Addressing jurisdictional issues, the US Court of Appeals for the Federal Circuit affirmed the district court’s conclusion that the patentee’s counterclaims for infringement independently gave rise to subject matter jurisdiction under 28 USC § 1338(a). Microsoft Corp. v. GeoTag, Inc., Case No. 15-1140 (Fed. Cir., Apr. 1, 2016) (Wallach, J). 

GeoTag sued more than 300 entities in the Eastern District of Texas, accusing their store locator services of patent infringement. Many of the entities had purchased those services from Google. In response, Google sued GeoTag in the District of Delaware seeking declaratory judgment of invalidity and non-infringement. GeoTag answered and counterclaimed that Google’s AdWords product also infringed the patent at issue in the Eastern District of Texas. Google moved for, and the district court granted, summary judgment of non-infringement, holding that AdWords does not practice one of the claim elements. 

While the summary judgment motion was pending, the Federal Circuit ruled in Microsoft Corp. v. DataTern, Inc. (IP Update, Vol. 17, No. 5) that suits against customers do not ordinarily confer declaratory judgment standing on a supplier. With the district court’s leave, Google filed a First Amended Complaint, which GeoTag moved to dismiss for lack of subject matter jurisdiction. GeoTag’s motion to dismiss alleged (1) that Google’s First Amended Complaint was deficient because there was not a substantial controversy “of sufficient immediacy” between the parties, and (2) that the counterclaims were compulsory (not permissive) and thus should be dismissed if the underlying declaratory judgment action lacks subject matter jurisdiction. 

The district court denied GeoTag’s motion, holding (1) that Google’s First Amended Complaint established a substantial controversy of sufficient immediacy to warrant declaratory relief, and (2) that the counterclaims (which the district court deemed to be permissive) formed an independent basis for finding subject matter jurisdiction. GeoTag stipulated to the entry of final judgment and appealed.

On appeal, the Federal Circuit affirmed both the denial of the motion to dismiss, as well as the summary judgment order. The Court held that GeoTag’s patent-infringement counterclaims independently conferred subject matter jurisdiction on the district court, explaining that because GeoTag’s counterclaim actually charged Google with infringement of the patent, there was necessarily a case or controversy sufficient to support jurisdiction. The Court found it to be irrelevant whether the underlying complaint was deficient and did not reach the question. The Court also found it irrelevant whether the counterclaims were compulsory or permissive, noting that nothing in the text of § 1338 suggests that Congress conditioned its grant of jurisdiction on the nature of the counterclaim.

Regarding the summary judgment order, the Court rejected two challenges to the district court’s claim construction, reasoning that the construction of the appealed terms did not form the basis for the district court’s decision to grant summary judgment. Because there was no technical dispute as to how the AdWords product functions, the Court affirmed the summary judgment of non-infringement.

Practice Note: Declaratory judgment defendants should bring jurisdictional challenges before answering to avoid conferring jurisdiction through compulsory counterclaims. The Federal Circuit’s ruling forecloses the opportunity to reserve such a challenge until the counterclaims succeed or fail.