be determined by a state court where they are issues raised by a state court action or claim. When the state court applies federal patent law, and in particular Federal Circuit law, it may confront patent concepts with which it may be unfamiliar. For example, a plaintiff may seek equitable and declaratory relief in state curt that he is the inventor and owner of a patent application. It is conceivable that the state court could dismiss the case holding that it lacked subject matter jurisdiction. Inventorship and ownership, however, do not arise under or otherwise present a substantial question of patent law. Therefore, a dismissal by the state court would be inappropriate. Once the jurisdictional hurdles are surmounted, the state court may face the task of applying complicated and unfamiliar federal patent law doctrines of conception and/or reduction to practice.

As a second example, a licensor could sue a licensee in state court for breach of a license to use patented technology. Although the licensee could file an action in federal court for declaratory judgment of invalidity thus properly invoking federal question jurisdiction, the licensee could assert a defense in the state action that it did not breach the license agreement because the patent upon which it is based is invalid. Under such a scenario, without diversity jurisdiction, the state court would determine the validity of the patent in route to a decision on whether the license agreement was breached.

III. Inequitable Conduct Before the United States Patent and Trademark Office Might Be Determined By a State Court

Even inequitable conduct before the United States Patent and Trademark Office, when it is part of a state law claim, might be tried to a state court, or a federal district court exercising diversity jurisdiction. A state law tort claim might not be preempted by the federal patent law, even if it requires the state court to adjudicate an issue under federal patent law, provided the state law cause of action includes additional elements not found in the federal patent law issue or action and is not an obstacle to implementing the Patent Act or an impermissible attempt to offer patent-like protection to subject matter excluded from protection by federal law.

For example, a plaintiff could file a declaratory judgment action of noninfringement invoking section 1338 jurisdiction against the patentee and also alleging the state law tort of intentional interference with prospective and actual contractual relations. Specifically, in its state law tort china, plaintiff alleges that the patentee has threatened plaintiff and plaintiff’s customers with infringement suits knowing that it obtained its patent by inequitable conduct. Subsequently, the defendant patent grants plaintiff and its customers a perpetual license at no cost, and hence immunity from suit for infringement under the patent. As a result, the district court would dismiss the declaratory judgment action, because plaintiff no longer has a reasonable apprehension of being sued for infringement.

After dismissal of the declaratory judgment action, the district court might refuse to allow plaintiff to present evidence of the patentee’s alleged inequitable conduct in connection with the remaining state law claim, doubting that it could decide the issue of inequitable conduct under the guise of a state law tort. While true that the district court acting in its state court capacity may be required to decide an issue of patent law in reaching its judgment on the underlying tort, this determination would only be ancillary to its central purpose: determination of the tort of intentional interference with prospective and actual contractual relations.

If, in addition, federal diversity jurisdiction does not exist, the business tort claim, including the allegation of inequitable conduct, would be triable in a state court. In any case, a state court might have authority to address patent issues so long as the action itself does not arise under the patent laws.

IV. Conclusion

These hypotheticals illustrate that what claims and what issues involving patents get tried in state versus federal court and which sovereign’s law applies are not self evident but require clue analysis of complex case law. A potential plaintiff has available different forums for both the trial and any appeal, but the plaintiffs choices at the time of filing suit determine the state or federal trial forum, and also the state or federal appellate forum, including whether any appeal goes to the regional federal circuit court or to the Federal Circuit. In addition, the selection of which parties to sue can be fateful.

Reprinted with permission from Foundation Press.