Xitronix Corporation v. KLA-Tencor Corporation , 916 F.3d 429 ( 2019 )

Case: 18-50114 Document: 00514838084 Page: 1 Date Filed: 02/15/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 18-50114 FILED
February 15, 2019
Lyle W. Cayce
XITRONIX CORPORATION, Clerk
Plaintiff - Appellant
v.
KLA-TENCOR CORPORATION, doing business as KLA-Tencor,
Incorporated, a Delaware Corporation,
Defendant - Appellee
Appeal from the United States District Court
for the Western District of Texas
Before JOLLY, DENNIS, and HIGGINSON, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:
The substantive issue in this appeal is whether a jury should hear
Xitronix Corporation’s claim that KLA-Tencor Corporation violated the
Sherman Act’s prohibition of monopolies by obtaining a patent through a fraud
on the U.S. Patent and Trademark Office (“PTO”). What must first be decided,
however, is whether we can reach that issue despite the Federal Circuit’s
exclusive jurisdiction over cases arising under federal patent law. That court
transferred this case to us, but we find it implausible that we are the proper
court to decide this appeal. With respect, therefore, we transfer it to the U.S.
Court of Appeals for the Federal Circuit.
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I
This is the third round of litigation between Plaintiff–Appellant Xitronix
Corporation and Defendant–Appellee KLA-Tencor Corporation (“KLA”),
competitors in the “semiconductor wafer optical inspection market.” Optical
inspection technology is used for quality control in the production of
semiconductor wafers, which are essential components of circuits in computers
and other electronic devices. We understand from the parties that an optical
inspection device employs two lasers, a “pump” beam and a “probe” beam, in
tandem. The pump beam heats the surface of a semiconductor sample. The
probe beam, in turn, detects changes in the semiconductor surface. The device
converts the changes detected by the probe beam into an electrical signal,
which it then measures. The device can thereby precisely observe the
composition of the semiconductor sample, helping manufacturers ensure that
their processes are working as intended.
A
Litigation began in 2008 with Xitronix seeking a declaratory judgment
against KLA. According to Xitronix, KLA was and is the dominant player in
the semiconductor optical inspection market, with approximately eighty-
percent market share. KLA had examined the technology that Xitronix was
then bringing to market and amended a pending patent application to cover
Xitronix’s technology. This application resulted in the issuance of U.S. Patent
7,362,441 (“the ’441 patent”). In this first lawsuit, Xitronix sought a declaration
of non-infringement and of the ’441 patent’s invalidity.
In November 2010, a jury entered a verdict in Xitronix’s favor. When the
district court entered final judgment in January 2011, it explained that the
central issue at trial was the wavelength of the probe beam used by Xitronix.
The claims of the ’441 patent at issue in the case specified a wavelength
between 335 and 410 nanometers (nm) and said that such wavelength “is
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selected to substantially maximize the strength of the output signals
corresponding to the modulated optical reflectivity response.” 1 The probe beam
in Xitronix’s device was fixed at a wavelength of 373 nm, putting it and KLA’s
patent squarely in conflict. The jury found that Xitronix’s technology infringed
one claim of KLA’s ’441 patent but that this claim was anticipated by prior art:
the “Therma-Probe” device and an earlier patent, the ’611 or “Alpern” patent.
The jury also found three other claims of KLA’s ’441 patent invalid due to
obviousness. The district court ruled that ample evidence supported the jury’s
findings. It identified two additional pieces of prior art, Batista and
Mansanares: “[E]ach and every element of the asserted claims were present in
the combination of prior art Therma-Probe, Batista, Mansanares, and the ’611
[Alpern] patent.” The district court also ruled one of the claims invalid as
indefinite. KLA did not appeal the judgment in the ’441 litigation.
In March 2011, Xitronix commenced the second suit, bringing business
tort claims against KLA for publicly accusing Xitronix of patent infringement.
The district court, which remanded the case to Texas state court, later
explained that the state district court ruled in favor of KLA “for unspecified
reasons.” Neither party advises that this second litigation has any bearing on
the present appeal.
B
The present case began in December 2014. Xitronix alleged a single
Walker Process claim: monopolization through use of a patent obtained by
fraud on the PTO. 2 The patent purportedly resulting from KLA’s fraud on the
1 U.S. Patent No. 7,362,441 (issued April 22, 2008).
2 Walker Process Equip., Inc. v. Food Machinery & Chem. Corp., 382 U.S. 172, 174
(1965) (“[T]he enforcement of a patent procured by fraud on the Patent Office may be violative
of § 2 of the Sherman Act provided the other elements necessary to a § 2 case are present.”)
A showing of fraud on the PTO requires “(1) a false representation or deliberate omission of
a fact material to patentability, (2) made with the intent to deceive the patent examiner, (3)
3
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PTO is U.S. Patent No. 8,817,260 (“the ’260 patent”). It is a continuation of an
earlier patent, the ’486 patent, which was itself a continuation of the ’441
patent at issue in the parties’ first litigation. KLA filed the application that
yielded the ’260 patent in November 2009, U.S. Application No. 12/616,710, 3 a
year before the jury entered its verdict invalidating the ’441 patent. The
litigation of ’441 and the prosecution of ’260 unfolded in tandem. It is KLA’s
representations to the PTO concerning the ’441 litigation while conducting the
’260 prosecution that are at issue here.
In February 2010, KLA submitted an Informational Disclosure
Statement (“IDS”) with sixty works potentially containing relevant prior art.
This IDS included the key sources on which the jury would invalidate the ’441
patent later that year as well as summary judgment briefing from the
litigation. In August 2010, the PTO examiner, Layla Lauchman, initialed and
signed the IDS, thereby acknowledging these sources. On November 5, 2010,
the jury returned its verdict invalidating the ’441 patent. On November 18,
Michael Stallman, KLA’s patent prosecution attorney, submitted the jury’s
verdict in the ’441 litigation to the PTO and sought to explain its meaning. He
acknowledged an Office Action of August 18 that rejected the claims in the ’260
application on the grounds of “non-statutory obviousness-type double
patenting” in view of the ’441 patent. 4 This means that, as of 2010, the PTO
on which the examiner justifiably relied in granting the patent, and (4) but for which
misrepresentation or deliberate omission the patent would not have been granted.” C.R.
Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1364 (Fed. Cir. 1998). “To establish the
antitrust portion of a Walker Process allegation, a plaintiff must show that the defendant
held monopoly power in the relevant market and willfully acquired or maintained that power
by anticompetitive means.” Delano Farms Co. v. Calif. Table Grape Comm’n, 655 F.3d 1337,
1351 (Fed. Cir. 2011) (citing C.R. Bard, 157 F.3d at 1367–68).
3 For simplicity’s sake, we use “260” to identify this application.
4 Patent law guards against attempts to obtain multiple patents for the same
invention. To that end, the PTO issues “double patenting rejections” in two forms. One is a
“statutory” rejection, which reflects a judgment that a patent holder is trying to patent the
same invention again. The other is a “non-statutory” rejection, which is “based on a judicially
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saw claims in the ’260 application as obvious in light of claims later invalidated
in the ’441 litigation. Stallman responded to this rejection by agreeing to a
“terminal disclaimer” of the claims in the pending ’260 application. 5
The district court entered final judgment in the ’441 litigation on
January 31, 2011. On February 2, Lauchman issued a Notice of Allowability
as to the ’260 patent application predicated on the terminal disclaimer to which
KLA had agreed. On February 10, Stallman filed another IDS, bringing the
final judgment in the ’441 litigation and the district court’s accompanying
order to the PTO’s attention. He submitted a Request for Continued
Examination as well.
The PTO did not act on the application again for two years, by which
time a new examiner, Willie Merrell, was handling it. His initials, dated July
12, 2013, appear on the IDS from February 2011 containing the final judgment
and related documents, suggesting he had seen and considered the references.
In an Office Action dated July 25, 2013, Merrell rejected much of the ’260
application. He did so without reference to the final judgment in the ’441
litigation, to the PTO’s prior non-statutory double patenting rejection, or to the
materials on which the judgment in the ’441 litigation was based. Instead, he
conducted a novel analysis based on other prior art further afield.
created doctrine grounded in public policy and which is primarily intended to prevent
prolongation of the patent term by prohibiting claims in a second patent not patentably
distinct from claims in a first patent.” Manual of Patent Examination Procedure § 804
(emphasis added). “A rejection for obvious-type double patenting means that the claims of a
later patent application are deemed obvious from the claims of an earlier patent.” Quad
Envtl. Techs. Corp. v. Union Sanitary Dist., 946 F.2d 870, 873 (Fed. Cir. 1991).
5 A terminal disclaimer “relinquishes a terminal part of the time span of the patent
right in the patent as a whole.” 1 Moy’s Walker on Patents § 3:68 (4th ed., 2017). “[A] terminal
disclaimer is a strong clue that a patent examiner and, by concession, the applicant, thought
the claims in the continuation lacked a patentable distinction over the parent.” SimpleAir,
Inc. v. Google LLC, 884 F.3d 1160, 1168 (Fed. Cir. 2018). That said, the Federal Circuit’s
cases “foreclose the inference that filing a terminal disclaimer functions as an admission
regarding the patentability of the resulting claims.” Id. at 1167.
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Despite this rejection, the ’260 patent did eventually issue. Xitronix’s
claims concern the actions by KLA making that possible. Stallman filed a
response to Merrell in October 2013. The remarks in that filing are one basis
for the fraud element of Xitronix’s Walker Process claim. Merrell responded in
January 2014, standing by his previous rejection. Stallman responded in
March 2014 with more remarks––another filing central to Xitronix’s Walker
Process claim. A Notice of Allowability soon issued, in which Merrell briefly
explained that KLA’s arguments “have been fully considered and are
persuasive.” The ’260 patent issued in August 2014, and Xitronix’s Walker
Process suit followed that December.
Xitronix alleged that KLA’s procurement of the ’260 patent impeded its
ability to finance its entrance into the market for optical inspection technology.
At summary judgment, the litigation focused on whether Xitronix had created
issues of material fact as to two elements of fraud on the PTO: whether KLA
had made material misrepresentations or omissions to the PTO, and whether
those were a but-for cause of the ’260 patent’s issuance. The district court
found that Stallman’s remarks in his October 2013 and March 2014 filings
were confined to those pieces of prior art specifically addressed by Merrell in
previous Office Actions and contained no broader misrepresentations. To the
extent Stallman mischaracterized the prior art, the district court reasoned,
this was permissible attorney argument, not fraud. Stallman was free to make
such argument, and the examiner was free to reject it, because Stallman had
submitted all relevant materials from the ’441 litigation already.
The district court also found no but-for causation. Notably, it was not
because the court viewed the ’441 and ’260 patents as dissimilar, such that the
former would not control the latter. Indeed, the court saw them as similar.
Rather, it saw the PTO as making a fully conscious and informed choice.
Granting summary judgment to KLA, the district court wrote:
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Although Xitronix has repeatedly argued that the examiner was
unaware of the jury verdict and final judgment invalidating the
claims at issue, the Court suspects the examiner was in fact aware
of the Court’s holding but chose to ignore it. It would not be the
first time the PTO, an administrative agency, overrode a final
judgment of an Article III court, and it will likely not be the last.
That is, according to the district court, it could not be said that the PTO relied
upon, and was thus defrauded by, KLA’s alleged misrepresentations; rather,
the PTO had a mind of its own. The district court’s grant of summary judgment
to KLA brought the case to a close, precipitating this appeal.
C
Xitronix’s appeal went originally to the Federal Circuit. Before oral
argument in the case, the panel of that court ordered briefing on transferring
the case to our court for lack of jurisdiction. Xitronix Corp. v. KLA-Tencor
Corp., 882 F.3d 1075, 1076 (Fed. Cir. 2018). The parties, who agreed that the
case belonged in the Federal Circuit, spent the bulk of oral argument on the
subject and briefed the issue further afterwards. 6 Despite the parties’
consensus, the panel was not persuaded, ruling based on Gunn v. Minton, 568
U.S. 251 (2013), that it lacked jurisdiction. Following the transfer order, KLA
petitioned for en banc rehearing, 7 which the Federal Circuit rejected by a vote
of ten to two. Xitronix Corp. v. KLA-Tencor Corp., 892 F.3d 1194 (Fed. Cir.
2018). Judge Pauline Newman dissented from that ruling, taking the panel to
task for initiating “a vast jurisdictional change for the regional circuits as well
as the Federal Circuit.” Id. at 1196.
6 Oral Argument, Xitronix Corp. v. KLA-Tencor Corp., 882 F.3d 1075 (Fed. Cir. 2018)
(No. 16-2746).
7 Notwithstanding its initial position, Xitronix opposed KLA’s en banc petition, now
agreeing with the panel that the case did not implicate the Federal Circuit’s exclusive
jurisdiction. Response of Plaintiff-Appellant Xitronix Corporation to Petition for Panel
Rehearing and Rehearing En Banc, Xitronix Corp. v. KLA-Tencor Corp., 892 F.3d 1194 (Fed.
Cir. 2018) (No. 16-2746).
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II
“Federal courts are courts of limited jurisdiction,” possessing “only that
power authorized by Constitution and statute.” Kokonnen v. Guardian Life Ins.
Co. of Am., 511 U.S. 375, 377 (1994). “The requirement that jurisdiction be
established as a threshold matter ‘spring[s] from the nature and limits of the
judicial power of the United States’ and is ‘inflexible and without exception.’”
Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94–95 (1998) (quoting
Mansfield, C. & L. M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884)). Consequently,
“[w]e must always be sure of our appellate jurisdiction and, if there is doubt,
we must address it, sua sponte if necessary.” Casteneda v. Falcon, Jr., 166 F.3d
799, 801 (5th Cir. 1999).
III
Under the law that prevailed for many years, it was clear that a
standalone Walker Process claim such as this would belong in the Federal
Circuit. See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 809
(1988); Ritz Camera & Image, LLC v. SanDisk Corp., 700 F.3d 503 (Fed. Cir.
2012). The parties have not identified any case that involved solely Walker
Process claims and that was decided by a circuit court other than the Federal
Circuit. Indeed, the last Walker Process case decided by the Fifth Circuit was
in 1975, before the Federal Circuit was created. See Becton, Dickinson, & Co.
v. Sherwood Med. Indus., Inc., 516 F.2d 514 (5th Cir. 1975); Federal Courts
Improvement Act of 1982, Pub. L. No. 97-164, § 127(a), 96 Stat. 25, 37 (1982).
The Federal Circuit nevertheless transferred the case to us, based on a
jurisdictional analysis that we must accept if it is at least “plausible.” See
Christianson, 486 U.S. at 819. The Federal Circuit transferred the case
because it understood Gunn v. Minton, 568 U.S. 251 (2013), to change the law
governing the allocation of cases between it and the regional circuits. There
are compelling reasons to think that Gunn did not, but the answer to this
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question is not determinative here. Under any reading of Gunn, we deem it
implausible that we can decide this appeal.
A
The Federal Circuit has “exclusive jurisdiction of an appeal from a final
decision of a district court of the United States . . . in any civil action arising
under . . . any Act of Congress relating to patents or plant variety protection.”
28 U.S.C. § 1295(a)(1). Before 2011, the statute read differently, conferring
exclusive jurisdiction “of an appeal from a final decision of a district court of
the United States . . . if the jurisdiction of that court was based, in whole or in
part, on section 1338 of this title.” Section 1338(a), in turn, gave district courts
“original jurisdiction of any civil action arising under any Act of Congress
relating to patents,” among other subjects. Id. § 1338(a).
The Supreme Court construed the earlier version of the statute in
Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988).
Christianson is the primary guide to our decision here because it furnished
several rules that control the present case. Christianson was a former
employee of Colt, the famous gunmaker, and had gone into business selling M-
16 replacement parts. Id. at 804. Colt was telling customers that Christianson
was illegally misappropriating its trade secrets, leading Christianson to sue
both for tortious inference with business relations and for violations of the
Sherman Act. Id. at 805. Christianson argued that Colt could not claim trade-
secret protection because its patents were invalid, and indeed, the district
court invalidated nine Colt patents. Id. at 806.
The Supreme Court had to decide whether the appeal belonged in the
Seventh Circuit or the Federal Circuit. Id. at 806–07. Appeal had been taken
to the Federal Circuit, which transferred it to the Seventh Circuit, and that
court then transferred it back. Id. Under protest, the Federal Circuit then
decided the case in the “interest of justice.” Id. at 807.
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With the Federal Circuit’s jurisdictional statute, § 1295, tied to § 1338,
the Court had to construe the latter provision. 486 U.S. at 807. It noted that §
1338 contained an “arising under” formulation quite like the federal-question
statute, § 1331, and was therefore susceptible to a complication that has
bedeviled the latter statute: what to do with causes of action not created by
federal law that nevertheless turn on substantial questions of federal law? The
Federal Circuit’s equivalent dilemma was deciding what to do with causes of
action not created by federal patent law that nevertheless implicate it.
The Court noted that federal-question jurisdiction had long included
state claims turning on substantial federal questions. 486 U.S. at 808; see
Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804 (1986); Franchise Tax Bd.
of Cal. v. Constrn. Laborers Vacation Trust, 463 U.S. 1 (1983); Gully v. First
Nat’l Bank in Meridian, 299 U.S. 109 (1936). The Court then announced the
following rule:
Linguistic consistency, to which we have historically adhered,
demands that § 1338(a) jurisdiction likewise extend 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, in that patent law is a necessary
element of one of the well-pleaded claims.
486 U.S. at 809.
That did not resolve the case before it, however, because not all of
Christianson’s claims depended on resolving substantial questions of patent
law. 486 U.S. at 810–11. Consequently, the Court held that lower courts should
determine whether all claims in the plaintiff’s well-pleaded complaint
necessarily depended on the resolution of a substantial question of federal
patent law. Id. “[A] claim supported by alternative theories in the complaint
may not form the basis for § 1338(a) jurisdiction unless patent law is essential
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to each of those theories.” Id. at 810. Accordingly, Christianson’s case did not
belong in the Federal Circuit.
The Court also addressed the “peculiar jurisdictional battle” between the
Seventh and Federal Circuits. 486 U.S. at 803. As noted, the Federal Circuit
had the case first but transferred it. Id. at 817. This ruling was the law of the
case, from which the Seventh Circuit departed. Id. This was not impermissible:
“A court has the power to revisit prior decisions of its own or of a coordinate
court in any circumstance, although as a rule courts should be loath to do so in
the absence of extraordinary circumstances, such as where the initial decision
was clearly erroneous and would work a manifest injustice.” Id. (quotation
omitted). Receiving the case again, the Federal Circuit disputed it had
jurisdiction but decided the case anyway. The Court ruled that this was error.
Id. at 818. But if the Federal Circuit erred by deciding the case, how then to
bring this interminable “game of jurisdictional ping-pong,” id., to a close? The
Court gave the following guidance: “Under law-of-the-case principles, if the
transferee court can find the transfer decision plausible, its jurisdictional
inquiry is at an end.” Id. at 819 (emphasis added).
Following Christianson, the Federal Circuit has regularly exercised
jurisdiction over Walker Process claims. See, e.g., Ritz Camera & Image, 700
F.3d at 506; Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059,
1072–73 (Fed. Cir. 1998). In so doing, and vital to our analysis here, the
Federal Circuit has been clear in its view that “the determination of fraud
before the PTO necessarily involves a substantial question of patent law.” In
re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1330 n.8 (Fed.
Cir. 2008) (“Cipro”) (citing Christianson, 486 U.S. at 808), abrogated on other
grounds by F.T.C. v. Actavis, Inc., 570 U.S. 136 (2013).
Other circuits have decided Walker Process cases, it should be said. Such
cases have ended up in the regional circuits because of the line drawn in
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Christianson: cases depending solely on patent theories go to the Federal
Circuit; cases not so dependent stay in the regional circuits. See, e.g., In re
Lipitor Antitrust Litig., 855 F.3d 126, 146 (3rd Cir. 2017); In re DDAVP, 585
F.3d 677, 685 (2nd Cir. 2009); Kaiser Found. Health Plan, Inc. v. Abbott Labs.,
Inc., 552 F.3d 1033, 1041–42 (9th Cir. 2009).
B
The foregoing is the backdrop to Gunn v. Minton, on which the Federal
Circuit relied here. See Xitronix, 882 F.3d at 1077. The present question is
whether, and how, Gunn altered the landscape just described.
Gunn called for the Supreme Court to decide whether a state-law legal
malpractice case arising from a patent infringement suit could be brought only
in federal court. 568 U.S. at 253–56. Minton, a developer of software for trading
securities, had hired Gunn, a patent lawyer, to sue NASDAQ and others for
infringing Minton’s patent. Id. at 253–54. In the infringement case, the federal
court had granted summary judgment against Minton, declaring his patent
invalid. Id. at 254. Minton then sued Gunn for legal malpractice, arguing that
Gunn had failed to raise a key argument in a timely manner. Id at 255. The
state district court ruled for the lawyer. Id. On appeal, Minton made a novel
argument: though he had filed the suit in state court, federal courts had
exclusive jurisdiction because the suit raised a substantial question of federal
patent law. Id. A divided Texas court of appeals disagreed, but a divided Texas
Supreme Court ruled that Minton was right. Id. at 255–56.
The United States Supreme Court reversed, holding that the case could
be brought in state court. The Court noted that both the federal-question
statute, § 1331, and the district courts’ patent jurisdiction statute, § 1338, were
implicated. 568 U.S. at 257. The Court then applied a four-factor test that it
had developed over the years to decide federal-question issues. “[F]ederal
jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily
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raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in
federal court without disrupting the federal-state balance approved by
Congress.” Id. at 258 (citing Grable & Sons Metal Prods. Inc. v. Darue Eng. &
Manuf., 545 U.S. 308, 314 (2005)).
The Court acknowledged that Minton’s lawsuit against Gunn necessarily
raised the disputed issue of Gunn’s handling of a patent case. 568 U.S. at 259.
It focused on the third and fourth parts of the test, and there it found the case
lacking. “The substantiality inquiry under Grable looks . . . to the importance
of the issue to the federal system as a whole.” Id. at 260. The patent issue in
Gunn and Minton’s case was “backward-looking,” “merely hypothetical,” and
not likely to “change the real-world result of the prior federal patent litigation.”
Id. at 261. As such, it had no importance for the federal system writ large. 8 The
Court emphasized that it would upset the balance between state and federal
judiciaries to move such legal malpractice cases exclusively into federal court,
given the states’ “special responsibility for maintaining standards among
members of the licensed professions.” Id. at 264 (quotation omitted).
Gunn gave no indication that it meant to alter Christianson or the
allocation of cases among the circuit courts. There was no occasion for it,
because the case was appealed from a state’s highest court. On the contrary,
the centrality of the Federal Circuit to patent adjudication was a premise of
Gunn’s reasoning. 568 U.S. at 261–62. Against the argument that state-court
adjudication of the patent issue in Gunn would undermine the uniformity of
federal patent law, the Court said that “Congress ensured such uniformity” by
vesting exclusive appellate jurisdiction in the Federal Circuit. Id.
8 In Grable, by contrast, a state quiet-title action turned on the Internal Revenue Code
provision governing the notice that the IRS must provide to delinquent taxpayers before
seizing their property. 545 U.S. at 310–11. This implicated “the Government’s ‘strong
interest’ in being able to recover delinquent taxes through seizure and sale of property,”
making the case suitable for resolution in a federal forum. Gunn, 568 U.S. at 260–61.
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C
Since Gunn, the Federal Circuit has incorporated a substantiality
inquiry into determinations of its own jurisdiction. See, e.g., Neurorepair, Inc.
v. The Nath Law Group, 781 F.3d 1340, 1345–49 (Fed. Cir. 2015); Jang v.
Boston Sci. Corp., 767 F.3d 1334, 1336–38 (Fed. Cir. 2014). In this case, the
court acknowledged that the case would require applying patent law but
disputed the case’s substantiality. 882 F.3d at 1078. “Patent claims will not be
invalidated or revived based on the result of this case,” and “the result [of the
case] is limited to the parties and the patent involved in this matter.” Id. at
1078. It viewed any threat to the uniformity of patent law as insubstantial. Id.
The court’s reasoning depended on several premises that we find
implausible. First, the court said that there was no dispute about the validity
of the patent at issue. 882 F.3d at 1078. In her dissent from denial of rehearing,
Judge Newman responded that this was “a puzzling statement, for that is the
dispute.” 892 F.3d at 1199. A finding of fraud on the PTO would render KLA’s
’260 patent effectively unenforceable in future cases. See C.R. Bard, 157 F.3d
at 1367 (“Fraud in obtaining a United States patent is a classical ground of
invalidity or unenforceability of the patent.”). Inequitable conduct is a defense
to a claim of patent infringement that bars enforcement of the patent.
Therasense Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1285 (Fed. Cir.
2011) (en banc). Inequitable conduct resembles the fraud element of Walker
Process, in that it requires proof of misrepresentation, scienter, and a showing
of materiality or causation. Id. at 1290. Over time, it has evolved to be
“virtually congruent with intentional fraud under Walker Process.” J. Thomas
Roesch, Patent Law and Antitrust Law: Neither Friend nor Foe, but Business
Partners, 13 Sedona Conf. J. 95, 100 (2012). Consequently, if this litigation
determines that KLA defrauded the PTO in obtaining the ’260 patent,
collateral estoppel principles would furnish a readymade inequitable conduct
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defense to any potential infringer whom KLA might sue. See Blonder-Tongue
Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 330–34 (1971).
Next, the Federal Circuit read its precedent predating Gunn in a manner
at odds with our reading of that caselaw. In Nobelpharma, a Walker Process
case, the en banc Federal Circuit said that “[w]hether conduct in the
prosecution of a patent is sufficient to strip a patentee of its immunity from the
antitrust laws is one of those issues that clearly involves our exclusive
jurisdiction over patent cases.” 141 F.3d at 1067. The Federal Circuit
distinguished Nobelpharma here, reasoning that Nobelpharma was not
deciding the venue of the appeal, but whether to apply regional circuit or
Federal Circuit precedent to various issues. 882 F.3d at 1078–79. This
distinction strikes us as immaterial. The tests for both questions turn on the
Federal Circuit’s exclusive jurisdiction over a given issue. It does not matter
that Nobelpharma analyzed its jurisdiction for one purpose rather than the
other.
The court also sought to distinguish Cipro, a Walker Process case
transferred from the Second to the Federal Circuit. 544 F.3d at 1323. Accepting
the transfer, the Federal Circuit observed that “the determination of fraud
before the PTO necessarily involves a substantial question of patent law.” Id.
at 1330 n.8 (citing Christianson, 468 U.S. at 808). The court distinguished
Cipro here because, as a transferred case, the Second Circuit’s jurisdictional
analysis had only to meet the Christianson plausibility standard. But the
Federal Circuit in Cipro stated its unqualified agreement with the Second
Circuit’s analysis, making no reference to plausibility.
We note one more case indicating that, before Gunn, the Federal Circuit
understood fraud on the PTO to present a substantial question of federal
patent law implicating its exclusive jurisdiction. In Ritz Camera & Image, an
interlocutory appeal arose from a suit in the Northern District of California
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about the standing of certain plaintiffs to bring a Walker Process action. 700
F.3d at 505. Like the present case, this appeal presented solely a Walker
Process issue, and the Federal Circuit did not even pause to consider its
jurisdiction.
Another basis for the Federal Circuit’s transfer decision is its
interpretation of post-Gunn decisions from other circuit courts. The court cited
In re Lipitor from the Third Circuit, which resolved a Walker Process claim in
2017. 882 F.3d at 1079 (citing In re Lipitor, 885 F.3d at 146). That case involved
non-patent antitrust theories, however, so the Christianson rule clearly
allocated it to the regional circuit. 855 F.3d at 146. Another case was Seed Co.
Ltd. v. Westerman, 832 F.3d 325 (D.C. Cir. 2016), a legal malpractice case
concerning the unsuccessful prosecution of a patent. Not being a Walker
Process case, Seed Co. sheds no light on whether cases solely alleging fraud on
the PTO no longer belong in the Federal Circuit. The court also cited one of our
decisions, in which the court understood us to hold that we “had
appellate jurisdiction in a case involving a state law claim based on fraud on
the PTO.” 882 F.3d at 1080 (citing USPPS, Ltd. v. Avery Dennison Corp., 541
F. App’x 386, 390 (5th Cir. 2013)). On the contrary, USPPS involved fraud
claims against a business and its lawyers following a failed patent prosecution,
but it did not involve fraud on the PTO itself. 541 F. App’x at 388–90.
Finally, the panel relied on an Eleventh Circuit case, MDS (Canada) Inc.
v. Rad Source Techs., Inc., 720 F.3d 833 (11th Cir. 2013), that provides perhaps
the strongest support for its decision to transfer this case to us. MDS was a
breach of contract action concerning a licensing agreement between Nordion
and Rad Source. Rad Source had three patents for blood irradiation devices,
which it licensed to Nordion, such that Nordion would market and sell Rad
Source’s RS 3000 device. Id. at 838. After a falling out, Rad Source began to
develop a new product based on the same patents, the RS 3400, which it would
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sell independently of Nordion. Id. at 840. Litigation ensued, with Nordion
alleging that Rad Source had breached their agreement by independently
developing a product covered by one of the patents subject to the license
agreement. Id. at 840. This injected an infringement issue into the case.
During the litigation, Nordion learned that Rad Source had allowed that
patent to lapse. Id. at 840–41. This gave Nordion an additional breach of
contract theory. Id.
The Eleventh Circuit ruled that it, and not the Federal Circuit, had
jurisdiction over the appeal. 720 F.3d at 841. It reasoned that the case
presented claims under state contract law and thus that the district court had
exercised diversity jurisdiction, not original jurisdiction by virtue of a federal
question or a federal patent issue. Id. There was a question of patent
infringement in the case, but, like the patent issues in Gunn, it was backward-
looking and insubstantial because it indisputably concerned a since-expired
patent. Id at 842–43. Therefore, the issue was not substantial enough to
implicate the district court’s “arising under” patent jurisdiction. Id. The court
then proceeded to resolve the patent infringement issue. Id. at 846–48.
In the present case, the Federal Circuit noted the Eleventh Circuit’s
substantiality analysis in MDS and said that it “confirm[ed] the correctness of
[their] decision” to transfer the case. 882 F.3d at 1079–80. Judge Newman
pointed out two distinctions: first, that the patent at issue in MDS was expired,
whereas KLA’s patent in the present case remains operative; and second, that
MDS did not address whether the Walker Process element of fraud on the PTO
implicates federal patent law. 892 F.3d at 1201. As such, it is only so helpful
in figuring out whether Gunn requires the present case to be transferred away
from the Federal Circuit.
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D
To reject the Federal Circuit’s transfer decision, we must not only
disagree with its reasoning; we must find it implausible. We do not take this
step lightly. With due regard for our colleagues on a coordinate court, we
nevertheless conclude that it is implausible for us to resolve this appeal.
The initial question is whether Gunn meant to change the Federal
Circuit’s jurisdiction, in addition to changing district courts’ jurisdiction.
Assuming that it did, we think that this appeal presents a substantial question
in the sense that the Supreme Court has articulated. Under Gunn, “[t]he
substantiality inquiry. . . [looks] to the importance of the issue to the federal
system as a whole.” 568 U.S. at 260. The Court in Gunn relied on two examples:
Grable, 545 U.S. 308, and Smith v. Kansas City Title & Trust Co., 255 U.S. 180
(1921). Grable concerned the validity of a foreclosure and sale by the IRS of a
delinquent taxpayer’s property. 545 U.S. at 315. Smith concerned the
constitutionality of certain federal bonds, challenged by a shareholder seeking
to block a company from buying them. 255 U.S. at 201. Both cases put the
legality of a federal action in question, in a manner that would have broader
ramifications for the legal system. By contrast, Gunn, as a legal malpractice
case, entailed a “merely hypothetical,” “backward-looking” review of a lawyer’s
conduct regarding a now-invalid patent. 568 U.S. at 261. Nothing broader was
at stake. Gunn also perceived no precedential or preclusive implications if a
state court resolved the case.
This case concerns a patent that is currently valid and enforceable,
issued following a PTO proceeding heretofore viewed as lawful. This litigation
has the potential to render that patent effectively unenforceable and to declare
the PTO proceeding tainted by illegality. This alone distinguishes the present
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case from Gunn. 9 The adjudication of this Walker Process claim also implicates
the interaction between the PTO and Article III courts. The district court’s
acerbic statements about the PTO at summary judgment point to the
complexity of relations between proceedings in federal court and before the
PTO.
Moreover, the fraud element of Xitronix’s claim can be adjudicated only
with reference to patent law. Walker Process requires showing that a given
statement or omission was “material to patentability.” C.R. Bard, Inc., 157
F.3d at 1364. Here, that requires reference to the bases of the ’441 patent’s
invalidation (anticipation, obviousness, and indefiniteness), the significance of
non-statutory double patenting rejections, the nature of prior art analysis by
patent examiners, and more. Xitronix’s theories of fraud also put certain rules
in issue. For example, Xitronix bases some of its theories on the regulations
governing patent practitioners’ duties of candor to the PTO. See 37 C.F.R. §§
1.56, 10.85 (2013), 11.301. This case therefore has the potential to set
precedent on the precise scope of those duties. Compare KangaROOS U.S.A.,
Inc. v. Caldor, Inc., 778 F.2d 1571, 1576 (Fed. Cir. 1985), with Young v.
Lumenis, Inc., 492 F.3d 1336, 1349 (Fed. Cir. 2007). Such precedent can
profoundly affect the future conduct of practitioners before the PTO. Cf.
Therasense, 649 F.3d at 1289–90 (explaining the ways that the inequitable
conduct doctrine had altered patent practitioners’ behavior in PTO
proceedings). To the extent we or other circuit courts differ from the Federal
Circuit on these matters, we risk confusion for current practitioners and
forum-shopping by future litigants.
9 The Federal Circuit reasoned that any result would be “limited to the parties and
patent involved in this matter.” 882 F.3d at 1078. That may prove to be true, but it is also
likely true of many patent cases. If this consideration alone sufficed to remove a case from
the Federal Circuit’s exclusive jurisdiction, there is no telling where the line should properly
be drawn.
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The foregoing assumes that Gunn changed the scope of the Federal
Circuit’s jurisdiction, but there are compelling reasons to think that it did not.
Gunn concerned the district courts’ jurisdictional statute, § 1338, not the
Federal Circuit’s jurisdictional statute, § 1295. The Supreme Court never said
it was changing the Federal Circuit’s caseload. It spoke only to the allocation
of cases between the state and federal systems, not to the allocation of cases
between the circuit courts. The Court has said elsewhere of Congress that it
does not “hide elephants in mouseholes.” Whitman v. Am. Trucking Ass’n, 531
U.S. 457, 468 (2001). We may say the same of the Court. The elephant in the
room, as it were, is the propensity of this jurisdictional issue, if left variable,
to consume time, expense, judicial resources, and legal certainty. This
propensity is well known from the history of federal-question jurisprudence,
and excising it has been the Court’s aim in Gunn, Grable, and other decisions. 10
Given that history, we therefore disagree that the Supreme Court inserted sub
silentio such a nettlesome issue into more cases than before.
The four-factor test applied in Gunn was developed to sort cases between
state and federal courts, and it is not a tool for the task of sorting cases between
the circuits. See Gunn, 568 U.S. at 258 (“[F]ederal jurisdiction over a state law
claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed,
(3) substantial, and (4) capable of resolution in federal court without disrupting
10 The Wright & Miller treatise describes the “centrality” requirement––“the
requirement that the federal law injected by the plaintiff’s well-pleaded complaint be
sufficiently central to the dispute to support federal question jurisdiction”––as “the most
difficult problem in determining whether a case arises under federal law for statutory
purposes.” Wright, Miller, et al., Federal Practice & Procedure § 3562 (3d ed., 2018). “This
problem has attracted the attention of such giants of the bench as Marshall, Waite, Bradley,
the first Harlan, Holmes, Cardozo, Frankfurter, and Brennan. It has been the subject of
voluminous scholarly writing. Despite this significant attention, however, no single
rationalizing principle will explain all of the decisions on centrality.” Id. See also Grable, 545
U.S. at 321 (Thomas, J., concurring) (wondering if this inquiry “may not be worth the effort
it entails”).
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the federal-state balance approved by Congress.”) (citing Grable, 545 U.S. at
314). As noted, substantiality concerns “the importance of the issue to the
federal system as a whole.” Gunn, 568 U.S. at 260. That concern, however, does
not exist once the choice is between two federal circuit courts. The formulation
could be tweaked to reflect the patent-specific context, but Gunn did not tell us
to do so and thereby displace Christianson’s time-tested rule. The fourth
element is even less suited to the task of sorting cases between the circuits.
The choice between circuits for a given appeal is irrelevant to the
congressionally-approved balance of state and federal judiciaries. This is not
to say that the Gunn–Grable framework could not be adapted to the present
task, but the fact that adaptation would be necessary militates against
overreading Gunn.
Perhaps the strongest point in favor of incorporating Gunn into cases
like this one is that Christianson linked § 1295 to § 1338 and § 1331. Gunn
construed the latter two statutes together, so, under Christianson, Gunn’s
holdings arguably are automatically incorporated into § 1295. When
Christianson was decided, § 1295 referred to § 1338 expressly. By the time of
Gunn, § 1295 had been amended to stand on its own; the phrase “any civil
action arising under . . . any Act of Congress relating to patents” replaced the
reference to § 1338. It is therefore not automatic that a change to § 1338 entails
a change to § 1295.
To be sure, § 1295 retains the “arising under” formulation in common
with the other two statutes, and the Supreme Court prefers to construe like
text alike. It has refused to give identical terms the same meaning, however,
when contexts and considerations differ. See, e.g., Wachovia Bank v. Schmidt,
546 U.S. 303, 315–17 (2006) (declining to read the term “located” in venue and
subject-matter jurisdiction rules in pari materia because the rules serve
purposes that are too different). Different considerations, including
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constitutional and statutory imperatives, attend the sorting of cases between
state and federal systems and among the federal circuits. All the federalism
concerns associated with the former have no bearing on the latter, as
explained. With those set aside, the interests of uniformity and competent
application of the law, which failed to carry the day in Gunn, 568 U.S. at 261–
63, are left as determinative concerns. 11
It would be quite reasonable to have a system that imposes different
restrictions at the entrance to the federal system and at the fork in the road
leading to different circuits. The exclusionary Gunn–Grable test, screening out
most potential cases at the entrance, protects federal district courts from
overload and reflects constitutional respect for state courts and state
prerogatives. As to those cases that do make it into the federal system,
preservation of uniformity comes to the fore, furthered by Christianson’s
inclusionary test for routing appeals to the Federal Circuit. Such a test also
promotes judicial economy by simplifying the jurisdictional inquiry and
avoiding the jurisdictional ping-pong that Christianson aimed to end.
Supposing Gunn did not change the inquiry, the answer to the present
question is simple and settled. According to Christianson, the Federal Circuit’s
jurisdiction includes “cases in which a well-pleaded complaint establishes . . .
that the plaintiff’s right to relief necessarily depends on resolution of a
11 We recognize that not all view these interests as worthwhile or as achieved in
practice by exclusive Federal Circuit jurisdiction. For instance, uniformity maintained by a
single court is the inverse of percolation across multiple courts, a feature of our judiciary we
venerate. See Hon. Diane P. Wood, Keynote Address: Is It Time to Abolish the Federal Circuit’s
Exclusive Jurisdiction in Patent Cases? 13 Chi.-Kent J. Intell. Prop. 1, 10 (2013) (advocating
“‘wide open spaces’ for development of patent law, allowing new ideas to percolate and grow”);
see also Paul R. Gugliuzza, Patent Law Federalism, 2014 Wisc. L. Rev. 11, 37–42 (questioning
“the assumption that exclusive patent jurisdiction, coupled with the centralization of appeals
in the Federal Circuit, provides legal uniformity”); id at 49 (suggesting “legal uniformity may
not be as critical to the patent system as is assumed”). But we take uniformity and
competence through specialization to be Congress’s aims in centralizing exclusive jurisdiction
in the Federal Circuit, hence we must adhere to that choice in our analysis here.
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substantial question of federal patent law, in that patent law is a necessary
element of one of the well-pleaded claims.” 486 U.S. at 809. Patent law is a
necessary element of Walker Process claims. See Ritz Camera & Image, 700
F.3d at 506; Cipro, 544 F.3d at 1330 n.8. Because this case presents a
standalone Walker Process claim, there are no non-patent theories in the case
that would divert it to our court. Consequently, it belongs in the Federal
Circuit.
IV
We undertake the preceding analysis with respect for our judicial
colleagues and gratitude for the litigants’ patience over the long pendency of
this appeal. We nevertheless cannot conclude that the Federal Circuit’s
decision to transfer this case to us was plausible, given the Supreme Court’s
and Congress’s decisions to the contrary. Accordingly, IT IS ORDERED that
this case is TRANSFERRED to the United States Court of Appeals for the
Federal Circuit.
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