Kennedy v. Wright, 1

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Citation851 F.2d 963
Docket NumberNo. 88-1483,P,No. 1,1,88-1483
Parties, 7 U.S.P.Q.2d 1467 Samuel F. KENNEDY and Duane D. Young, as Trustee of PF Trustlaintiffs- Appellants, v. Robert WRIGHT, individually and doing business as New Products, Inc., and Specialized Products, Inc., Defendants-Appellees.
Decision Date12 July 1988

Verne H. Evans, Long, Rabin & Young, Ltd., Springfield, Ill., Richard L. Wood, Welsh & Katz, Ltd., Chicago, Ill., for plaintiffs-appellants.

William E. Lahey, Senniger Powers Leavitt & Roedel, St. Louis, Mo., for defendants-appellees.

Before FLAUM, EASTERBROOK, and MANION, Circuit Judges.

EASTERBROOK, Circuit Judge.

May a question "arise under" the patent laws, thus creating federal jurisdiction in the district court, but not "arise under" the patent laws for purposes of appellate jurisdiction? This is the question we must answer. No other court has faced it yet. Christianson v. Colt Industries Operating Corp., --- U.S. ----, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988), holds that jurisdiction under the patent laws in the district court is a necessary condition of the Federal Circuit's appellate jurisdiction. Is it also a sufficient condition? Two Justices in Christianson said no, id. --- U.S. at ---- - ----, 108 S.Ct. at 2178-82, (Stevens, J., joined by Blackmun, J.); the others did not directly address the question.

Samuel F. Kennedy received patents Nos. 3,583,112 and 4,073,110 for two inventions concerning the design of grain bins. The patents were practiced by S.F. Kennedy Industries and its subsidiary New Products, Inc., closely-held companies of which Kennedy and his family were the principal owners. The venture was successful for some time but in 1982 was liquidated under Chapter 7 of the Bankruptcy Code. The trustee in bankruptcy sold New Products' name and assets, including "[a]ny and all patents or trademarks". Robert Wright paid $1.25 million for these assets. On the morning of the closing, Kennedy purported to rescind his firm's rights to practice the two patents, which he asserted depended on licenses terminable at will. Kennedy and Wright have been feuding ever since.

In 1984 Kennedy and Duane Young as trustee of a trust claiming title to the patents (collectively Kennedy), filed a complaint against Wright and Wright's two firms (collectively Wright). This admirably short document asserted that the two patents were issued to Kennedy, that they are valid, and that Wright is infringing them. It sought a declaratory judgment that the patents are valid and infringed, an injunction against further infringement, and an accounting for damages and profits. The complaint invoked the district court's jurisdiction under 28 U.S.C. Sec. 1338(a). Wright's answer copied out almost all of the statutory grounds of invalidity in 35 U.S.C. Secs. 102, 103, and 112, asserting (for example) that each patent is invalid as obvious. Wright also filed a counterclaim, asking the court to declare that he owns the two patents, having purchased them from the trustee in bankruptcy. (Wright did not say what he planned to do with these patents if, as he insists, they are invalid.) This compulsory counterclaim invoked the district court's ancillary jurisdiction. This may have been necessary, because all parties are citizens of Ilinois, although an aggrieved licensee sometimes may invoke the jurisdiction of Sec. 1338 directly. Excelsior Wooden Pipe Co. v. Pacific Bridge Co., 185 U.S. 282, 22 S.Ct. 681, 46 L.Ed. 910 (1902). Either way, Sec. 1338 supplied the whole of the district court's authority.

The district court bifurcated the case into validity and ownership components. After a bench trial on the ownership dispute, the court entered judgment for Wright. 676 F.Supp. 888 (C.D.Ill.1988). The court found that S.F. Kennedy Industries and New Products, Inc., were the equitable owners of the two patents in 1982 even though they were issued to Kennedy personally and no change of ownership had been recorded. Kennedy did the work on company time, the court concluded, and the firms amortized the expenses of inventing, patenting, and developing the products. The district court found no evidence to support Kennedy's contention that he held title to the patents and merely licensed the firms to use them. Because the firms equitably owned the patents, they passed to Wright by virtue of the trustee's sale in bankruptcy. The court directed Kennedy to transfer legal title to Wright.

Kennedy filed a notice of appeal to this court under 28 U.S.C. Sec. 1291. Wright has moved to dismiss it on the ground that the Federal Circuit has exclusive jurisdiction under 28 U.S.C. Sec. 1295(a), which governs:

(1) ... 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, except [for copyright and trademark cases].

As Wright points out, the jurisdiction of the district court was based "in whole" on Sec. 1338. The plain language of Sec. 1295(a)(1) puts this case into the Federal Circuit, according to Wright. Kennedy stoutly maintains that this court has jurisdiction because the district court resolved the case without a peep about patent law. We asked the parties to brief the question whether the regional circuits have jurisdiction of appeals in cases filed under the patent laws, when district courts dispose of them without construing those laws. After the parties filed these briefs, we deferred submission of the case pending the Supreme Court's decision in Christianson.

The language of Sec. 1295(a)(1) is indeed plain, its application here straightforward. This began as a real patent case properly before the district court under the "well-pleaded complaint" rule of Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908), anticipated for patent cases by Pratt v. Paris Gas Light & Coke Co., 168 U.S. 255, 259, 18 S.Ct. 62, 42 L.Ed. 458 (1897), and reiterated a few days ago in Christianson. Kennedy wanted relief that he could get only if he had valid patents, and he called on the district court to vindicate his entitlements. Although the district court resolved the case without disposing of any patent issue, the jurisdiction of that court was fixed by what the complaint contained, not by how it resolved the dispute. Section 1295(a)(1) says that if the district court's jurisdiction rested on Sec. 1338, then the Federal Circuit has exclusive jurisdiction of the appeal. That, it seems, is that.

Justice Stevens, concurring in Christianson, contended that "Congress could not have intended precisely the same analysis" (--- U.S. at ----, 108 S.Ct. at 2180-81) of arising-under and appellate jurisdiction. He gave two examples of cases in which allocating an appeal among circuits according to the source of jurisdiction at the moment the complaint was filed would not serve any of the purposes that led to the creation of the Federal Circuit's exclusive patent jurisdiction. In one, the complaint made a claim under the patent laws, which was dismissed before trial; the case actually litigated would be a non-patent case suitable for review in the regional circuits. In the other example the complaint initially filed did not contain any patent claim but one was added before trial and became the basis of decision, making it a patent case suitable for review in the Federal Circuit. In our case the patent claim has not been dismissed, but patent law had nothing to do with the district court's decision. Perhaps Justice Stevens' assessment of Sec. 1295(a)(1) covers our case too.

The Federal Circuit's exclusive jurisdiction under Sec. 1295(a)(1) was created, after all, so that there could be a uniform jurisprudence of patent law. Whether Kennedy or Wright owns the two patents seems to depend on Illinois corporate and property law (conceivably on bankruptcy law, in light of the method of their transfer, if the Code has an applicable provision superseding state law) rather than on patent law. The regional circuits are better situated than the Federal Circuit to mull over questions of local law; "uniformity" interests cut in favor of distributing state law issues to courts with geographic jurisdiction, even as they support central handling of patent questions. Judge Friendly's influential opinion in T.B. Harms Co. v. Eliscu, 339 F.2d 823 (2d Cir.1964), held that a dispute about the ownership of a copyright did not "arise under" the copyright laws because nothing unique to copyright was entailed. Ownership "will [not] be supported if the Constitution or laws of the United States are given one construction or effect, and defeated if they receive another". Gulley v. First National Bank, 299 U.S. 109, 112, 57 S.Ct. 96, 97, 81 L.Ed. 70 (1936). Our case entails questions about validity as well as ownership, so Kennedy's claim for relief arises under the patent laws, but perhaps the approach in Harms is well suited to determining appellate jurisdiction.

Such an approach would not be the first time an apparently "clear" statute has been modified to make appellate jurisdiction depend on the ground the district court adduced for its decision. Until 1974, 28 U.S.C. Sec. 2281 (1970) required a three-judge district court to be convened whenever the complaint sought an injunction against the operation of a state statute on account of its unconstitutionality. Section 1253, which is still in force, provided for appellate jurisdiction:

Except as otherwise provided by law, any party may appeal to the Supreme Court from an order granting or denying ... an ... injunction in any civil action, suit or proceeding required by any Act of Congress to be heard and determined by a district court of three judges.

What to do when the three-judge district court issued an injunction against the statute on grounds other than its unconstitutionality--on the ground, for example,...

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