MDS (Canada) Inc. v. Rad Source Technologies, Inc.

In a case of first impression for a regional court of appeals regarding the issue of whether the U.S. Court of Appeals for the Federal Circuit has exclusive jurisdiction to hear appeals of breach of contract claims that would require resolution of a patent infringement claim, the U. S. Court of Appeals for the Eleventh Circuit found that the Federal Circuit did not have exclusive jurisdiction and decided the merits of the breach of contract action. MDS (Canada) Inc. v. Rad Source Technologies, Inc., Case No. 11-15145 (11th Cir., July 1, 2013) (per curiam).

The parties had signed a license agreement whereby plaintiff MDS Nordion agreed to market and sell defendant Rad Source Technologies’ patented medical devices that irradiate blood to eliminate pathogens and other microbes to reduce the risk of infections. The first such product was the RS3000. The license agreement prevented Rad Source from developing technology that embodied the licensed patents. Years later, MDS sold its business to Best Medical, another plaintiff, but Rad Source refused to consent to the assignment of the MDS-Rad Source license agreement. After Rad Source developed a new blood irradiation device, the RS3400, MDS and Best Medical sent a cease-and-desist letter to Rad Source. Rad Source responded that MDS had violated the parties’ license agreement by sub-licensing. The present suit ensued.

After a 10-day bench trial, the district court entered a preliminary injunction as to the sales of the RS3400, but denied damages. Both sides appealed.

The 11th Circuit considered whether the Federal Circuit properly had jurisdiction over the appeal, an issue of first impression for the 11th Circuit. The 11th concluded that the Federal Circuit did not have exclusive jurisdiction over contracts where patent issues were involved. The 11th Circuit recognized that the Federal Circuit has exclusive jurisdiction over appeals where jurisdiction is based on 28 U.S.C. §1338 for civil actions relating to patents. The 11th Circuit also recognized that the instant dispute necessarily raised patent issues because Rad Source was prevented from developing technology that embodied the patents and the parties disputed whether the RS3400 embodied the patents.

The 11th Circuit found, however, that in resolving this dispute, the question of patent infringement was “not substantial,” relying upon the Supreme Court’s recent ruling in Gunn v. Minton. Using the three-factor test laid out in Gunn, the 11th Circuit found that the question was not substantial because it was a mixed question of fact and law (not a pure question of law), it was a fact-specific case that will not control other cases as precedent and, finally, the government’s interest in having any single case of patent infringement heard in a federal forum is limited. The 11th Circuit also noted that if every breach of contract case that involved a patent dispute could only be heard in the Federal Circuit, it would “upset the congressionally approved balance of federal and state judicial responsibilities.”

Having concluded that it had jurisdiction, the 11th Circuit considered the merits of the breach of contract claims, analyzing whether the RS3400 embodied the licensed patents. The 11th Circuit affirmed the district court’s conclusion that the RS3400 did not infringe, either literally or under the doctrine of equivalents, and therefore did not embody the licensed patents.