A game of “hot potato” between the US Courts of Appeals for the Federal and Fifth Circuits has been resolved, ending a disagreement over the scope of the Federal Circuit’s jurisdiction. After a patent infringement defendant appealed the dismissal of its Walker Process claim against the patent owner to the Federal Circuit, the Court concluded that it lacked jurisdiction and transferred the appeal to the Fifth Circuit. Xitronix Corp. v. KLA-Tencor Corp., 882 F.3d 1075 (Fed. Cir. 2018) (Moore, J). The Fifth Circuit then transferred the case back. Xitronix Corp. v. KLA-Tencor Corp., Case No. 18-50114 (5th Cir. Feb. 15, 2019) (Higginson, J). Finally, the Federal Circuit accepted jurisdiction of Xitronix’s appeal. Case No. 16-2746 (Fed. Cir. Mar. 14, 2019).
Xitronix and KLA both make optical inspection devices used for quality control in the production of semiconductor wafers and have been engaged in multiple rounds of litigation over the past decade. In 2008, Xitronix sought a declaratory judgment that a KLA patent was invalid, and a jury entered a verdict in Xitronix’s favor. The present case began in December 2014, with Xitronix bringing a single Walker Process monopolization claim against KLA. Xitronix alleged that KLA obtained the challenged patent, a successor to the invalidated patent, through fraud on the US Patent and Trademark Office (PTO). Specifically, Xitronix alleged that KLA made material misrepresentations to the PTO regarding the 2008 litigation. A federal district court disagreed and granted KLA summary judgment. Xitronix then appealed to the Federal Circuit.
Despite the parties’ arguments to the contrary, the Federal Circuit ruled that it lacked jurisdiction, rejected a petition for en banc rehearing and transferred Xitronix’s appeal to the Fifth Circuit. In past cases, the Federal Circuit has exercised jurisdiction over Walker Process claims like Xitronix’s. However, as the Court explained, the 2013 Supreme Court of the United States decision Gunn v. Minton changed the scope of its jurisdiction. Gunn did not directly address the allocation of patent-related cases between the Federal Circuit and regional circuits, but clarified when patent-related claims must be brought in federal district court rather than state court. Nevertheless, because the district court and the Federal Circuit patent jurisdiction statutes use the same language, the Federal Circuit concluded that these two statutes must be read in parallel. Thus, the Court applied the four-factor test identified in Gunn to determine its own jurisdiction over Xitronix’s Walker Process claim. The Court concluded that one of the Gunn factors—that the claim must raise a “substantial” federal patent issue—was not met because, among other things, the case would not invalidate or revive any patent claims.
The Fifth Circuit disagreed with the Federal Circuit’s jurisdictional analysis and transferred the appeal back. First, the Fifth Circuit disagreed with the Federal Circuit’s conclusion that Xitronix’s claim did not raise a substantial patent issue. The Court noted that a finding that KLA deceived the PTO would effectively render its challenged patent unenforceable in future cases because any potential infringer would have a “readymade” inequitable conduct defense. In addition, the Fifth Circuit questioned whether Gunn actually changed the scope of the Federal Circuit’s jurisdiction. In the Fifth Circuit’s view, the Gunn Court gave no indication that it meant to alter the allocation of cases among the circuit courts.
After receiving this “hot potato” back from the Fifth Circuit, the Federal Circuit decided to accept jurisdiction. Although the Court did not agree with all of the Fifth Circuit’s legal analysis, it determined that the Fifth Circuit’s ultimate conclusion was “plausible.” The Federal Circuit rejected the notion that Gunn did not change the scope of its own jurisdiction, but found plausible the Fifth Circuit’s conclusion that Xitronix’s claim raised a substantial patent issue.
Practice Note: Going forward, the scope of the Federal Circuit’s jurisdiction over Walker Process and other patent-related claims is not entirely clear. The Federal Circuit’s initial decision to transfer Xitronix’s claim suggests that it may decline to hear similar Walker Process claims. However, the Federal Circuit did find the Fifth Circuit’s reading of Gunn plausible and may be open to similar arguments regarding the scope of its jurisdiction.