Enders v. American Patent Search Co.

• Decision Date: 25 February 1976
• Docket Number: No. 73-1148,73-1148
• Citation: 535 F.2d 1085,189 USPQ 569
• Parties: Henry J. ENDERS, on behalf of himself and all others similarly situated, Plaintiffs-Appellants, v. AMERICAN PATENT SEARCH COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1085

535 F.2d 1085

189 U.S.P.Q. 569

Henry J. ENDERS, on behalf of himself and all others similarly situated, Plaintiffs-Appellants, v. AMERICAN PATENT SEARCH COMPANY et al., Defendants-Appellees.

No. 73-1148.

United States Court of Appeals Ninth Circuit.

Feb. 25, 1976.

As Modified on Denial of Rehearing and Rehearing In Banc

Denied May 3, 1976.

Norman G. Axe (argued), Beverly Hills, Cal., for plaintiffs-appellants.

Samuel Z. Winnikoff (argued), Beverly Hills, Cal., for defendants-appellees.

OPINION

Before BARNES and WALLACE, Circuit Judges, and THOMPSON, ^* District Judge.

WALLACE, Circuit Judge:

Enders, an inventor, brought this class action for restitution, punitive damages and injunctive relief against several patent search companies and individuals allegedly associated with these companies. Enders claims to have been damaged by the defendants' alleged violation of 35 U.S.C. § 33, which provides Whoever, not being recognized to practice before the Patent Office, holds himself out or permits himself to be held out as so recognized, or as being qualified to prepare or prosecute applications for patent, shall be fined not more than $1,000 for each offense.

He asserts that a private civil remedy in his favor can be implied from the statute. The issue before us is whether the district court had jurisdiction to entertain the claim.

The defendants are Blasius (the alleged ringleader of the enterprises), ¹ several companies allegedly acting as "fronts" for Blasius and several employees or associates of Blasius who allegedly participated in these enterprises. These companies advertised in nationwide publications soliciting ideas or inventions from inventors. Enders had dealings with some of these companies. He claimed that after conducting a patent search at the inquiring inventor's expense, these companies would send the inventor a letter indicating that the idea was patentable. The letter would propose that the inventor hire the company to prepare a patent application to be filed by the inventor. The complaint alleged that in this opinion letter and in subsequent communications the companies represented that they were capable, technically qualified and legally authorized to prepare patent applications for filing with the United States Patent Office. Because Blasius and others associated with these companies were not recognized to practice before the Patent Office, Enders asserted that they were violating section 33.

The district court granted defendants' motion to dismiss for lack of subject matter jurisdiction. The court held further that no private right of action could be implied from section 33. Even if a right could be implied, the court reasoned, Enders failed to meet the $10,000 amount in controversy requirement of 28 U.S.C. § 1331. On the latter ground, we affirm.

I.

The first question is whether the district court erred in basing its dismissal for lack of subject matter jurisdiction on the ground that no civil remedy could be implied from section 33. We hold that it did. Unless the claim is immaterial or frivolous, a federal court must at least consider a suit for recovery under a federal statute. "The reason for this is that the court must assume jurisdiction to decide whether the allegations state a cause of action on which the court can grant relief as well as to determine issues of fact arising in the controversy." Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90 L.Ed. 939, 943 (1946). See Mishkin, The Federal "Question" in the District Courts, 53 Colum.L.Rev. 157, 165 (1953). We do not conclude that the claim for relief in this case was frivolous. Thus the district judge was obliged to entertain the case and when he concluded that no civil remedy could be implied from the statute, he should have disposed of it on the merits by dismissing for failure to state a claim on which relief can be granted rather than for lack of subject matter jurisdiction.

II.

However, even if the dismissal had been for failure to state a proper claim, we would not reach the question whether Enders falls heir to a federal right which could be implied from section 33 because we agree with the district court that Enders must meet the jurisdictional amount in controversy requirement of 28 U.S.C. § 1331(a), which provides:

The district courts shall have original jurisdiction of all civil actions wherein the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and arises under the Constitution, laws, or treaties of the United States.

Enders does not contend that his claim meets the jurisdictional amount. His damages could total only a few hundred dollars. Nor can Enders aggregate damages allegedly suffered by members of the purported class. Zahn v. International Paper Co., 414 U.S. 291, 301, 94 S.Ct. 505, 511-512, 38 L.Ed.2d 511, 519 (1973). Thus, unless he can find some jurisdictional statute other than section 1331, he has no alternative but to sue in state court.

In attempting to find a proper jurisdictional basis for his claim, Enders correctly points out that section 1331 is not the sole statute granting federal question jurisdiction in the district courts; a number of other statutes provide jurisdiction in special areas without regard to the amount in controversy. See C. Wright, Law of Federal Courts 108 (2d ed. 1970). Enders argues that the district court has jurisdiction of his claim pursuant to one of these statutes, 28 U.S.C. § 1338(a), which 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.

Essentially, his contention is that this suit arises under section 33, an "Act of Congress relating to patents." Thus, there are two issues before us: (A) does Enders' suit arise under a federal act (i. e., section 33) and (B) is section 33 a statute "relating to patents" as required for section 1338(a) jurisdiction.

A.

Assuming, without deciding, that Enders has stated a claim for damages implied from section 33, we preliminarily hold that his claim clearly "arises under" federal law. Sections 1338 and 1331 both use the term "arising under," and thus a question has arisen whether the phrase should be construed identically. ² Some have suggested that inasmuch as section 1338 makes jurisdiction over suits arising under any act relating to patents exclusive of the state courts, the "arising under" language in section 1338 should be construed more strictly than the same language in section 1331. Chisum, The Allocation of Jurisdiction Between State and Federal Courts in Patent Litigation, 46 Wash.L.Rev. 633, 670-72 (1971); cf. T. B. Harms Co. v. Eliscu, 339 F.2d 823, 828 (2d Cir. 1964), cert. denied, 381 U.S. 915, 85 S.Ct. 1534, 14 L.Ed.2d 435 (1965).

While this suggestion may have merit, we do not need to reach the issue. Enders' claim meets even the strictest of standards for "arising under": Mr. Justice Holmes' once popular jurisdictional formula that "(a) suit arises under the law that creates the cause of action." American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 586, 60 L.Ed. 987, 989 (1916). Even though this test has been properly criticized as irreconcilable with subsequently decided cases, see Wright, supra, at 57, the formula is still "useful for inclusion (as opposed to) the exclusion for which it was intended." T. B. Harms Co. v. Eliscu, supra, 339 F.2d at 827. While we must reject the Holmes test as one that should be applied in all situations, we do rely on it for its limited application: if a case meets the Holmes test, at least that case "arises under" regardless of what ultimate test is applied. ³ We need go no further in this case. Enders asserts an implied cause of action created by federal law which therefore "arises under" federal law under the Holmes test so as to make federal jurisdiction possible under either section 1331 or section 1338 if the remaining requirements of those statutes are met. ⁴

The inquiry does not rest here since section 1338 requires the action to arise under an "Act of Congress," unlike the less specific requirement of section 1331 that the suit arise under the "laws . . . of the United States." This difference has caused some to speculate that the language of section 1338 was intended to confine the reach of that section to cases arising under statutory law only. See Garrett v. TIME-D.C., Inc., 502 F.2d 627, 630 (9th Cir. 1974), cert. denied, 421 U.S. 913, 95 S.Ct. 1569, 43 L.Ed.2d 778 (1975) (construing similar language in 28 U.S.C. § 1337); see also Ivy Broadcasting Co. v. American Telephone & Telegraph Co., 391 F.2d 486, 489-90, 493-94 (2d Cir. 1968). If section 1338 is so confined, a special problem is presented for implied causes of action: does a cause of action implied from a federal statute "arise under" that statute so that section 1338 jurisdiction is possible even if "Act of Congress" is narrowly construed, or does its genesis lie in a more generalized federal common law so that section 1338 jurisdiction is precluded? ⁵

There has been some academic debate concerning the specific source of implied causes of action. See Note, Implying Civil Remedies From Federal Regulatory Statutes, 77 Harv.L.Rev. 285, 287-88 (1963). The courts, however, have generally treated an implied cause of action as arising under the statute from which the cause of action is implied. For example, in Garrett v. TIME-D.C., Inc., supra, 502 F.2d at 630, we held that an action for a remedy implied from the Interstate Commerce Act arose under that act rather than under federal common law in general; therefore, federal jurisdiction existed under28 U.S.C. § 1337 (conferring jurisdiction over suits arising under "any Act" regulating commerce). See also...