Tank Insulation Intl v. Insultherm Inc, et a ( 1997 )

United States Court of Appeals,
Fifth Circuit.
No. 96-40019.
TANK INSULATION INTERNATIONAL, INCORPORATED, Plaintiff-Appellant,
v.
INSULTHERM, INC.; et al., Defendants,
Insultherm, Inc.; Mark A. McBride; Thermacon, Inc., Defendants-
Appellees.
Jan. 29, 1997.
Appeal from the United States District Court for the Southern
District of Texas.
Before REYNALDO G. GARZA, JOLLY and DeMOSS, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
This appeal presents the question whether a Sherman Act
antitrust claim is a compulsory counterclaim in a patent
infringement action. The district court concluded that the claim
was a compulsory counterclaim and held that, because it was not
raised in the prior infringement action, it was barred by Federal
Rule of Civil Procedure 13(a). The district court, therefore,
dismissed the antitrust complaint, and Tank Insulation
International, Inc. ("TII") appeals. We reverse the judgment of
the district court.
I
In the fall of 1993, Insultherm, Inc. ("Insultherm") filed a
patent infringement action against TII. TII counterclaimed for a
declaratory judgment that the patent was invalid. The action was
filed in the District Court for the Southern District of Texas,
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Galveston Division. The district court dismissed Insultherm's case
under Federal Rule of Civil Procedure 52(c), holding that the
patent was unenforceable. Insultherm appealed, and the Federal
Circuit reversed and remanded, holding that the evidence was
insufficient to support dismissal of the case.
In January 1995, while the appeal of the dismissal of
Insultherm's action was pending, TII filed this antitrust action
against Insultherm, Thermacon, Inc. ("Thermacon"), and Mark McBride
("McBride") in the District Court for the Southern District of
Texas, Victoria Division. Upon agreement of the parties, the
antitrust action was transferred to the Galveston Division and was
consolidated with the infringement action that had, at that point,
been remanded by the Federal Circuit.
The trial court subsequently vacated its consolidation order.
The court then dismissed the antitrust suit, finding that it was a
compulsory counterclaim to the earlier patent infringement action
and that it had been waived by TII's failure to plead it in the
infringement answer. The district court further denied TII's
motion for leave to file the antitrust claim as a counterclaim to
the infringement action.
In accordance with 28 U.S.C. § 1295(a)(1), TII appealed to the
Federal Circuit the denial of the motion for leave to plead a
counterclaim. The Federal Circuit affirmed the denial.
Simultaneously, TII appealed the dismissal of its severed antitrust
suit to this court. It is this appeal that is before us today.
II
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A
Insultherm, Thermacon and McBride first contend that this
court lacks appellate jurisdiction over TII's appeal. In support
of their position, they rely on 28 U.S.C.A. § 1295(a)(1), which
states that "[t]he United States Court of Appeals for the Federal
Circuit shall have 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." Insultherm, Thermacon and McBride
assert that, because the trial court's jurisdiction over the
infringement action arose from section 1338, jurisdiction over the
consolidated action arose, at least in part, from that statute and,
therefore, jurisdiction is in the Federal Circuit. This
contention, however, fails to account for the trial court's
decision to vacate the consolidation order. The district court
originally had jurisdiction of the matter on appeal before us based
upon the Sherman Antitrust Act and federal question jurisdiction.
See 15 U.S.C.A. § 15(a) (West Supp.1996); 28 U.S.C.A. § 1331 (West
1993); 28 U.S.C.A. § 1337 (West Supp.1996). So long as the
actions were consolidated, section 1295 unquestionably vested the
Federal Circuit with exclusive jurisdiction of the entire action;
however, when the consolidation order was vacated, the antitrust
action returned to its original, independent status. Therefore,
appellate jurisdiction is proper in this court under 28 U.S.C.A. §
1291.
B
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The sole question remaining before us is whether an antitrust
claim based upon an alleged conspiracy to file a wrongful patent
infringement lawsuit is barred by the failure to raise the
allegation as a counterclaim in the earlier infringement action.
In short, we must determine whether the antitrust action was a
compulsory counterclaim to the patent infringement action.
(1)
Compulsory counterclaims are addressed by Federal Rule of
Civil Procedure 13(a), which reads:
[a] pleading shall state as a counterclaim any claim which at
the time of serving the pleading the pleader has against any
opposing party, if it arises out of the transaction or
occurrence that is the subject matter of the opposing party's
claim and does not require for its adjudication the presence
of third parties of whom the court cannot acquire
jurisdiction.
This rule provides the test for determining whether TII's antitrust
claim is barred by TII's failure to assert the claim in the
infringement action filed by Insultherm against TII.
We have previously addressed the appropriate inquiry to
determine whether a claim is a compulsory counterclaim. In making
such a determination, courts should ask:
(1) whether the issues of fact and law raised by the claim and
counterclaim largely are the same; (2) whether res judicata
would bar a subsequent suit on defendant's claim absent the
compulsory counterclaim rule; (3) whether substantially the
same evidence will support or refute plaintiff's claim as well
as defendant's counterclaim; and (4) whether there is any
logical relationship between the claim and the counterclaim.
Park Club, Inc. v. Resolution Trust Corp., 967 F.2d 1053, 1058 (5th
Cir.1992) (citing Plant v. Blazer Finan. Servs., 598 F.2d 1357,
1360 (5th Cir.1979)). If any of these four questions results in an
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affirmative answer then the counterclaim is compulsory. Id.
The district court applied this test and concluded that TII's
claim was barred because it was a compulsory counterclaim that TII
had failed to assert in the infringement answer. We review the
district court's decision that the claim was barred de novo. See,
e.g., Driver Music Co. v. Commercial Union Ins. Cos., 94 F.3d 1428,
1435 (10th Cir.1996); Montgomery Ward Dev. Corp. v. Juster, 932
F.2d 1378, 1379 (11th Cir.1991). The claim asserted by TII is
logically related to the infringement action pursued by Insultherm.
The core tenet of TII's antitrust claim is that Insultherm violated
the antitrust laws by instituting an infringement action for the
allegedly invalid patent. Given this clear connection, it follows
that TII raised much of the same conduct by Insultherm as defenses
to the infringement action that it now asserts as the basis of its
antitrust claim. The evidence in the two actions is largely the
same, and the two claims raise common issues of law and fact,
including the allegedly fraudulent procurement of the subject
patent, the validity of the patent and the existence vel non of any
infringement. We therefore conclude that under the test set forth
above, TII's antitrust claim is properly classified as a compulsory
counterclaim that was required by rule 13(a) to be raised in the
original infringement action. Absent some exception, therefore,
TII is barred from pursuing this antitrust action, and the district
court's judgment must be affirmed.
(2)
(a)
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TII argues that, even if its claim meets the established
definition of a compulsory counterclaim, it is not barred because
it is saved by Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S.
661, 64 S. Ct. 268, 88 L. Ed. 376 (1944). If TII is correct—that the
Supreme Court carved out an exception to rule 13(a) for antitrust
claims based on infringement actions—then this action must proceed.
We have taken a very careful look at Mercoid, including all of its
relevant background, especially because the case appears to be in
conflict with rule 13(a). Notwithstanding very little analysis by
the Supreme Court, we are persuaded that the Court fully intended
to say what it said and that the holding was not dicta. Mercoid
is, therefore, binding precedent and decides the question before
us.
In Mercoid, Mid-Continent sued Mercoid for contributory
infringement of a patent, contending that Mercoid manufactured a
heating control device that infringed a patent held by Mid-
Continent. Mercoid, 320 U.S. at 662, 64 S.Ct. at 269. Mercoid
then asserted an antitrust counterclaim against Mid-Continent,
alleging that Mid-Continent and its exclusive licensee under the
subject patent "had conspired to expand the monopoly of the patent
in violation of the anti-trust laws." Id. However, this suit by
Mid-Continent (and the counterclaim by Mercoid) was brought against
the background of another suit. Some five years earlier, Mid-
Continent had sued Smith, a Mercoid customer, for infringement of
the same patent. See Smith v. Mid-Continent Inv. Co., 106 F.2d 622
(8th Cir.1939). The defense for Smith "was conducted by the
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attorney for and at the expense of Mercoid." Mid-Continent Inv.
Co. v. Mercoid Corp., 133 F.2d 803, 805 (7th Cir.1942). The Smith
court rendered judgment for Mid-Continent, holding that the subject
device was patentable and that Smith was guilty of infringement.
Smith, 106 F.2d at 631. The Smith court, however, did not address
the validity of the subject patent other than to ascertain that the
device was patentable. Id. at 631. The failure to address the
validity of the patent was attributable to the fact that Smith had
not raised the validity of the patent as a defense, nor had Smith
raised as a defense the misuse of the patent or the violation of
the antitrust laws. Id. at 624; see also Mercoid, 320 U.S. at
669-71, 64 S.Ct. at 273.
Thus, some five years later, when Mercoid was defending
against Mid-Contintent's suit for infringement and was asserting a
counterclaim for antitrust violations, Mid-Continent raised the
defense of res judicata as to both Mercoid's defenses and its
counterclaim. Mid-Continent argued that, because Mercoid had
defended the previous action, i.e., was in privity with Smith, the
principle of res judicata acted to bar litigation of "issues which
were actually litigated and all issues which might have been raised
in that earlier suit." Mercoid, 320 U.S. at 669, 64 S.Ct. at 273.
Specifically, Mid-Continent argued that misuse and antitrust
violations were among the defenses that Smith (Mercoid) could have
raised in the earlier litigation and that those defenses were no
longer available to Mercoid. Id.
The Supreme Court, it should be noted, was apparently
7
concerned that Mid-Continent lacked clean hands in the litigation
with Mercoid. The Court, clearly assuming that Mercoid was in
privity with Smith, concluded that even if Mercoid were
specifically bound by the earlier judgment, the additional defenses
would not be barred because, as a court of equity, it would not
"aid in the consummation of a conspiracy to expand a patent beyond
its legitimate scope." Id. The Court held that it had the
discretion to "withh[o]ld aid from a patentee in suits for either
direct or indirect infringement where the patent was being misused"
and that the failure to raise the defense of misuse of the patent
in the earlier action could not deprive the court of that
discretion. Id. Furthermore, the Court stated that, even if
Mercoid were bound by the earlier judgment as it related to
defenses to Mid-Continent's contributory infringement action,
Mercoid's counterclaim against Mid-Continent would still be valid.
Id., 320 U.S. at 669-72, 64 S. Ct. at 273-74. Specifically, the
Court stated
[even if] Mercoid were barred in the present case from
asserting any defense which might have been interposed in the
earlier litigation, it would not follow that its counterclaim
for damages would likewise be barred. That claim for damages
is more than a defense; it is a separate statutory cause of
action. The fact that it might have been asserted as a
counterclaim in the prior suit by reason of Rule 13(b) of the
Rules of Civil Procedure ... does not mean that failure to do
so renders the prior judgment res judicata as respects it.
Id. The Court held that the question whether Mercoid could bring
its counterclaim in the present action was controlled by the rule
that "where the second cause of action between the parties is upon
a different claim the prior judgment is res judicata not as to
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issues which might have been tendered but "only as to those matters
in issue or points controverted upon the determination of which the
finding or verdict was rendered.' " Id.
There is little difference in the posture of the case before
the Court in Mercoid and our case today. The counterclaim that
Mercoid was asserting against Mid-Continent, which had been also
available in the earlier suit, was based upon the contention that
Mid-Continent was using the litigation process to extend the scope
of its patent to unpatented devices and that Mid-Continent thereby
was violating the antitrust laws by extending its monopoly beyond
the scope of the patent. See Excerpts from brief of Mercoid Corp.
(reprinted at 88 L. Ed. 377 (1943)); Mercoid, 320 U.S. at 662, 64
S.Ct. at 269. In short, Mercoid's counterclaim alleged that the
patent infringement litigation violated the antitrust laws. See
Hydranautics v. Filmtec Corp., 70 F.3d 533, 536 (9th Cir.1995).
This is the same allegation that TII asserts in its antitrust
claim, which we have made clear has every indicia of a compulsory
counterclaim under rule 13(a). It follows, therefore, that
Mercoid's counterclaim satisfied the established definition of a
compulsory counterclaim.
Thus, viewing the Supreme Court's statement, block-quoted
above, in the context of the full litigation in Mercoid, the Court
indeed created an exception to rule 13(a) for antitrust
counterclaims in which the gravamen is the patent infringement
lawsuit initiated by the counterclaim defendant. The Court clearly
accepted, at least for purposes of its opinion, that Mercoid
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occupied a position equivalent to a party in the first action.
Furthermore, the Court plainly held that the antitrust counterclaim
was permissive—controlled by rule 13(b)—and, therefore, not barred
in the second action. Thus, we cannot agree with those
commentators who suggest that, because Mercoid was not a party to
the previous infringement action, any discussion of rule 13 by the
Mercoid Court is dicta.1 It is apparent from the Court's
discussion that it accepted Mid-Continent's position that Mercoid
could be bound by res judicata as a result of the Smith decision
and, consequently, treated Mercoid as a party to the previous
action. Furthermore, it is clear that the Court specifically
considered rule 13's application to the question before it and
expressly and unambiguously held that the counterclaim was
permissive.2 Such a holding is an express holding that the
counterclaim was not compulsory because under rule 13 a
counterclaim is either compulsory or permissive—it cannot be both.
(b)
We must admit that the courts that have considered Mercoid
have not reached uniform conclusions, although this lack of
uniformity may be partially explained by factual distinctions. The
1
See 6 Charles A. Wright, Federal Practice and Procedure §
1412, at 91 (West 1990) (noting "the discussion of whether the
counterclaim was compulsory in the first action was entirely
unnecessary to the court's ultimate decision, since Mercoid,
although it provided the defense in the prior action, had not been
a party to it and could not possibly have been foreclosed from
bringing its claim ... by Rule 13(a)").
2
This discussion of rule 13 is not dicta because the
classification of the counterclaim as permissive was necessary to
reach the judgment allowing the counterclaim to proceed.
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Ninth Circuit, however, recently cited Mercoid in a case quite
similar to the one before us today. Hydranautics v. Filmtec Corp.,
70 F.3d 533, 536 (9th Cir.1995). There, the court first noted that
the "identity of issues" between the patent infringement claim and
the antitrust counterclaim suggested classifying the antitrust
claim as compulsory. Id. at 537. It went on the state, however,
that Mercoid "leaves open the possibility of raising antitrust
claims as permissive counterclaims in an infringement action, or in
a separate and subsequent action."3 Id. at 536. We agree with the
Ninth Circuit. We are not persuaded by those courts that have
attempted to avoid the Mercoid holding by limiting the holding of
the case specifically to cases involving the identical facts
presented in Mercoid.4
We therefore hold, for the reasons stated above, that Mercoid
creates a limited exception to rule 13(a) for antitrust claims in
which the gravamen is the patent infringement lawsuit initiated by
3
Other courts have also cited Mercoid with approval, although
not in cases as similar to this case as Hydranautics. See, e.g.,
Agrashell, Inc. v. Hammons Prods. Co., 479 F.2d 269, 287 (8th
Cir.), cert. denied, 414 U.S. 1022, 94 S. Ct. 445, 38 L. Ed. 2d 313
(1973) (concluding that plaintiff's argument that antitrust claim
should be barred because of failure to raise in first infringement
action between parties was precluded by Mercoid ); Switzer Bros.,
Inc. v. Locklin, 207 F.2d 483, 487 (7th Cir.1953), cert. denied,
347 U.S. 912, 74 S. Ct. 477, 98 L. Ed. 1069 (1954) (concluding that
intervenor's antitrust claim was permissive counterclaim under
Mercoid ).
4
See Burlington Indus. Inc. v. Milliken & Co., 690 F.2d 380,
389 (4th Cir.1982), cert. denied, 461 U.S. 914, 103 S. Ct. 1893, 77
L. Ed. 2d 283 (1983); United States v. Eastport Steamship, 255 F.2d
795, 805 (2nd Cir.1958).
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the counterclaim defendant.5
III
In conclusion, we hold that this court has jurisdiction
because the district court vacated its consolidation order and, as
a result, Insultherm's infringement action and TII's antitrust
action reverted to their original status as independent cases.
Jurisdiction over the case presently on appeal is not premised on
28 U.S.C. § 1338 and, thus, the Federal Circuit does not have
exclusive jurisdiction.
Furthermore, Federal Rule of Civil Procedure 13(a) requires
that certain claims be asserted as counterclaims in order to
promote judicial economy and fairness. Absent an applicable
exception, the present claim should have been raised as a
counterclaim under rule 13(a). The Supreme Court in Mercoid,
however, created an exception to rule 13(a) that saves TII's claim.
Under Mercoid, claims of this type are only permissive
counterclaims, falling under rule 13(b), and therefore, are not
barred if a party chooses to bring the claim after the conclusion
of the initial action.
We thus hold that TII's claim is not barred by rule 13(a).
The judgment of the district court is REVERSED and the case is
REMANDED for further proceedings not inconsistent with this
opinion.
5
Because of the fit of the facts between Mercoid's
counterclaim and TII's counterclaim, it is unnecessary for us to
decide today whether the Mercoid exception applies to every
antitrust counterclaim arising in the patent infringement context.
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REVERSED and REMANDED.
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