Boggild v. Kenner Products, Div. of CPG Products Corp.

• Decision Date: 05 August 1988
• Docket Number: No. 87-3522,87-3522
• Citation: 853 F.2d 465
• Parties: 1988-2 Trade Cases 68,178, 7 U.S.P.Q.2d 1642 Robert BOGGILD & William Dale, Plaintiffs-Appellants, v. KENNER PRODUCTS, DIVISION OF CPG PRODUCTS CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 465

853 F.2d 465

1988-2 Trade Cases 68,178, 7 U.S.P.Q.2d 1642

Robert BOGGILD & William Dale, Plaintiffs-Appellants, v. KENNER PRODUCTS, DIVISION OF CPG PRODUCTS CORPORATION Defendant-Appellee.

No. 87-3522.

United States Court of Appeals Sixth Circuit.

Argued April 28, 1988.

Decided Aug. 5, 1988.

William B. Singer, argued, Santen, Shaffer & Hughes, Cincinnati, Ohio, for plaintiffs-appellants.

Donald McG. Rose, Cincinnati, Ohio, Madeline Henricks Devereux, argued, Chicago, Ill., Edward M. O'Toole, for defendant-appellee.

Before KRUPANSKY and BOGGS, Circuit Judges, and BROWN, Senior Circuit Judge.

KRUPANSKY, Circuit Judge.

The plaintiffs-appellants, Robert Boggild and William Dale (plaintiffs), appealed from the order of the district court in this contract action against the defendant-appellee, Kenner Products (defendant or Kenner). On March 24, 1983, the plaintiffs filed an action in the Common Pleas Court of Hamilton County, Ohio, alleging that the defendant had breached the terms of a licensing agreement between themselves and Kenner. The defendant successfully petitioned for removal to the United States District Court for the Southern District of Ohio, based upon diversity jurisdiction, and filed an answer to the complaint and counterclaimed alleging that the licensing agreement at issue was unenforceable as a matter of law as to all royalties accruing after the expiration of the underlying patents. The district court ultimately granted summary judgment to the defendant on its counterclaim.

The record disclosed the following facts. In early 1963, Kutol Products, Inc. (Kutol), invented a brightly colored and scented modeling compound it trade named Play-Doh, which was similar in texture and composition to clay, and which it offered for sale to the children's toy market. Contemporaneously, the plaintiffs invented a mechanical extrusion device it trade named the Fun Factory, Jr., to mold the Play-Doh into a variety of different configurations. During the year 1963, the plaintiffs licensed the Fun Factory, Jr. to Kutol, under the terms of which the plaintiffs were to receive royalties on all Kutol Fun Factory, Jr. sales for a minimum period of twenty-five years. Pursuant to the contract, the plaintiffs agreed to promptly apply for mechanical and design patents for the device. The licensing agreement stipulated that the royalty that attached to each Fun Factory, Jr. sale was to be uniform during the entire twenty-five year period of the contract. The plaintiffs' patent applications were subsequently issued with expiration dates of March 2, 1979 for the design patent and August 9, 1983 for the mechanical patent. Accordingly, Kutol's responsibility under the licensing agreement required it to pay royalties to plaintiffs until 1988, more than four years after the underlying patents on the extruder device expired in 1983.

In 1963, subsequent to consummating its licensing agreement with plaintiffs, Kutol sold all of its rights, title and interest to Play-Doh, and assigned its contractual rights and obligations under the licensing agreement with the plaintiffs for marketing the Fun Factory, Jr., to the defendant, Kenner Products. In 1983, the plaintiffs brought the instant action against the defendant, alleging that Kenner had breached the contract by failing to pay royalties due to the plaintiffs under the licensing agreement. In its counterclaim, the defendant charged that the licensing agreement as to royalties that accrued subsequent to the expiration of the underlying patent, i.e., after 1983, was unenforceable under the Supreme Court's pronouncement in Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964), ¹ because it required Kenner to pay royalties beyond the 17 year life of the patents. On December 15, 1983, upon consideration of cross motions for summary judgment, the district court granted partial summary judgment in favor of the plaintiffs, concluding that the contract was not per se invalid as to royalties accruing after the expiration of the patents after distinguishing Brulotte on the basis that, in the instant action, no patent application had been filed by the plaintiffs prior to the execution of the licensing agreement. Boggild v. Kenner Prod., 576 F.Supp. 533, 537 (S.D.Ohio 1983), rev'd, 776 F.2d 1315 (6th Cir.1985), cert. denied, 477 U.S. 908, 106 S.Ct. 3284, 91 L.Ed.2d 573 (1986). The parties thereafter negotiated a settlement resolving all other outstanding issues, however reserving the right to appeal from the district court's entry of partial summary judgment. The district court entered a consent decree incorporating the settlement on June 12, 1984 (1984 decision).

The defendant filed an appeal on June 15, 1984, arguing that the Supreme Court's pronouncements in Brulotte were dispositive of the case. On November 13, 1985, a panel of this court reversed the district court's 1984 decision, and held that the disputed royalty payments due after the expiration of the patents were invalid per se pursuant the Supreme Court's mandate in Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964) (1985 appeal). The panel that initially considered the case in 1985 concluded that the plaintiffs had leveraged the impending applications for the patents as a means of exacting payment of royalties for a period of twenty-five years and remanded the case to the district court for further proceedings consistent with the panel's opinion. Boggild v. Kenner Prod., 776 F.2d 1315 (6th Cir.1985), cert. denied, 477 U.S. 908, 106 S.Ct. 3284, 91 L.Ed.2d 573 (1986).

On remand, the defendant again moved for summary judgment on its counterclaim, alleging that the 1985 appellate disposition declared the licensing agreement invalid per se under Brulotte to the extent that it required payment of royalties beyond the life of the underlying patents. The district court accepted the defendant's argument and declared that the licensing agreement was unenforceable beyond the expiration of the patents in 1983, and accordingly granted summary judgment for the defendant. Boggild, No. C-1-83-638, unpublished opinion (S.D.Ohio April 29, 1987) (1987 decision). The plaintiffs then filed simultaneous appeals from the district court's 1987 decision, one with this circuit and the other with the Federal Circuit Court of Appeals in Washington, D.C. ²

In the instant appeal, the plaintiffs have challenged this court's jurisdiction to review the 1987 decision of the district court, contending that under 28 U.S.C.A. Sec. 1295(a)(1) (West Supp.1988), the Federal Circuit "has exclusive jurisdiction over appeals from the United States district courts that are based in whole or in part on 28 U.S.C.A. Sec. 1338." ³ See 28 U.S.C.A. Sec. 1295(a)(1); see also 15 C. Wright, A. Miller, E. Cooper, Federal Practice and Procedure Sec. 3903, at 58 (Supp.1988); 17 id. Sec. 4104, at 110 (Supp.1987). Section 1338 provides federal district courts with jurisdiction over "any civil action arising under any Act of Congress relating to patents." 28 U.S.C.A. Sec. 1338(a) (West 1976). ⁴ The plaintiffs have urged that the defendant's counterclaim, alleging that the licensing agreement was unenforceable beyond the life of the underlying patents, constituted a claim under the patent laws within the scope of section 1338, which would divest this circuit of jurisdiction over the district court's 1987 decision under the language of section 1295(a)(1).

The plaintiffs, however, have failed to appreciate the distinction between a patent claim which arises under federal statutes relating to patents and which requires the court to interpret the validity and scope of a particular patent within section 1338, and a contract claim in which patent issues are merely incidentally implicated.

A case does not arise under the patent laws merely because questions of patent law may arise in the course of interpreting a contract.... "Federal courts have exclusive jurisdiction of all cases arising under the patent laws, but not of all questions in which a patent may be the subject matter of the controversy."

Combs v. Plough, Inc., 681 F.2d 469, 470 (6th Cir.1982) (per curiam) (quoting New Marshall Engine Co. v. Marshall Engine Co., 223 U.S. 473, 478, 32 S.Ct. 238, 239, 56 L.Ed.2d 513 (1912)); see also Christianson v. Colt Indus. Operating Corp., --- U.S. ----, 108 S.Ct. 2166, 2173, 100 L.Ed.2d 811 (1988) ("[A] case raising a federal patent-law defense does not, for that reason alone, 'arise under' patent law...."); Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 1429 n. 4 (Fed.Cir.1984) ("Not every dispute involving a patent 'arises under' the patent laws within the meaning of Sec. 1338.").

Under the Supreme Court's mandate in Wilson v. Sanford, 51 U.S. (10 How.) 99, 13 L.Ed. 344 (1850), ⁵ it was well established that a contractual claim did not implicate the jurisdiction of a federal district court to decide patent claims arising under section 1338. "Wilson v. Sandford, [sic] 51 U.S. (10 How.) 99, 13 L.Ed. 344 (1850) and its progeny ... have consistently held for over 130 years that contract disputes involving patents do not arise 'under any Act of Congress relating to patents,' as required by 28 U.S.C. Sec. 1338(a)." Beghin-Say Int'l Inc. v. Ole-Bendt Rasmussen, 733 F.2d 1568, 1570-71 (Fed.Cir.1984); see also Ballard Medical Prod. v. Wright, 823 F.2d 527, 550-51 (Fed.Cir.1987); Atari, Inc., 747 F.2d at 1429 & n. 4; Combs, 681 F.2d at 470-71. A counterclaim challenging the validity of a licensing agreement is a contractual dispute, and not an action arising under the patent laws within the scope of section 1338. "The general rule is that where an action is brought to enforce, set aside, or annul a contract, the action arises out of the contract, and not under the patent laws, even though the contract concerns a patent right." Combs, 681 F.2d at 470; accord Scherr v. Difco Laboratories, Inc., 401 F.2d 443, 447 (6th Cir.1968) ("A suit on a...