Air Products and Chemicals, Inc. v. Reichhold Chemicals, Inc., 84-1530

• Citation: 755 F.2d 1559,225 USPQ 121
• Decision Date: 28 February 1985
• Docket Number: No. 84-1530,84-1530
• Parties: AIR PRODUCTS AND CHEMICALS, INC., Appellant, v. REICHHOLD CHEMICALS, INC., Appellee. Appeal
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1559

755 F.2d 1559

225 U.S.P.Q. 121

AIR PRODUCTS AND CHEMICALS, INC., Appellant, v. REICHHOLD CHEMICALS, INC., Appellee.

Appeal No. 84-1530.

United States Court of Appeals, Federal Circuit.

Feb. 28, 1985.

Harry J. Roper, Neuman, Williams, Anderson & Olson, Chicago, Ill., for appellant. With him on brief were Sidney Neuman, George S. Bosy, Nicholas A. Poulos and William P. Oberhardt, Chicago, Ill., of counsel.

E. Eugene Innis, Allentown, Pa., of counsel.

Daniel H. Williams, III, Paul, Hastings, Janofsky & Walker, Stamford, Conn., for appellee. With him on brief were Ronald P. Mysliwiec, Edward B. Fitzpatrick, III, and Elliot K. Gordon, Stamford, Conn., of counsel.

Before MARKEY, Chief Judge, SKELTON, Senior Circuit Judge, and KASHIWA, Circuit Judge.

KASHIWA, Circuit Judge.

This is an appeal from an order of the United States District Court for the District of South Carolina granting Reichhold Chemical, Inc.'s ("Reichhold") Fed.R.Civ.P. 12(b)(1) motion to dismiss for lack of federal subject matter jurisdiction. We reverse and remand.

Background

Air Products and Chemicals, Inc., ("Air Products") is the owner of United States Patent No. 3,708,388 (" '388 patent") for "A Process of Laminating Using Vinyl Acetate-Ethylene Copolymer Adhesive Composition." By virtue of an agreement bearing an effective date of 2 January 1973 Air Products granted a nonexclusive license ("1973 license") to E.I. duPont de Nemours and Company ("DuPont") to make, use, and sell emulsions covered by the '388 patent. In mid 1983 Reichhold succeeded to the emulsions business of DuPont, and DuPont assigned its rights under the Air Products-DuPont 1973 license to Reichhold in accordance with the provisions thereof.

Reichhold subsequently entered into a cross licensing agreement with National Starch and Chemical Corporation ("National Starch") which granted National Starch a nonexclusive license to make, use, and sell products covered by the '388 patent. Contending that this cross licensing agreement with National Starch was inconsistent with the provisions of the 1973 license, Air Products terminated the 1973 license with Reichhold, allegedly in conformance with the termination provisions thereof. ¹

Alleging that subsequent to the lawful termination of the 1973 license Reichhold had been, and was continuing to infringe the '388 patent by making, using, and selling the products covered thereby, and that Reichhold had been, and was continuing to induce others to infringe the '388 patent, Air Products instituted suit against Reichhold in the United States District Court for the District of South Carolina. Jurisdiction was predicated upon 28 U.S.C. Sec. 1338(a). In the complaint, Air Products alleged the factual circumstances as set forth in the preceding paragraphs, and prayed, inter alia:

(a) That this Court declare plaintiff, AIR PRODUCTS AND CHEMICALS, INC., the owner of United States Letters Patent No. 3,708,388 and of all rights of recovery as to it;

(b) That this Court declare that United States Letters Patent No. 3,708,388 is valid in law;

(c) That this Court declare that defendant has been and still is infringing United States Letters Patent No. 3,708,388;

(d) That this Court declare that defendant has been and still is inducing others to infringe United States Letters Patent No. 3,708,388;

(e) That this Court order a preliminary and final injunction enjoining defendant and those in privity therewith from infringing and inducing infringement of United States Letters Patent No. 3,708,388; (f) That this Court order an accounting be made for plaintiff's damages arising out of defendant's infringement and defendant's acts inducing others to infringe, and that the damages so ascertained be trebled and awarded to plaintiff together with interest.

District Court Proceedings

Finding that the primary issue for resolution was a matter of contract interpretation, i.e., construction of the 1973 license, not a matter of patent infringement, the district court granted Reichhold's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) for lack of federal subject matter jurisdiction.

The court noted that, to constitute an action arising under the patent laws, Air Products must establish a right, title, or interest under the patent laws, or an appearance that some right or privilege will be defeated by one construction, or sustained by the opposite construction, of the patent laws.

Where the determination of whether there has been an infringement of a patent depends upon the construction of the provisions of a contract, and not upon the construction of an act of Congress relating to patents, the controversy is not one arising under the patent laws. The court found, in the instant case, that Air Products' infringement claim was conditional upon, and must be preceded by, the resolution of the license dispute.

The fact that a cause of action has been couched in terms of patent infringement is not dispositive as to whether the case arises under the patent laws. Rather, in determining subject matter jurisdiction, the court must consider as a whole the substance of the claim in addition to the language of the complaint, and may also consider jurisdictional facts outside the pleadings. The court determined that Air Products' case primarily involved the resolution of a contractual dispute, and that the federal patent law claim was secondary in nature.

The district court expressed an awareness of case law ² which provided that a claim of patent infringement was not defeated by the inclusion in the complaint of a response to an anticipated contract defense. The court distinguished this case law, however, by noting that in these cases the contractual issues were collateral to the main issue of patent infringement, i.e., the claim of patent infringement was not dependent solely upon the resolution of the contractual dispute.

Finally, the court noted that a party to a patent license may not unilaterally terminate the license, bring a lawsuit alleging patent infringement by the other party's continued exercise of the license, and assert that the breach of the license is an uncontroverted matter. Air Products cannot conclusively void the license agreement without permitting Reichhold to litigate the issue of termination, and therefore, since Air Products' claim for patent infringement rested solely upon the propriety of the sublicense between Reichhold and National Starch and the validity of the 1973 license termination, the primary issue for resolution was a matter of contract interpretation.

OPINION

The Supreme Court, in Luckett v. Delpark, Inc., 270 U.S. 496, 46 S.Ct. 397, 70 L.Ed. 703 (1926), extensively analyzed and harmonized the case law ³ which had dealt with the question as to whether a case arises under the patent laws, thus conferring federal subject matter jurisdiction, or whether the case is a matter of contract or license construction or interpretation, thus conferring state subject matter jurisdiction. The Court found that the result of these cases was that a federal district court has jurisdiction of a suit by a patentee for an injunction against infringement and for profits and damages, even though, in anticipation of a defense of license or authority to use the patent, the complainant includes in his bill averments intended to defeat such a defense. Id. at 510, 46 S.Ct. at 401.

But, the Court further found that the principle laid down in Wilson v. Sandford, 51 U.S. (10 How.) 99, 13 L.Ed. 344 (1850), that where a patentee in his complaint seeks recovery of royalties under a contract of license or assignment, or for damages for a breach of a license's covenants, or asks the court to declare a forfeiture of the license or in restoring an unclouded title to the patent, was still a valid precept of law and does not give a federal district court jurisdiction over the cause as one arising under the patent laws. Id. Nor, the Court stated, is federal subject matter jurisdiction conferred in such a case by the complainant adding to his bill an averment that after a forfeiture of the license shall be declared, or title to the patent restored, that the defendant will infringe the patent in question and requesting an injunction to prevent future infringement. When a patentee exercises his choice and bases his action on the license, seeking remedies thereunder, the patentee may not give the case a double aspect by making it a patent case conditioned upon securing relief as to the license. Id., 270 U.S. at 510-11, 46 S.Ct. at 401-02.

The Court, in its analysis, expressly qualified Hartell v. Tilghman, 99 U.S. (9 Otto) 547, 25 L.Ed. 357 (1878), a case cited by the district court in the present action, stating that it was error to deny federal subject matter jurisdiction under the patent laws when the patentee had based his action broadly on his patent and an averment of infringement, seeking an injunction and damages. Id., 270 U.S. at 510, 46 S.Ct. at 401.

The ratio decidendi by which the Court in Luckett harmonized the diverse prior case law, see supra note 3, was, as best stated in the Court's own words, that "the party who brings suit is master to decide what law he will rely upon," The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 411, 57 L.Ed. 716 (1912), that "[j]urisdiction generally depends upon the case made and the relief demanded by the plaintiff." Healy v. Sea Gull Specialty Co., 237 U.S. 479, 480, 35 S.Ct. 658, 59 L.Ed. 1056 (1915). A court must review and analyze the plaintiff's pleadings, with special attention directed to the relief requested by the plaintiff, in making the determination as to whether a cause of action arises under the patent laws, or is a cause of action based upon a licensing agreement.

After reviewing the pleadings of Air Products, ⁴ in particular the relief requested by Air Products, we conclude that the district court erred as a matter of law in holding that Air Products' cause of...