Additive Controls & Measurement Systems, Inc. v. Flowdata, Inc.

• Decision Date: 09 February 1993
• Docket Number: No. 92-1160,92-1160
• Citation: 986 F.2d 476,25 USPQ2d 1798
• Parties: , 25 U.S.P.Q.2d 1798 ADDITIVE CONTROLS & MEASUREMENT SYSTEMS, INC., Plaintiff-Appellant, v. FLOWDATA, INC. and Titan Industries, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 476

986 F.2d 476

61 USLW 2516, 25 U.S.P.Q.2d 1798

ADDITIVE CONTROLS & MEASUREMENT SYSTEMS, INC., Plaintiff-Appellant, v. FLOWDATA, INC. and Titan Industries, Inc., Defendants-Appellees.

No. 92-1160.

United States Court of Appeals Federal Circuit.

Feb. 9, 1993.

William D. Durkee, Arnold, White & Durkee, Houston, TX, argued, for plaintiff-appellant.

William C. Norvell, Jr., Jackson & Walker, Houston, TX, argued, for defendants-appellees.

Before LOURIE, Circuit Judge, BENNETT, Senior Circuit Judge, and RADER, Circuit Judge.

RADER, Circuit Judge.

The United States District Court for the Southern District of Texas refused to remand Additive Controls & Measurement Systems, Inc.'s (Adcon) business disparagement case to state court. Instead the district court enjoined Adcon from infringing Flowdata, Inc.'s patent. Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc., No. H-90-1554, 1991 WL 345967 (S.D.Tex. Nov. 5, 1991). Because Adcon's suit requires resolution of a substantial question of patent law, the district court possessed subject matter jurisdiction and properly denied the motion to remand. The district court's injunction, however, is too vague and too broad. Therefore, this court vacates the injunction and remands to permit the district court to issue an injunction of proper scope.

Background

Adcon and Flowdata sell meters for measuring the flow of liquids. Flowdata obtained U.S. Patent No. 4,815,318 (the '318 patent) for a positive displacement flow meter. In 1988 and 1989, Adcon and Flowdata discussed the prospect of Adcon taking a license to incorporate Flowdata's flow meter into Adcon's OMNI-PAK system. Eventually, Adcon developed its own flow meter for the OMNI-PAK product.

In November 1989, Flowdata informed Adcon of its belief that Adcon's meter infringed the '318 patent. Adcon disagreed and sent machine parts to Flowdata in support of its position. Adcon continued production of its OMNI-PAK product.

Flowdata sent letters to Adcon's customers and potential customers warning that the meter in OMNI-PAK infringed Flowdata's patent. The letters further advised that Flowdata was "in the process of taking legal action."

On April 3, 1990, Adcon filed suit in Texas state court. This state suit sought damages for and an injunction against Flowdata's alleged interference with Adcon's business operations. On May 11, 1990, Flowdata filed a Notice of Removal with the United States District Court for the Southern District of Texas. After removal, Flowdata answered Adcon's complaint and counterclaimed for patent infringement.

In 1991, the district court granted Flowdata's motion for partial summary judgment of patent infringement. Because Adcon had not contested patent validity, the district court entered a permanent injunction on November 5, 1991. The injunction stated:

Plaintiff is forever barred from infringing Flowdata's patent. This order is made with the oral consent of ADCON's Secretary Treasurer who appeared before this Court in her official capacity.

On November 22, 1991, Adcon moved to remand to the state court for lack of subject matter jurisdiction. The district court denied this motion on February 5, 1992.

Jurisdiction

Adcon challenges the propriety of the removal of its business disparagement case from Texas state court. A defendant may properly remove an action if the district court to which it seeks removal has subject matter jurisdiction at the time of removal. 28 U.S.C. § 1441(a) (1988); see Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 8, 103 S.Ct. 2841, 2845-46, 77 L.Ed.2d 420 (1983). The district court in this case asserted jurisdiction under 28 U.S.C. § 1338(a) (1988):

The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents....

In Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808-09, 108 S.Ct. 2166, 2174, 100 L.Ed.2d 811, 7 USPQ2d

1109, 1113 (1988), the United States Supreme Court set forth the scope of section 1338(a):

[Section] 1338(a) jurisdiction likewise extend[s] 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.

Thus, section 1338(a) gives district courts jurisdiction over causes of action created by federal patent law and causes of action whose resolution depends on a substantial question of federal patent law.

Although not expressly labelling its cause of action, Adcon's complaint alleges that Flowdata committed business disparagement. ¹ Adcon's petition disputes infringement and refers to Flowdata's letters to Adcon's customers. The petition further alleges that Adcon has suffered financial losses due to Flowdata's actions. These allegations state a cause of action for business disparagement under Texas law. See Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 767 (Tex.1987).

Adcon's complaint does not meet the first prong of the Christianson test for jurisdiction under 28 U.S.C. § 1338. Patent law does not create Adcon's state law business disparagement claim. Adcon's complaint, however, gives the district court jurisdiction under the second prong of the Christianson test. In sum, Adcon'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 [its business disparagement claim]." See Christianson, 486 U.S. at 809, 108 S.Ct. at 2174.

Under Texas law, a business disparagement claim requires plaintiff to prove, as part of its prima facie case, ² the falsity of defendant's allegedly disparaging statements. Hurlbut, 749 S.W.2d at 766. Flowdata's allegedly disparaging statement was its accusation that Adcon infringed the '318 patent. To prove this aspect of its case (falsity), Adcon must show that its product does not infringe the '318 patent. Thus, Adcon's right to relief necessarily depends upon resolution of a substantial question of patent law, in that proof relating to patent infringement is a necessary element of Adcon's business disparagement claim. Therefore, 28 U.S.C. § 1338 grants the district court jurisdiction over Adcon's cause of action. Cf. Christopher v. Cavallo, 662 F.2d 1082, 1083-84, 218 USPQ 396, 397 (4th Cir.1981) (because Virginia law requires plaintiff to prove copyright infringement as an element of breach of warranty action, district court had jurisdiction).

The Supreme Court's directions in American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 36 S.Ct. 585, 60 L.Ed. 987 (1916), do not require a different result. Because Massachusetts law, which did not involve a substantial issue of patent law, created plaintiff's cause of action, the Court in American Well Works concluded that federal courts lacked jurisdiction over that business disparagement case. Id. at 260, 36 S.Ct. at 586. American Well Works addressed a different situation from that before this court. Specifically, the cause of action in American Well Works arose under Massachusetts law. Under that Massachusetts law, a plaintiff could recover for business disparagement without proving the falsity of defendant's accusations of patent infringement. Massachusetts law instead required defendant to prove the truth of its statements. The Court in American Well Works carefully noted that truth was a defense to plaintiff's claim and not part of plaintiff's case in chief. American Well Works, 241 U.S. at 259, 36 S.Ct. at 331. Under Texas law, however, Adcon must prove that Flowdata's infringement accusations are false before it can recover for business disparagement. Texas law requires business disparagement plaintiffs to prove the falsity of allegedly disparaging statements. Hurlbut, 749 S.W.2d at 766. Thus, unlike plaintiff in American Well Works, Adcon's right to relief necessarily depends upon resolution of a substantial question of federal patent law. For this reason, American Well Works does not require a different result than that reached by the district court examining Texas law.

Moreover, since American Well Works, the Supreme Court has sharpened the focus of its guidance for ascertaining federal jurisdiction. In particular, Christianson clarified that jurisdiction under section 1338(a) also extends to cases in which plaintiff's cause of action necessarily depends on resolution of a substantial question of federal patent law. Christianson, 486 U.S. at 808-09, 108 S.Ct. at 2173-74. Indeed the Supreme Court has uniformly upheld federal jurisdiction over cases in which plaintiff's right to relief under state law required resolution of a substantial question of federal law. See, e.g., Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577 (1921); Hopkins v. Walker, 244 U.S. 486, 37 S.Ct. 711, 61 L.Ed. 1270 (1917).

Several prior opinions of this court have denied jurisdiction under 28 U.S.C. § 1338 because the mere presence of a patent issue does not create jurisdiction under section 1338(a). See, e.g., Speedco, Inc. v. Estes, 853 F.2d 909, 7 USPQ2d 1637 (Fed.Cir.1988); Consolidated World Housewares, Inc. v. Finkle, 831 F.2d 261, 4 USPQ2d 1565 (Fed.Cir.1987); Ballard Medical Prods. v. Wright, 823 F.2d 527, 3 USPQ2d 1337 (Fed.Cir.1987); In re Oximetrix, Inc., 748 F.2d 637, 223 USPQ 1068 (Fed.Cir.1984). None of these cases, however, involved a cause of action in which plaintiff's right to relief depended upon resolution...