In a case in which the issue of jurisdiction was neither raised by the parties nor addressed by a prior panel, the U.S. Court of Appeals for the Fifth Circuit concluded that a state-law tort claim presented questions of patent law that involved a sufficiently substantial federal interest to permit federal jurisdiction over a state law tort.  The court also found that the law-of-the-case doctrine did not bar a lack of jurisdiction determination.  USPPS, Ltd. v. Avery Dennison Corp., Case No.  10-50612 (5th Cir., July 19, 2011) (Prado, J.).

USSPS’ owner and founder Joe Pat Beasley filed a patent application in 1999 for an invention related to personalized postage stamps.  While the application was pending, Beasley negotiated a contract for licensing and production with Avery.  In 2001, the U.S. Patent and Trademark Office (USPTO) approved the application for issue upon payment of the required fees.  Beasley and Avery entered into another agreement under which Avery would be responsible for prosecuting the application and paying all related fees and expenses.  Beasley then revoked all prior powers of attorney and appointed Avery’s law firm, Renner, to prosecute the patent application.  USPPS claims that Renner never disclosed to Beasley or USPPS that the firm did not represent Beasley but was loyal to Avery.

Renner abandoned Beasley’s original patent application to add additional claims and submitted a second application.  USPPS and Avery then entered into a royalty agreement on the sales of the personalized postage stamps.   After the USPTO subsequently rejected the second application, Renner notified Avery and USPPS that the applications had been abandoned.  Afterward, Avery notified USPPS that it intended to sell personalized postage stamps without further payment of royalties after the royalty agreement expired.

USPPS filed claims for fraud and breach of fiduciary duty.  The district court initially dismissed the suit as time-barred.  The 5th Circuit reversed and remanded for further factual development on the grounds that the discovery rule or fraudulent-concealment doctrine might apply.  No argument was made concerning jurisdiction on that appeal.  The district court later granted Avery summary judgment and USPPS appealed.

The Fifth Circuit’s sua sponte then questioned whether exclusive appellate jurisdiction rested in the Federal Circuit.  The court performed a two-part inquiry, first determining whether the case required deciding an issue of patent law and second, whether the patent issue to be decided rises to the level of creating a substantial interest such that the Federal Circuit has exclusive jurisdiction.

The 5th Circuit looked to Federal Circuit case law, Air Measurement Technologies and Immunocept, which had concluded that § 1338 federal jurisdiction was proper over state-law claims of malpractice if the alleged malpractice required the court to construe a patent.  In Davis, the Federal Circuit had extended this doctrine to cases where no patent had actually issued since the plaintiff had to prove that the patents would have been obtained but for the alleged attorney negligence.  Like Davis, USPPS was required to prove the patentability of the invention in order to prove an element of its claims.

The 5th Circuit, however, had previously declined to follow or extend Air Measurement Technologies in Singh, a trademark case.  The 5th Circuit differentiated this case by explaining that there is a strong federal interest in the “removal [of] non-uniformity in the patent law” and that Scherbatskoy, a prior 5th Circuit case, implicitly recognized a special federal interest in patent law which was not present in a trademark case.

USPPS also contended that since the 5th Circuit failed to disclaim jurisdiction at the motion-to-dismiss stage, it was precluded from doing so under the law-of-the-case doctrine, which precludes reexamination of issues of law or fact decided on appeal.  The court noted that the Supreme Court in Steel Co. rejected a prior decision that did not address jurisdiction as nonprecedential on the question of whether jurisdiction was proper.  Since the issue of jurisdiction was not raised by the parties nor addressed by the prior panel, the current panel declined to defer to the prior exercise of jurisdiction “by implication.”

Since the court determined that the tort claim required deciding an issue of patent law, that the Federal Circuit has a substantial interest in deciding the patent issue and that the law-of the case doctrine did not bar the transfer, the case was ordered to be transferred to the U.S. Court of Appeals for the Federal Circuit.