IP License Agreements Under the AIA

Over the past few years, there has been an ongoing subject matter jurisdiction battle between state courts and federal circuit courts. This jurisdiction battle is especially prevalent in cases where a complaint asserts a non-patent cause of action with an underlying patent issue, such as disputes over intellectual property licensing or malpractice claims.

In most patent cases the “arising under” analysis for the Federal Circuit jurisdiction is fairly straight forward because a typical complaint would assert a cause of action based on federal patent law. The Supreme Court has additionally held in Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U. S. 308 (2005) that “arising under” jurisdiction exists if there is an underlying federal issue even when the cause of action is not strictly based upon federal law. The court uses a four-prong test to determine whether this type of “arising under” jurisdiction exists: the claim must [1] necessarily raise a stated federal issue, [2] that is actually disputed, [3] substantial and [4] does not disturb any congressionally approved balance of federal and state jurisdiction. 

In May 2013, the Supreme Court substantially limited the “arising under” jurisdiction of the federal court in a 9-0 decision in Gunn v. Minton, 133 S. Ct. 1059 (2013) holding that the plaintiff’s patent litigation malpractice case does not rise under the patent laws and is therefore not amenable to exclusive federal jurisdiction. Following Minton, one would imagine that only a few breach of contract challenges will be seen as arising under the patent law. However, the impact of Minton on licensing disputes will be limited due to the changes to §1338(a) and the new removal statue 28 U.S.C. §1454 pursuant to the America Invents Act. (Note – The complaint in Minton was filed in Gunn before the America Invents Act was enacted.)

28 U. S. C. §1338(a) states that federal “district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents” and that the jurisdiction “shall be exclusive of the courts of the states.” This statute is particularly strong because it provides for exclusive federal jurisdiction.

Under the new law, the question is not whether the civil action arises under the patent laws, but whether the action involves any claim for relief arising under any patent related laws. Section 1454 makes clear that the federal court has jurisdiction whenever a party asserts a claim arising under the patent laws. Thus, unlike the malpractice claim in Minton, in a breach of contract dispute in a patent licensing matter, where there is almost always a counterclaim of invalidity, state court jurisdiction is eliminated and a party has the option for removal to federal court. This change in the law essentially overrules the Supreme Court’s decision in Holmes Group, Inc. v. Vornado Aircirculation Systems, Inc., 535 U.S. 826 (2002) where the Court held that patent claims that arise only in a counterclaim did not trigger Federal jurisdiction under §1338(a).

Although not specifically so holding, the Supreme Court in Minton also suggested that state court decisions on patent issues should not have preclusive effect on other courts. Thus, a state court decision involving a licensing dispute that results in invalidation of a patent would not have a preclusive effect on either the USPTO or other federal courts. Rather, “the result would be limited to the parties and patents that had been before the state court.”