Chandler v. Phx. Servs., L.L.C.

• Decision Date: 15 August 2022
• Docket Number: 21-10626
• Citation: 45 F.4th 807
• Parties: Ronald CHANDLER; Chandler Mfg., L.L.C. ; Newco Enterprises, L.L.C.; Supertherm Fluid Heating Services, L.L.C., Plaintiffs—Appellants, v. PHOENIX SERVICES, L.L.C.; Mark H. Fisher, Defendants—Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

45 F.4th 807

Ronald CHANDLER; Chandler Mfg., L.L.C. ; Newco Enterprises, L.L.C.; Supertherm Fluid Heating Services, L.L.C., Plaintiffs—Appellants,

v.PHOENIX SERVICES, L.L.C.; Mark H. Fisher, Defendants—Appellees.

No. 21-10626

United States Court of Appeals, Fifth Circuit.

FILED August 15, 2022

Theodore G. Baroody, Carstens & Cahoon, L.L.P., Dallas, TX, for Plaintiffs-Appellants.

Devan V. Padmanabhan, Paul J. Robbennolt, Padmanabhan & Dawson, P.L.L.C., Minneapolis, MN, for Defendants-Appellees.

Before Wiener, Graves, and Duncan, Circuit Judges.

Stuart Kyle Duncan, Circuit Judge:

Oilfield service companies brought antitrust claims against another company for enforcing a fraudulent fracking patent. This is called a Walker Process suit. See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp. , 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965). The district court dismissed some of the claims for lack of standing and others as time-barred. The case was then appealed to the Federal Circuit, which is where most antitrust cases of this ilk go. But the Federal Circuit found the case had no live patent issues—the underlying patent had already been declared invalid—and so transferred the case to us. See Chandler v. Phoenix Servs. LLC , 1 F.4th 1013 (Fed. Cir. 2021).

We differ with the Federal Circuit over whether we have appellate jurisdiction over Walker Process cases. Compare Xitronix Corp. v. KLA-Tencor Corp. (Xitronix II ), 916 F.3d 429 (5th Cir. 2019), with Xitronix Corp. v. KLA-Tencor Corp. (Xitronix I ), 882 F.3d 1075 (Fed. Cir. 2018). But the Supreme Court has told us to accept circuit-to-circuit transfers if the jurisdictional question is "plausible." Christianson v. Colt Indus. Operating Corp. , 486 U.S. 800, 819, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988). While we continue to disagree with the Federal Circuit on this point, we do not find the transfer implausible. We therefore accept the case and affirm the district court's judgment.

I.

A.

Plaintiffs are oil-field manufacturing and services companies (collectively, "Chandler")¹ who brought Walker Process fraud and sham patent litigation claims against defendants Phoenix Services, LLC, and its CEO, Mark Fisher (collectively, "Phoenix"). A Walker Process claim is one under § 2 of the Sherman Act alleging enforcement of a fraudulently obtained patent. See Walker Process , 382 U.S. at 174, 86 S.Ct. 347 ("[T]he enforcement of a patent procured by fraud on the Patent Office may be violative of § 2 of the Sherman Act provided the other elements necessary to a § 2 case are present."); 15 U.S.C. § 2 ; see also, e.g., TransWeb, LLC v. 3M Innovative Props. Co. , 812 F.3d 1295, 1306 (Fed. Cir. 2016) (discussing Walker Process claims). The patent at issue here is U.S. Patent No. 8,171,993 (the "'993 Patent"), which was issued to Mark Hefley, founder of Heat On-The-Fly, LLC ("HOTF").

We first sketch the patent's background. The '993 Patent covers a water-heating technology developed by Hefley for use in fracking.² Hefley first applied for the patent on September 18, 2009. The United States Patent and Trademark Office ("USPTO") issued the patent on May 8, 2012. Litigation soon erupted, however. From early 2013 to 2018, HOTF and rival companies sparred over the '993 Patent's validity in federal district court in North Dakota. See generally Energy Heating, LLC v. Heat On-The-Fly, LLC , No. 4:13-CV-10, 2016 WL 10837799 (D.N.D. Jan. 14, 2016) [the " Energy Heating Litigation"]. This ended with the Federal Circuit upholding the district court's finding that the patent was unenforceable due to Hefley's inequitable conduct in procuring it. Energy Heating, LLC v. Heat On-The-Fly, LLC , 889 F.3d 1291, 1296 (Fed. Cir. 2018). The gist was that Hefley knowingly violated the "on-sale bar" by failing to disclose numerous non-experimental sales and public uses of his invention prior to the patent's "critical date." Id. at 1297–1303.³

While the Energy Heating Litigation was pending in district court, Phoenix acquired HOTF and the '993 Patent on January 31, 2014. Phoenix's CEO, Fisher, became president of HOTF after the acquisition.

B.

In 2019, Chandler brought Walker Process and sham patent litigation claims against Phoenix in the U.S. District Court for the Northern District of Texas. See Chandler v. Phoenix Servs. , 419 F. Supp. 3d 972, 977 (N.D. Tex. 2019). A Walker Process claim requires showing that (1) the defendant obtained its patent by "knowing and willful fraud on the patent office and maintained and enforced the patent with knowledge of the fraudulent procurement," and (2) the plaintiff can satisfy all other elements of a Sherman Act monopolization claim. TransWeb , 812 F.3d at 1306. A sham patent litigation claim posits antitrust liability on (1) an "objectively meritless" suit that (2) "conceals an attempt to interfere directly with the business relationships of a competitor." C.R. Bard, Inc. v. M3 Sys., Inc. , 157 F.3d 1340, 1368 (Fed. Cir. 1998) (quoting Prof'l Real Estate Invs., Inc. v. Columbia Pictures Indus., Inc. , 508 U.S. 49, 60-61, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993) ) (cleaned up). This second theory also requires proof of a substantive antitrust violation. Ibid. To support its claims, Chandler alleged Phoenix was liable as HOTF's parent company for two anticompetitive acts involving the '993 Patent.

First, in 2013, HOTF sent a cease-and-desist letter to Amerada Hess Corporation ("Hess"), the biggest customer of Supertherm Fluid Heating Services, LLC ("Supertherm"), one of the plaintiff companies here. The letter notified Hess of the '993 Patent and asked it to "undertake the necessary steps to ensure that any possible infringement by your water heating contractors or subcontractors ceases." Chandler alleged the letter contributed to Supertherm's losing customers and eventually going out of business in 2016.

Second, in 2014, HOTF (now under Phoenix's ownership) asserted the '993 Patent in a separate lawsuit in the U.S. District Court for the Northern District of Texas against Chandler and Newco Enterprises, LLC ("Newco"), two of the plaintiff companies here. See Newco Enters., LLC v. Super Heaters N.D., LLC , No. 7:14-CV-87, 2014 WL 11514928, at *1 (N.D. Tex. Dec. 19, 2014) [the " Newco Litigation"]. HOTF claimed Chandler and Newco had been "actively and knowingly inducing infringement of the '993 Patent" by their customers.

Chandler and Phoenix cross-moved for summary judgment. On April 13, 2020, the district court denied Chandler's motion and granted Phoenix's. Chandler v. Phoenix Servs. , No. 7:19-CV-14, 2020 WL 1848047 (N.D. Tex. Apr. 13, 2020). The court ruled that (1) Chandler lacked standing on its claim for lost profits but had standing to seek attorneys' fees; (2) Chandler's claim was nonetheless time-barred under the four-year statute of limitations, see 15 U.S.C. § 15b ; and (3) Chandler failed to establish liability for Phoenix under single-enterprise liability or for Fisher under corporate-officer liability. Chandler , 2020 WL 1848047 at *7, *12, *15–16. Chandler timely appealed to the Federal Circuit, which found it lacked appellate jurisdiction and transferred the case to this court. See Chandler , 1 F.4th at 1014.

II.

First, we must address our appellate jurisdiction. See Castaneda v. Falcon , 166 F.3d 799, 801 (5th Cir. 1999). The Federal Circuit concluded that we, not it, have jurisdiction over this appeal and shipped the case to us. See Chandler , 1 F.4th at 1014. That decision is law-of-the-case. See Christianson , 486 U.S. at 816 & n.5, 108 S.Ct. 2166 (1988) ("Federal courts routinely apply law-of-the-case principles to transfer decisions of coordinate courts[,]" including "transfer decisions that implicate the transferee's jurisdiction." (citations omitted)). We will revisit the Federal Circuit's decision only in "extraordinary circumstances such as where [it] was clearly erroneous and would work a manifest injustice." Id. at 817, 108 S.Ct. 2166 (citation omitted). But "if [we] can find the transfer decision plausible, [our] jurisdictional inquiry is at an end." Id. at 819, 108 S.Ct. 2166 (citation omitted). We conclude the Federal Circuit's decision was plausible.

The Federal Circuit has exclusive jurisdiction over a district court's final decision "in any civil action arising under ... any Act of Congress relating to patents[.]" 28 U.S.C. § 1295(a)(1). But here, adhering to its precedent in Xitronix I , the Federal Circuit ruled that Chandler's Walker Process claim "does not present a substantial issue of patent law" and so falls outside § 1295(a)(1). Chandler , 1 F.4th at 1016 (quoting Xitronix I , 882 F.3d at 1078 ). In particular, the court emphasized "[t]he enforceability of the [ '993 Patent] is no longer at issue" because its prior Energy Heating decision "declared the '993 patent unenforceable." Ibid. (citing Energy Heating , 889 F.3d at 1302 ). That makes this case, the court explained, an "even weaker" candidate for Federal Circuit jurisdiction than Xitronix I. Ibid. Indeed, the court doubted there was even a " ‘plausible’ basis for jurisdiction," because "[t]he patent allegedly being enforced by Phoenix has already been ruled unenforceable" and so "[t]his case will not alter the validity of the '993 patent." Id. at 1018.

In transferring the case to us on the strength of Xitronix I , the Federal Circuit recognized that our court disagrees with Xitronix I . See id. at 1016–18 (discussing Xitronix II ). That is true. Following the transfer in Xitronix I , we held in Xitronix II that a Walker Process claim lacking any non-patent theories falls within the Federal Circuit's exclusive jurisdiction. See Xitronix II , 916 F.3d at 443–44. And we not only disagreed with Xitronix I but found aspects of its reasoning "implausible." Id. at 441. In particular, we doubted its view that the allocation of cases between the Federal Circuit and the regional circuits had been altered by Gunn v. Minton , 568 U.S. 251, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013). See ...