Schwarzkopf Development Corp. v. Ti-Coating, Inc.
| Citation | 800 F.2d 240,231 USPQ 47 |
| Decision Date | 20 August 1986 |
| Docket Number | TI-COATIN,INC,No. 86-788,86-788 |
| Parties | SCHWARZKOPF DEVELOPMENT CORPORATION, Plaintiff-Appellee, v., Defendant-Appellant. Appeal |
| Court | United States Courts of Appeals. United States Court of Appeals for the Federal Circuit |
Joseph R. Papp, Harness, Dickey and Pierce, Birmingham, Mich., for appellant.
David H. Pfeffer, Morgan, Finnegan, Pine, Foley & Lee, New York City, for appellee.
Before NEWMAN, BISSELL, and ARCHER, Circuit Judges.
ON MOTION TO DISMISS OR TRANSFER
ORDER
Appellee Schwarzkopf Development Corporation (SDC) moves to dismiss or transfer this appeal under 28 U.S.C. Sec. 1631 for lack of appellate jurisdiction in the Federal Circuit.
The complaint raised claims in contract and (as amended) contract-related tort. The action was initiated by SDC in state court and, before Ti-Coating's answer was filed, was transferred to federal court on diversity grounds. The answer filed in federal court contained patent-related defenses and a counterclaim that included patent counts. The counterclaim was dismissed in its entirety, without objection by the counterclaimant, before the filing of an answer thereto. On this procedural history, the motion to transfer is granted.
Portions of the factual and procedural background of this litigation are pertinent to our decision on jurisdiction. SDC is the owner of U.S. Patent No. 4,101,703 ("the '703 patent") and U.S. Patent No. 4,162,338 ("the '338 patent"), both directed to "Coated Cemented Carbide Elements". In November or December 1982 SDC and Ti-Coating entered into a written agreement, effective as of June 1, 1982, wherein SDC granted Ti-Coating a nonexclusive license to practice the inventions claimed in the SDC patents. The agreement released Ti-Coating from liability for past infringement and provided for the payment of royalties for operations after June 1, 1982.
The patented inventions relate to a multi-layered titanium-containing coating applied to cutting tools to increase their durability. Before November 1982 Ti-Coating had applied the patented coating directly to the surface of its tools. In November 1982 Ti-Coating assertedly changed its product by interposing an additional layer, 1/2 to 1 micron in thickness, of titanium nitride between the multi-layered coating and the tool surface. Ti-Coating paid no royalties for the periods before and after this change.
On November 14, 1983 SDC filed suit in New York state court for royalties due under the license agreement. Ti-Coating, a Michigan corporation, moved on December 13, 1983 to remove the suit pursuant to 28 U.S.C. Sec. 1441 to the U.S. District Court for the Southern District of New York, alleging diversity jurisdiction under 28 U.S.C. Sec. 1332. That motion was granted.
The action in the Southern District of New York was stayed, pending resolution of an earlier-filed action by Ti-Coating in Michigan arising out of the same transaction. The action had been filed in Michigan state court for reformation of the license agreement, and had been removed, because of diversity, to federal court in Michigan on SDC's motion. Although Ti-Coating's Michigan complaint was subsequently amended in the federal court to include counts for declaratory judgment that the '703 and '338 patents were invalid, unenforceable, and not infringed, these and all other aspects of the Michigan action were dismissed. Ti-Coating's appeal to the Sixth Circuit was dismissed for lack of prosecution.
On June 12, 1984, after the dismissal of Ti-Coating's Michigan action, the Southern District of New York reactivated this action. On July 23, 1984 Ti-Coating filed an answer and counterclaim. Ti-Coating admitted that it had at one time practiced the patented inventions but denied doing so after November 1, 1982. Ti-Coating's answer raised nine defenses, including the defenses of patent invalidity, unenforceability, misuse, and noninfringement. Ti-Coating's counterclaim contained five counts: Count I, for which jurisdiction was based on 28 U.S.C. Secs. 1338, 2201, and 2202, sought a declaratory judgment that the licensed patents were invalid, unenforceable, and not infringed; Count II alleged Sherman and Clayton Act violations; Count III, based on 28 U.S.C. Secs. 1338 and 2202, sought a declaratory judgment that SDC had misused the licensed patents which were therefore unenforceable; Count IV asked for rescission of the license agreement; and Count V asked for its reformation.
All five counts of the counterclaim were dismissed on SDC's motion, without opposition by Ti-Coating. On August 31, 1984, SDC had moved under Fed.R.Civ.P. 12(b)(1) to dismiss Counts I and III for lack of justiciable controversy under the Declaratory Judgment Act, and as res judicata because the same counts had been dismissed in the Michigan action on the same grounds. SDC moved under Fed.R.Civ.P. 12(b)(6) to dismiss Counts II and V for failure to state a claim for which relief could be granted, and as res judicata. Ti-Coating filed no opposition, and on October 4, 1984 the district court dismissed Counts I, II, III, and V of the counterclaim.
SDC filed a separate motion to dismiss Count IV and for partial summary judgment as to Ti-Coating's liability for royalties accrued between June 1, 1982 and November 1, 1982. Ti-Coating did not oppose, and this motion was granted on October 9, 1984.
SDC's motion to dismiss counterclaim Counts I, II, III, and V included a request for costs and attorney fees incident to the motion, on the ground that "there was no reasonable basis for the belief that these counts could properly be interposed in this action". Ti-Coating opposed this request, and on December 3, 1984 the district court denied attorney fees, stating that SDC had not clearly demonstrated that Ti-Coating's counterclaim was "entirely without color and ... asserted wantonly, for purposes of harassment or delay, or for other improper reasons".
On December 10, 1984 SDC moved for a second partial summary judgment of royalty liability, based on Ti-Coating's products sold between November 1, 1982 and September 30, 1983. On January 29, 1985 the court conditionally granted this motion, observing that Ti-Coating had offered no evidentiary support for its defense that it did not infringe SDC's patents. The court also granted SDC leave to file an amended complaint introducing a count for fraudulent inducement to enter into the license agreement.
On May 30, 1985 SDC moved for partial summary judgment for damages based on the conditional holding of January 29, 1985. SDC countered Ti-Coating's defense of patent invalidity on the basis that Ti-Coating "had failed to give prior notice of invalidity to Plaintiff and hence the defense of invalidity could not be raised for royalties due prior to the time of notice", which was October 30, 1983.
On July 9, 1985 the district court filed a written opinion on the merits. The court analyzed and interpreted the patent claims in view of the asserted changes to the Ti-Coating product. The court discussed the evidence presented on the defense of noninfringement, and applied the process claims and the product claims to the accused processes and structures. The court also reviewed a Patent and Trademark Office decision of February 27, 1985 denying reexamination, observing that "Claims 3 through 6 of patent '703 were interpreted by the PTO and the petition was denied", and discussed why "this Court will not follow the P.T.O.'s interpretation" of the claims. The district court found that Ti-Coating literally infringed claim 15 of the '703 patent and claim 21 of the '338 patent. Ti-Coating was held liable under the contract. (Neither party had cancelled the contract).
The district court referred the matter to a magistrate for an accounting. The magistrate recommended that SDC be awarded damages of $64,781.13 for the period between June 1, 1982 to November 1, 1982, and $140,700.80 for the period between November 1, 1982 to September 30, 1983. Those amounts would have been payable as royalties under the contract.
On September 26, 1985 the court entered final judgment on the award of $64,781.13. That judgment has been satisfied, and Ti-Coating's liability for that period is not further contested.
On December 5, 1985 the court entered final judgment awarding SDC $140,700.80, pursuant to Fed.R.Civ.P. 54(b). On the same day the court granted, on consent, SDC's earlier motion for leave to file a supplemental complaint seeking damages based on Ti-Coating's failure to pay royalties for its operations between October 1, 1983 and September 30, 1985, and allowed Ti-Coating to file an answer.
On December 19, 1985 Ti-Coating filed a notice of appeal to this court from the judgment awarding $140,700.80. A "protective" appeal to the Second Circuit was also filed, and we have been advised that it has been stayed by the Second Circuit pending our determination of appellate jurisdiction.
On January 21, 1986, after this appeal was filed, Ti-Coating filed its answer in the district court to SDC's supplemental complaint. That answer includes counterclaim counts for declaratory judgment of patent invalidity, unenforceability, and noninfringement.
SDC asserts that because the case does not arise under the patent law, the jurisdiction of the district court was not based on 28 U.S.C. Sec. 1338, and therefore that the Federal Circuit does not have jurisdiction under 28 U.S.C. Sec. 1295(a)(1). Ti-Coating, opposing SDC's motion to dismiss or transfer, asserts that Sec. 1338 jurisdiction is based on the patent counts of its counterclaim, and thus that the appeal of all aspects of the case lies with the Federal Circuit.
28 U.S.C. Sec. 1295(a)(1) assigns to the Federal Circuit exclusive jurisdiction
of an appeal from a final decision of a district court of the United States ... if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title....
Section 1338 of Title 28 states...
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