Speedco, Inc. v. Estes

• Decision Date: 10 August 1988
• Docket Number: No. 88-1100,88-1100
• Citation: 853 F.2d 909,7 USPQ2d 1637
• Parties: SPEEDCO, INCORPORATED, Plaintiff-Appellant, v. Donald ESTES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 909

853 F.2d 909

7 U.S.P.Q.2d 1637

SPEEDCO, INCORPORATED, Plaintiff-Appellant, v. Donald ESTES, Defendant-Appellee.

No. 88-1100.

United States Court of Appeals Federal Circuit.

Aug. 10, 1988.

James R. Higgins, Jr., Middleton & Reutlinger, Louisville, Ky., argued for plaintiff-appellant. With him on the brief was William T. Repasky. Also on the brief was J. David Porter, Stites & Harbison, Lexington, Ky.

James D. Liles, Frost & Jacobs, Cincinnati, Ohio, argued for defendant-appellee. With him on the brief was Denise H. McClelland, Frost & Jacobs, of Ft. Wright, Ky.

Before BISSELL and MICHEL, Circuit Judges, and COWEN, Senior Circuit Judge.

MICHEL, Circuit Judge.

This is an appeal from the order of the United States District Court for the Eastern District of Kentucky, Civil Action No. 86-225 (Oct. 30, 1987), dismissing the declaratory judgment complaint of Speedco, Incorporated (Speedco) against Donald Estes for lack of jurisdiction. We affirm.

BACKGROUND

In January, 1984, Mr. Estes applied for a patent on an invention relating to rock dusting equipment used in underground coal mines. On May 30, 1984, during the pendency of the patent application, Mr. Estes and Quick Duster, Inc. (Quick Duster), a Kentucky corporation of which Mr. Estes was president and sole stockholder, executed a contract of sale in which all stock in Quick Duster and all rights to the invention were sold to Speedco, also a Kentucky corporation, for $500,000. Speedco paid $100,000 to Mr. Estes at the time that the agreement was signed, and executed a promissory note in the amount of $400,000, which was payable in ten annual installments of $40,000 plus 7% interest on the unpaid balance. On April 16, 1985, United States Patent No. 4,510,883 (the '883 patent), entitled "Apparatus for Distributing Powdered Material," was issued to Speedco as the assignee of the inventor, Mr. Estes.

According to Speedco's allegations ¹ in the district court in this action, Speedco subsequently learned that Mr. Estes had knowingly failed to disclose both patented and unpatented prior art to the United States Patent and Trademark Office (PTO) during prosecution of the '883 patent. Furthermore, Speedco alleged that Mr. Estes had been aware of another company's intention to manufacture a machine that "misappropriated the essence" of his invention, but neither conveyed this information to Speedco prior to the sale transaction nor informed his own patent counsel, who might have been able to draft the claims of the '883 patent to cover that device. Finally, according to Speedco, Mr. Estes falsely represented to Speedco that the other company "had been placed under enforceable legal obligations" not to market a machine embodying the Estes invention or to use the trade secrets and nonpatentable proprietary aspects of the invention.

Speedco made its first installment payment on the promissory note to Mr. Estes in 1985 but did not make the second installment You may inform your clients [Speedco] that if payment is not received when due pursuant to our previous notice then we anticipate that litigation will be necessary to collect the amounts due.

payment when it became due in 1986. Mr. Estes promptly gave notice of payment due to Speedco, but declined Speedco's "invitation" to discuss the validity of the '883 patent and Speedco's obligations under the note, stating in a letter from his counsel to Speedco's counsel that:

Instead of paying the second installment, Speedco filed the present action in district court, seeking a "declaration of rights" between the parties with respect to the '883 patent and how those declared rights relate to the parties' financial rights and obligations under the purchase agreement involving the patent.

Speedco's complaint does not allege that the '883 patent is invalid. In fact, Speedco stresses that its prime objective has always been to obtain and utilize a valid, enforceable patent. Nor does Speedco allege that Mr. Estes is infringing the '883 patent. The gravamen of Speedco's complaint is that the '883 patent was "weak," thereby forcing Speedco to undergo great expense to "maintain" or "salvage" its rights associated with the patent. In short, Speedco believes that it paid too much for the assignment of the invention because the validity and/or enforceability of the '883 patent is not free from doubt, even if valid, and the coverage of the patent's claims is not as broad as Speedco was led to believe at the time of the assignment. Thus, Speedco apparently seeks an evaluation by the district court as to the "validity and/or enforceability" of the patent and to have the terms of the assignment reformed in accordance with the district court's determination of the "true" value of what was conveyed. In short, Speedco seeks court approval to pay Mr. Estes less.

The district court granted Mr. Estes's motion to dismiss the complaint, holding that it lacked subject-matter jurisdiction under 28 U.S.C. Sec. 1331 (1982) and 28 U.S.C. Sec. 1338 (1982) and that no actual controversy existed for declaratory judgment jurisdiction under 28 U.S.C. Sec. 2201 (1982 & Supp. IV 1986). Speedco argues on appeal that the district court properly could assume jurisdiction under section 1338(a).

OPINION

Where there is no diversity between the parties, as here, the federal Declaratory Judgment Act, 28 U.S.C. Sec. 2201, does not create an independent source of federal court jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72, 70 S.Ct. 876, 878-79, 94 L.Ed. 1194 (1950) ("[t]he operation of the Declaratory Judgment Act is procedural only"). Thus, the district court in this case could have assumed jurisdiction over Speedco's declaratory judgment complaint only as the result of having jurisdiction under 28 U.S.C. Sec. 1338(a).

Section 1338(a) provides, in pertinent part, that "[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents...." However, contrary to Speedco's arguments, the jurisdictional test under section 1338(a) is not confined solely to the "relating to patents" language of the statute, but requires also that the action be one "arising under" the federal patent laws. As the Supreme Court in Christianson v. Colt Industries Operating Corp., --- U.S. ----, ----, 108 S.Ct. 2166, 2173, 100 L.Ed.2d 811 (1988), recently reiterated:

In interpreting Sec. 1338's precursor, we held long ago that in order to demonstrate that a case is one "arising under" federal patent law "the plaintiff must set up some right, title or interest under the patent laws, or at least make it appear that some right or privilege will be defeated by one construction, or sustained by the opposite construction of these laws." Pratt v. Paris Gas Light & Coke Co., 168 U.S. 255, 259 [18 S.Ct. 62, 64, 42 L.Ed. 458] (1897).... Linguistic consistency, to which we have historically adhered, demands that Sec. 1338 jurisdiction likewise extend only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.

Furthermore, the "well-pleaded complaint" rule contemplates that whether an action arises under federal law "must be determined from what necessarily appears in the plaintiff's statement of his own claim in the bill or declaration, unaided by anything alleged in anticipation or avoidance of defenses which it is thought the defendant may interpose." Taylor v. Anderson, 234 U.S. 74, 75-76, 34 S.Ct. 724, 724, 58 L.Ed. 1218 (1914); see also Vink v. Hendrikus Johannes Schijf, 839 F.2d 676, 677-78, 5 USPQ2d 1728, 1730 (Fed.Cir.1988). Speedco, as declaratory plaintiff, asserts that its complaint indeed presents and requires resolution of a substantial question related to federal patent law. However, Speedco's complaint is not the one relevant to our inquiry.

In accordance with the Supreme Court's teaching in Skelly Oil, we determine whether federal court jurisdiction exists in a case seeking a declaratory judgment by applying the well-pleaded complaint rule not to the declaratory judgment complaint, but to the action that the declaratory defendant would have brought. 339 U.S. at 672, 70 S.Ct. at 879. As observed in Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 16, 103 S.Ct. 2841, 2850, 77 L.Ed.2d 420 (1983), "Skelly Oil has come to stand for the proposition that 'if, but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state created action, jurisdiction is lacking' " (quoting 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure Sec. 2767, at 744-45 (2d ed. 1983)); see also Public Service Commission of Utah v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1952). Thus, the complaint relevant here is the well-pleaded state court complaint that Mr. Estes would have filed, if the threatened litigation had indeed been initiated by him.

Here, Mr. Estes's threatened litigation pertained only to a possible future resort to a state law contract action to enforce the terms of the contract and recover the overdue funds owed on the promissory note. Mr. Estes no longer has a colorable claim of ownership to the '883 patent since Speedco owns all rights in the '883 patent as a result of the assignment from Mr. Estes. Ordinarily, ownership of a patent is a requisite to the right to sue for patent infringement. See Agrashell, Inc. v. Hammons Products Co., 352 F.2d 443, 446, 147 USPQ 347, 348-49 (8th Cir.1965); but see Weinar v. Rollform Inc., 744 F.2d 797, 806-07, 223 USPQ 369, 375 (Fed.Cir.1984), cert. denied, 470 U.S. 1084, 105 S.Ct. 1844, 85 L.Ed.2d 143 (1985). Furthermore, nothing in the record indicates that Mr. Estes...