A “fact-bound question of patent infringement” was insubstantial and so did not prevent the U.S. Court of Appeals for the 11th Circuit from claiming jurisdiction over an appeal in a July 1 decision (MDS (Canada) Inc. v. Rad Source Technologies Inc., 11th Cir., No. 11-15145, 7/1/13).
The appeal largely depended on interpretation of a licensing agreement provision that prevented the defendant patent owner from introducing new products that infringed the patents licensed exclusively to the plaintiff. The court rejected the defendant’s argument that the appeal should be transferred to the Federal Circuit to resolve the infringement question.
The decision comes on the heels of–and frequently quotes–the U.S. Supreme Court’s holding in February that determining whether a “substantial inquiry” of patent law exists requires assessment of “the importance of the issue to the federal system as a whole.” Gunn v. Minton, 133 S. Ct. 1059, 105 U.S.P.Q.2d 1665 (2013) (35 PTD, 2/21/13).
The 11th Circuit went further by defining a three-factor test for determining substantiality.
Contract Terms Questioned
Rad Source Technologies Inc. owns patents (U.S. Patent Nos. 6,212,255; 6,489,099; and 6,614,876) covering its RS 3000 blood irradiation device.
Rad Source approached MDS Nordion, an affiliate of MDS (Canada) Inc., with a licensing deal, and after a few years, the companies finally agreed. Section 3.1 of the agreement:
• gave to Nordion “exclusive right and license … to use the Licensed Technology”;
• provided an exception in “Rad Source’s retention of the right to use the Licensed Technology” for other purposes; and
• limited that exception by preventing development or marketing of “a medical device for blood or blood product irradiation, which [would compete with the RS 3000] and which embodies, in whole or in part, the Patents.”
Nordion was cleared to market the RS 3000 under the “Raycell” name beginning in September 2003.
Meanwhile, Rad Source had been working on a different “long tube technology,” but despite apparent mutual interest, no agreement was reached on that technology before Nordion agreed to sell its assets to Best Theratronics Ltd.
However, Rad Source refused consent to the assignment of the Raycell agreement to Best. It proceeded with its long tube technology plans and introduced the RS 3400 in September 2009.
Nordion sued Rad Source in the U.S. District Court for the Southern District of Florida. Nordion claimed breach of contract in that the RS 3400 embodied the patents to which it had exclusive rights.
Judge Alan S. Gold denied Nordion’s claims on the merits in a final judgment on Sept. 30, 2011. 822 F. Supp. 2d 1263, 2011 BL 250487 (S.D. Fla. 2011). Gold granted Rad Source declaratory relief that the RS 3400 does not embody the patents.
Nordion appealed to the 11th Circuit. Rad Source argued in its brief that the Federal Circuit had exclusive jurisdiction over the appeal because the question of embodiment effectively meant patent infringement.
Three-Factor Test for Patent Issue Substantiality
In a per curiam opinion, the court first addressed its jurisdiction in light of Rad Source’s argument.
“This appeal presents a jurisdictional issue of first impression in our Court: whether the Federal Circuit has exclusive jurisdiction to hear an appeal of a breach of contract claim that would require the resolution of a claim of patent infringement for the complainant to succeed,” the court said.
At the time this appeal was filed–before the America Invents Act was enacted in 2011–the Federal Circuit had jurisdiction under 28 U.S.C. §1295 of district court decisions “based, in whole or in part, on section 1338 of this title.”
Federal courts’ exclusive jurisdiction over patent issues under 28 U.S.C. §1338 was limited by Gunn v. Minton‘s “substantiality inquiry,” the court said, and that inquiry relies on a three-factor test:
• “First, a pure question of law is more likely to be a substantial federal question,” the court said, citing Empire Healthchoice Assurance Inc. v. McVeigh, 547 U.S. 677, 700-01 (2006).
• Also citing McVeigh, the court said, “Second, a question that will control many other cases is more likely to be a substantial federal question.”
• “Third, a question that the government has a strong interest in litigating in a federal forum is more likely to be a substantial federal question,” the court said finally, citing Grable & Sons Metal Products Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308. 315-16 (2005).
Though the court looked at each factor separately, its reasoning for determining that each weighed against substantiality cited and described the “fact-bound” inquiry in this case. For example, as to the second factor, the court said, “Both the highly specialized nature of patent claims and the niche market for blood irradiator devices suggest that the resolution of this issue is unlikely to impact any future constructions of claims.”
With all three factors weighing against substantiality, the court said that to conclude that the breach of contract issue “ ’arises under the patent laws’ … would upset the ‘congressionally approved balance of federal and state judicial responsibilities,’ ” quoting Grable, 545 U.S. at 314.
The district court therefore did not have jurisdiction under 28 U.S.C. §1338, the court said, and therefore, “the Federal Circuit does not have exclusive jurisdiction over this appeal.” The appeal jurisdiction was based only on the district court’s diversity and supplemental jurisdiction, the court concluded.
‘Standard’ Claim Construction, Infringement Analysis
After rejecting arguments about the ambiguity of the parties’ licensing agreement and agreeing that the “embodies” question reduced to patent infringement, the court conducted that analysis in light of Federal Circuit and Supreme Court precedents, with only one exception.
The 11th Circuit cited its own jurisprudence in affirming the trial judge’s decision to exclude evidence of a patent attorney proffered as an expert witness. In so doing, it determined that the attorney was not a person having ordinary skill in the art at issue here.
The court reviewed claim construction de novo and, comparing each element of the RS 3400 to a construed claim of the ‘255 patent, agreed with the district court’s judgment that the device did not infringe the claim, either literally or under the doctrine of equivalents.
Another patent-related question arose because Rad Source had failed to pay maintenance fees on the ‘255 patent, but the court readily determined that, even if that was a breach of its contract responsibilities, Nordion suffered no harm by the breach.
The remainder of the court’s opinion related to non-patent contract breach issues, virtually all of which were resolved in favor of Rad Source.
The panel issuing the opinion comprised Chief Judge Joel F. Dubina and Judges William H. Pryor Jr. and R. Lanier Anderson III.
Pryor filed a partial dissent, but his disagreement with the majority had nothing to do with the jurisdiction- or patent-related analyses.
Richard O’Shea Wolf of Moore & Lee, McLean, Va., represented Nordion and Best. Anuj Desai of Arnall Golden & Gregory, Atlanta, represented Rad Source.