Walter Kidde Portable Equipment, Inc. v. Universal Security Instruments, Inc.

• Decision Date: 02 March 2007
• Docket Number: No. 2006-1420.,2006-1420.
• Parties: WALTER KIDDE PORTABLE EQUIPMENT, INC., Plaintiff-Appellee, v. UNIVERSAL SECURITY INSTRUMENTS, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

479 F.3d 1330

WALTER KIDDE PORTABLE EQUIPMENT, INC., Plaintiff-Appellee, v. UNIVERSAL SECURITY INSTRUMENTS, INC., Defendant-Appellant.

No. 2006-1420.

United States Court of Appeals, Federal Circuit.

March 2, 2007.

Albert L. Underhill, Merchant & Gould P.C., of Minneapolis, Minnesota, argued for plaintiff-appellee. With him on the brief was Keith M. Sorge.

Maurice U. Cahn, Cahn & Samuels, LLP, of Washington, DC, argued for defendant-appellant. With him on the brief were Frederick N. Samuels and William E. Bradley.

Before GAJARSA, MOORE, and JORDAN,^* Circuit Judges.

JORDAN, Circuit Judge.

Defendant-appellant Universal Security Instruments, Inc. ("USI") appeals from a March 31, 2006 order of the United States District Court for the Middle District of North Carolina, Docket No. 1:03-CV-00537-NCT, granting the motion of plaintiff-appellee Walter Kidde Portable Equipment, Inc. ("Kidde") for voluntary dismissal without prejudice of an action Kidde had filed against USI. Although we find that the district court erred as a matter of law when it dismissed USI's counterclaims over USI's objection, and when it ruled on a motion for voluntary dismissal without first determining whether it had subject matter jurisdiction, we conclude that, under the circumstances, these errors were harmless. We also conclude that the district court did not abuse its discretion by granting dismissal of Kidde's claims without prejudice and without conditions. Therefore, we affirm.

I. BACKGROUND

On June 11, 2003, Kidde began the tortuous procedural history of this case by filing suit against USI in the United States District Court for the Middle District of North Carolina. The suit ("Kidde I") alleged infringement of United States Patent No. 4,972,181 ("the '181 patent"), entitled "A.C. Powered Smoke Detector With Back-Up Battery Supervision Circuit." Pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure, USI subsequently filed a motion to dismiss for improper venue, or, alternatively, to transfer the case to the United States District Court for the District of Maryland. In its reply brief to Kidde's memorandum in opposition to that venue motion, USI asserted for the first time that Kidde did not have standing to bring the patent infringement claim at all because the records of the United States Patent & Trademark Office ("PTO") showed that a company called Management Investment & Technology Co., Ltd. ("MITCL"), not Kidde, owned the patent in suit.

On January 4, 2004, Kidde submitted a Confirmatory Assignment of the '181 patent that was executed by MITCL on October 8, 2003. That document purported to confirm a transfer of rights in the '181 patent to Kidde pursuant to a purchase agreement dated January 24, 1997 (the "Purchase Agreement"). Kidde claimed that, through the Purchase Agreement, Kidde and another company acquired a third company, Fyrnetics, Inc., from two entities related to MITCL, Management Investment & Technology (Holdings) Limited ("MIT Holdings") and Management Investment & Technology International, Inc. ("MIT International"). According to Kidde, Fyrnetics had assigned the '181 patent to MITCL, who was the record holder, but MIT Holdings and MIT International had authority to sell and transfer ownership of the '181 patent, which they did pursuant to the Purchase Agreement. Kidde admitted it had not recorded the Purchase Agreement but maintained that it had no legal obligation to do so.

The district court denied USI's venue motion. It did not, however, address the issue of Kidde's lack of standing. During the pendency of the venue motion, USI filed a complaint against Kidde in the United States District Court for the District of Maryland, seeking a declaratory judgment of invalidity, noninfringement, and unenforceability of the '181 patent. USI argued that, because Kidde had no standing to sue on the '181 patent, the Middle District of North Carolina lacked subject matter jurisdiction over the claims in Kidde I, and therefore USI's suit should be allowed to proceed in Maryland. The District of Maryland disagreed. In its view, the earlier decision in Kidde I denying USI's venue motion was an assertion of jurisdiction by the Middle District of North Carolina, so the District of Maryland dismissed USI's complaint.

On February 6, 2004, USI filed its answer and various counterclaims in Kidde I, including assertions of noninfringement; invalidity; unenforceability for inequitable conduct; unenforceability for fraud on the patent office; a violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; and unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a), and North Carolina statutory and common law. In its answer, USI again pointed out that the records of the PTO showed that rights to the '181 patent belonged to MITCL, not Kidde.

On April 2, 2004, Kidde and USI submitted to the district court a discovery plan for Kidde I, pursuant to Rule 26(f) of the Federal Rules of Civil Procedure (the "Discovery Plan"). The Discovery Plan set deadlines for expert disclosures and stated that all discovery would be completed by April 15, 2005. Pursuant to that schedule, the court set a trial date of October 5, 2005.

On January 31, 2005, Kidde and USI submitted a stipulated motion requesting that the court extend the deadlines outlined in the Discovery Plan. On February 15, 2005, the court denied that motion. Notwithstanding the court's denial of the proposed scheduling change, Kidde claims that the parties mutually agreed to extend the deadlines for the exchange of expert reports to May 1, 2005, and Kidde served three expert reports on that date.¹ Kidde then filed a motion on June 8, 2005, requesting an order acknowledging that its three expert reports had been timely served and that the testimony of those experts would be admissible at trial. USI in turn requested the exclusion of those three reports as untimely.

On July 5, 2005, the court issued an order granting USI's motion to exclude the expert reports and declarations of Kidde's three expert witnesses.² The court concluded that the expert disclosure was untimely since any mutually agreed-upon extension of the time to file expert reports was limited by the April 15, 2005 deadline for the completion of all discovery, a court ordered deadline that the parties had no authority to alter. The court also decided that exclusion of the expert evidence was an appropriate sanction under Rule 16(f) of the Federal Rules of Civil Procedure, because the October 3, 2005 trial date was "coming perilously close." The court reasoned that, were it "to allow admission of [Kidde's] untimely expert reports, to avoid prejudice to [USI] the court would also have to grant [USI] more time to submit rebuttal expert reports." That would have necessitated either moving the trial date or putting the court "in the position of facing dispositive motions on the eve of trial," neither of which the court was willing to do.³

USI subsequently filed a motion in limine to exclude evidence and testimony as to the ownership and chain of title of the '181 patent. During proceedings with respect to that motion, the district court began to express serious concerns about lack of subject matter jurisdiction because of the uncertainty concerning the purported transfer of the patent to Kidde. Deciding that it was improvident to proceed without first resolving the question of Kidde's standing, the court gave the parties an opportunity, to fully brief and further develop the record on that question. Part of the uncertainty surrounding the patent transfer stemmed from the question of whether the law of Hong Kong or North Carolina law governed the Purchase Agreement and, hence, the claimed passing of title to the '181 patent.

On November 28, 2005, Kidde, in an attempt to eliminate questions about its standing, filed a motion for voluntary dismissal without prejudice, pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure. It then proceeded on the same day to file a new action in the same court ("Kidde II"). In briefing on its motion for voluntary dismissal, Kidde reasoned that the Confirmatory Assignment of the '181 patent was executed before the new suit was filed and would confer standing. USI submitted a cross motion to dismiss with prejudice, or in the alternative, to dismiss without prejudice but with conditions.

On March 31, 2006, the court granted, without comment and without prejudice or conditions, Kidde's motion to dismiss. This appeal followed.

II. DISCUSSION

A. Jurisdiction Over This Appeal

Kidde argues that we do not have jurisdiction to review the dismissal of Kidde I because the district court's order is unclear with respect to the disposition of USI's counterclaims. Kidde contends that the lack of clarity it perceives in the district court's order casts into doubt whether there is a final and appealable judgment. We disagree.

To determine whether we have jurisdiction, we apply our own law, not the law of a regional circuit. H.R. Techs., Inc. v. Astechnologies, Inc., 275 F.3d 1378, 1382 (Fed.Cir.2002); Woodard v. Sage Prods., Inc., 818 F.2d 841, 844 (Fed.Cir.1987) (en banc). Section 1295(a)(1) of title 28 confers jurisdiction on this Court to hear appeals "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 . . . ." That means we have jurisdiction over, inter alia, patent cases when a district court has disposed of the entire case. Enercon Indus. Corp. v. Pillar Corp., 105 F.3d 1437, 1439 (Fed.Cir.1997); see also Coopers & Lybrand v. Livesay, 437 U.S. 463, 467, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978) ("Federal appellate jurisdiction generally depends on the existence of a decision by the District Court that `ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" (quoting Catlin v. United States, 324 U.S. 229, 233, ...