C.R. Bard, Inc. v. Schwartz

Decision Date30 August 1983
Docket NumberNo. 83-682,83-682
Citation219 USPQ 197,716 F.2d 874
PartiesC.R. BARD, INC., Plaintiff-Appellant, v. Boris SCHWARTZ, Defendant-Appellee. Appeal
CourtU.S. Court of Appeals — Federal Circuit

Charles B. Smith, New York City, argued, for plaintiff-appellant. With him on brief were Fish & Neave, Frank L. Politano, Therese A. Hendricks, New York City, Dempsey, Dempsey & Sheehan, Bartholomew A. Sheehan, Jr., Summit, N.J., and Kenneth F. Coughlin, Jr., Murrary Hill, N.J.

William J. Shaughnessy, Newark, N.J., argued, for defendant-appellee. With him on the brief was Salvatore T. Alfano, Garfield, N.J., of counsel.

Before FRIEDMAN, RICH, BALDWIN, KASHIWA, and BENNETT, Circuit Judges.

KASHIWA, Circuit Judge.

This case on appeal from the United States District Court for the District of New Jersey raises two important issues. First, we must decide whether we have jurisdiction under The Federal Courts Improvement Act of 1982, Pub.L. No. 97-164, Sec. 127, 96 Stat. 25, 37 (28 U.S.C. Sec. 1295) to decide whether a federal district court has jurisdiction of a case under 28 U.S.C. Sec. 1338(a) (1976). If we have jurisdiction, we must then decide whether a patent licensee may bring a federal declaratory judgment action to declare a patent subject to a license invalid while that license is still in effect. We hold that we have jurisdiction of this case under Sec. 1295(a) and that a patent license need not be terminated before a patent licensee may bring a federal declaratory judgment action.

I

On August 17, 1971, Boris Schwartz, the appellee, was granted U.S. Patent No. 3,559,637 (hereinafter the Schwartz patent) for an intravenous catheter assembly. On January 3, 1972, C.R. Bard, Inc., the appellant, and appellee Schwartz entered into a license agreement. Under that agreement, appellant was granted an exclusive worldwide license by appellee to make, use, and sell the catheter assembly. Bard paid Schwartz $5,000 for the licensing agreement and agreed to make subsequent royalty payments to Schwartz. From 1972 to the present, Bard and its sublicensee, Delmed, Inc., have made and sold the catheter assembly in the United States. Bard paid Schwartz some royalties pursuant to the license agreement but ceased making these payments prior to commencement of this federal suit.

Schwartz filed an action in the Law Division of the Superior Court of the State of New Jersey, Passaic County, on January 25, 1982. The state complaint and summons were served on Bard on March 12, 1982. That complaint made five allegations:

1. Bard failed to use its best efforts as required by contract to promote and sell the catheter assembly;

2. Bard did not intend to promote the catheter assembly but intended only to limit the competition to which its own catheters would be subject and thereby acted fraudulently;

3. Bard breached its fiduciary obligation under the license by failing to promote the catheter assembly and disclose its true marketing intentions;

4. Bard failed to report and pay all royalties due on the sales of the catheter "Advanset," which embodies Schwartz's invention;

5. Bard's purported sublicense agreement with Delmed was in actuality an assignment of Bard's rights and as a result Bard has not paid the full amount of royalties owed to Schwartz.

Schwartz requested compensatory and punitive damages, an accounting, interest, and costs. Bard maintains that it took no action with respect to the state action because it believed the Schwartz patent to be invalid and unenforceable.

On March 25, 1982, Bard filed a complaint in federal district court seeking, among other relief, a judgment declaring that defendant's patent is invalid and unenforceable, that the license agreement between the parties is void and unenforceable as against federal law and policy, and that no royalties are payable to Schwartz under the license. Bard further sought judgment against Schwartz for all royalties paid under the agreement and for its litigation costs. In addition, Bard sought to enjoin Schwartz both from asserting his patent against Bard and from proceeding with his state action against Bard. Bard alleged it was vulnerable to a federal claim of patent infringement due to Schwartz's institution of the New Jersey state action, his present ability to terminate the license agreement at any time or to assert its completed termination by its own terms, and Bard's failure to pay royalties. Bard asserted that its action for declaratory judgment raises a defense in anticipation of an impending federal action, and that federal "arising under" jurisdiction is present under 28 U.S.C. Sec. 1338(a) (1976). 1 Since both Bard and Schwartz are residents of the same state, there is no diversity jurisdiction.

The district court held, however, that it did not have jurisdiction of the case under Sec. 1338(a). The court first found that the license agreement had not been terminated. 2 It held next that, in the absence of diversity jurisdiction, a licensee may bring a federal declaratory judgment action to declare the patent subject to the agreement invalid only when the license agreement has been terminated. The court, relying upon the Third Circuit's decision in Thiokol Chemical Corp. v. Burlington Industries, Inc., 448 F.2d 1328, 171 USPQ 193 (3d Cir.1971), cert. denied, 404 U.S. 1019, 92 S.Ct. 684, 30 L.Ed.2d 668 (1972), held that a licensee does not have a reasonable apprehension of an impending infringement suit while a license agreement is in effect. The court also said "Bard has not demonstrated that there is any concrete indication that Schwartz has terminated or intends to terminate the license agreement or file an infringement action * * *." It relied upon an affidavit filed by Schwartz in conjunction with his motion to dismiss the district court action. That affidavit said:

I have and have had no intention of voluntarily terminating the License Agreement between Bard and me dated January 3, 1972, the subject of the state court action; I also state that I have and have had no intention of instituting any action against Bard for infringement of United States Patent No. 3,599,637 which was issued to me on August 17, 1971, by virtue of any product presently being sold by Bard.

Appellant is now before this court asking us not to follow the Thiokol line of cases. It urges us to follow the view of the Second, Ninth, and D.C. circuits, Geni-Chlor International, Inc. v. Multisonics Development Corp., 580 F.2d 981, 200 USPQ 67 (9th Cir.1978); Warner-Jenkinson Co. v. Allied Chemical Corp., 567 F.2d 184, 193 USPQ 753 (2d Cir.1977); Hanes Corp. v. Millard, 531 F.2d 585, 189 USPQ 331 (D.C.Cir.1976); and hold that the federal district court has jurisdiction of this action under Sec. 1338(a). Appellee, on the other hand, argues that we need not decide the Thiokol issue because there is, in any event, no justiciable controversy here. Appellee relies upon the affidavit for this argument. He further urges that this court does not have jurisdiction to decide this case.

II

Appellee contends that it is not within this court's jurisdiction to decide whether a federal court has jurisdiction under Sec. 1338(a) over a controversy where a licensee alleges that the patent subject to a continuing license agreement is invalid. Appellee argues that

[t]he issue raised by Bard goes to the fundamental power of a federal district court to act. Neither the wording of 28 U.S.C. Sec. 1295(a), the legislative history, nor the purpose of this Court suggests that it should decide such a basic jurisdictional question.

Appellee's Brief at 11. We disagree.

This court has inherent jurisdiction to determine its own jurisdiction. United States v. United Mine Workers of America, 330 U.S. 258, 67 S.Ct. 677, 91 L.Ed. 884 (1947). 28 U.S.C. Sec. 1295 governs this court's jurisdiction. It provides in pertinent part:

Sec. 1295 Jurisdiction of the United States Court of Appeals for the Federal Circuit

(a) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction--

(1) of an appeal from a final decision of a district court of the United States, the United States District Court for the District of the Canal Zone, the District Court of Guam, the District Court of the Virgin Islands, or the District Court for the Northern Mariana Islands, if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title, except that a case involving a claim arising under any Act of Congress relating to copyrights or trademarks and no other claims under section 1338(a) shall be governed by sections 1291, 1292, and 1294 of this title * * *.

Under Sec. 1295 this court is granted exclusive jurisdiction to review a district court's final decision where that court's jurisdiction was based in whole or in part on Sec. 1338. Thus, by the very terms of the statute, in order to determine the scope of our own jurisdiction we must decide whether the jurisdiction of a district court whose decision is before us is based on Sec. 1338. In the instant case the sole issue decided by the district court was whether it had jurisdiction under Sec. 1338 and that is the issue raised on appeal. Therefore, in order to decide whether we have jurisdiction over the instant appeal, we must determine whether the district court had jurisdiction under Sec. 1338, the issue on appeal.

Any other conclusion would cause our jurisdiction to turn on the decision reached by the lower tribunal. Under the terms of Sec. 1295, if the district court had found its jurisdiction was based on Sec. 1338 the appeal of that decision would come to this court. We would have exclusive jurisdiction of that appeal under Sec. 1295. To say, however, that where a district court holds it lacks jurisdiction under Sec. 1338(a) the appeal of that issue should go to the regional circuit court, is an absurd result. As the arbiter of our own jurisdiction, we necessarily have the power to decide the threshold question...

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