Posted on: 8/21/2012
Kathleen Milam, Bradley Arant Boult Cummings
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Many lawyers automatically assume federal jurisdiction over all patent or copyright claims. It is a fundamental legal concept that federal courts have exclusive subject matter jurisdiction over patent validity or infringement lawsuits, pursuant to 28 U.S.C. § 1338. Similarly, copyright validity and infringement claims are expressly reserved for federal resolution under the same statute. Despite this basic premise, there are several residual matters that may nonetheless be asserted in state courts. Although not a common occurrence, attorneys should be mindful of the potential option, and the possible advantages, of bringing these types of claims in a state-court setting. Conversely, an attorney defending IP-related claims should be aware of these jurisdictional issues and the fine line that is involved.
Walking a Fine Line
At least four issues of patent law have been found by the Federal Circuit to fall within the exclusive purview of federal resolution: infringement; inventorship issues under 35 U.S.C. §§ 116, 256; attorney fees under 35 U.S.C. § 285; and the revival of an unintentionally abandoned application under 35 U.S.C. §§ 41, 133. See, e.g.,Caldera Pharm., Inc. v. Univ. of Cal., No. A129727, 2012 WL 1401600, at *8 (Cal. Ct. App. Apr. 24, 2012). However, "the mere presence of a patent as relevant evidence to a claim does not by itself present a substantial issue of patent law" in order to create a federal question. Lab. Corp. of Am. Holdings v. Metabolite Lab., Inc., 599 F.3d 1277, 1284 (Fed. Cir. 2010). In fact, the Federal Circuit has recognized that it does not generally have jurisdiction over contract disputes that merely involve construction of terms familiar to patent law, and these types of cases should not be removed to federal court. Cedars-Sinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1579 (Fed. Cir. 1993). As such, many cases based primarily on contract or tort would more appropriately be asserted in state courts, assuming diversity is not an issue.
Patent indemnity disputes, for example, may be litigated in state courts, as they are contractual in nature. As with general indemnity clauses, these provisions guarantee that the seller (or licensor) of patent rights will pay a specified amount for damages and/or costs in the event a third party makes an infringement claim against the purchaser (or licensee). As such, defendants in patent infringement suits may be forced to bring this type of action when a seller refuses to indemnify for the costs of the infringement suit. Patent indemnity provisions can be drafted in a number of ways, including whether the seller must pay for the defense of an infringement case, or simply provide damages after a finding of liability. This can create timing concerns because the state-court patent indemnity claim may hinge on an infringement case pending elsewhere in federal court.
Secondary issues, although touching on federal laws, have been decided in state courts where the primary consideration is a patent indemnity contractual dispute. For instance, the Illinois state court in Spectramed, Inc. v. Gould, Inc. made determinations regarding notice and marking when construing a disputed medical asset purchase agreement. 710 N.E.2d 1, 7-8 (Ill. App. Ct. 1998). Additionally, the Spectramed court evaluated the effect of a reexamination proceeding against one of the parties with regard to infringement, and in turn, liability of the other party under the patent indemnity provision of the contract in question. Id. at 8. Thus, this particular state court interpreted the contract in conjunction with federal law even though the primary question arose under Illinois contract law, illustrating the concept that ancillary patent law issues do not necessarily put the case within exclusive federal jurisdiction.
Aside from indemnity disputes, other contractual claims that may be asserted in state courts involve license agreements, assignments, and nonpayment of royalties. Ted D. Lee & Ann Livingston, The Road Less Traveled: State Court Resolution of Patent, Trademark, or Copyright Disputes, 19 St. Mary's L.J. 703, 710 (1988). One California court noted that "it is necessary to distinguish between the copyright and a contract of which the copyright is the subject matter" in determining that a suit for nonpayment of copyright royalties was appropriate for the state court to consider. Durgom v. Janowiak, 87 Cal. Rptr. 2d 619, 622-23 (Cal. Ct. App. 1999) (quoting Golden W. Melodies, Inc. v. Capitol Records, Inc., 79 Cal. Rptr. 442 (Cal. Ct. App. 1969)).
Finally, actions such as tortious interference may be brought in state courts despite centering on a patent or copyright. In the same manner as the contract claims discussed above, without a corresponding infringement claim there is no reason for the case to be within the exclusive purview of federal courts even though a patent or copyright is involved; unless there is a substantial question arising under federal law, state resolution can be obtained.
Weighing the Options
Whether initiating the case or deciding whether to remove, each attorney clearly has the task of evaluating strategic options. As with any case, there are pros and cons to forum selection. The advantages of litigating IP-related claims in state court are similar to the considerations in non-IP cases:
- Better Access to State Courts. Many attorneys feel more comfortable in their local court system for various reasons. Familiarity with the judges can provide a sense of security as the lawyer will have a better idea of how a particular judge may rule on certain issues. Most lawyers have more experience in local courts as well, in turn boosting confidence. Moreover, this comfort and awareness may also provide a level of predictability for lawyers in assessing their likelihood of success.
- Quicker Resolution. Many state courts have faster dockets than their federal counterparts. Aside from the few federal jurisdictions with notorious "rocket dockets," it is likely that a claim based largely on state contract law will reach a more timely resolution in local courts.
- Decreased Cost to the Client. Litigation in state courts often costs much less than in federal courts. Not only can the court costs themselves be lower, but attorney's fees and travel expenses may be decreased by proceeding with a case in a local state court, in turn reducing the overall cost of litigation to the client. As mentioned above, the likelihood that the lawsuit will reach a resolution more quickly will also result in lower costs due to fewer attorney hours spent on the case.
As with any strategic decision, disadvantages must be weighed against the advantages – the disadvantages of trying IP-related cases in state court illustrate the nuances of patent litigation in particular:
- Judicial Experience and Knowledge. In state court, an attorney will be dealing with judges who are generally unfamiliar with the patent world as well as lacking in technical background. One recent court opinion noted that highly technological issues, even if ancillary to the primary claims, can be "beyond the ability of the usual judge to understand without the expenditure of an inordinate amount of educational effort by counsel and of attempted self-education by the judge, and in many instances, even with it." Caldera, 2012 WL 1401600, at *1. However, these are cases in which a Special Master may be appointed to assist the court with unfamiliar areas, potentially lessening this concern.
- Dependency on a Corresponding Federal Case. Regarding indemnity cases, the state court action may rely on an outcome of another case, depending upon the type of claim. For example, it may be necessary that a federal patent infringement action conclude before a state-court indemnity claim proceeds; if the particular type of indemnity provision requires that liability first be determined, the state court action may need to be stayed for a finding on infringement. Clearly, this would obviate the advantage of a quicker state court docket. The extent to which a state case hinges on a corresponding federal counterpart will largely depend on the type of indemnity clause.
Attorneys should be knowledgeable regarding the IP-related claims that can be litigated in state courts and take note of the possible advantages of asserting or defending in these venues. Whether a patent or copyright indemnity dispute, assignment or license issue, state courts can offer several benefits: faster dockets, familiarity with the local bench, and decreased costs result in significant advantages to the client. Thus, attorneys on either side should carefully weigh the options before making any strategic decisions and refrain from making an instinctive move to federal court when the issues permit.
Kathleen T. Milam focuses her practice on a wide range of intellectual property matters and business litigation at Bradley ArantBoult Cummings, LLP, and may be contacted at (256) 517-5132 or email@example.com.