"First published in LES Insights"

In StoneEagle Servs., Inc. v. Gillman,1 the Federal Circuit held that the federal courts lack jurisdiction over the claims of a patent owner seeking a declaratory judgment of ownership and inventorship against a former patent licensee who claimed to have written the underlying patent application. The Federal Circuit also confirmed that it had appellate jurisdiction to review the trial court's order, which constituted a modification eligible for review because it substantively changed the scope of an earlier-entered injunction.

The challenged declaratory-judgment claims arose from a soured business relationship between StoneEagle and Gillman. The two parties had collaborated on an electronic health-care payment system based on technology owned and developed by StoneEagle and licensed to Gillman's company, Talon Transaction Technologies, Inc. During the parties' dealings, StoneEagle filed a patent application on the payment technology. The application listed StoneEagle's owner, Robert Allen, as the sole inventor. Gillman played some role in the patent-application process and, according to StoneEagle, never objected to Allen's status as the sole inventor. Gillman also held partial ownership interest in the patent application, but assigned his interest to StoneEagle before a patent ultimately issued. The collaboration ended abruptly after a meeting with investors who, according to StoneEagle, attributed significant value to StoneEagle's patent. According to StoneEagle, Gillman became upset at the meeting and "suddenly and falsely claimed that it is his patent, that he wrote the patent, that it is on his computer, and that he 'authored' or 'wrote' it, or words to that effect."

Soon after Gillman's alleged outburst, StoneEagle sued Gillman and Talon Transaction Technologies, Inc., seeking a declaratory judgment that Allen was the sole inventor and owner of the patent. StoneEagle also asserted a number of state-law trade-secret misappropriation claims. The district court granted Stone Eagle's motion for a preliminary injunction, prohibiting Gillman from using or disclosing StoneEagle's trade secrets and confidential information. After StoneEagle alleged that Gillman violated the injunction, the district court declined to find contempt but issued two orders clarifying its initial preliminary injunction and ordering Gillman to refrain from using any materials or processes "first used" by StoneEagle.

The Federal Circuit's Decision

On Gillman's appeal, the Federal Circuit first rejected StoneEagle's argument that the Federal Circuit lacked appellate jurisdiction to review the district court's order because that order had only clarified the initial preliminary injunction order. The court determined that the latest order went beyond clarification and constituted a modification to the preliminary injunction because its terms were not implicit in the original injunction. Specifically, the court pointed out that the original preliminary injunction covered all of StoneEagle's trade secrets and confidential information, including jointly developed technology, whereas the latest order prohibited only the use of materials and software "first developed" by StoneEagle. This change in substantive scope made the order appealable.

The Federal Circuit next considered whether the district court had proper subject-matter jurisdiction. The court explained that the Declaratory Judgment Act provides only a procedural vehicle to a remedy, not an independent basis for subject-matter jurisdiction. The Act's terms, the court explained, require a sufficient "case or controversy" to satisfy the requirements of Article III of the Constitution. Since ownership is a matter of state law, a dispute over ownership could not establish federal jurisdiction. Rather, jurisdiction turned on whether StoneEagle's complaint alleged a sufficient controversy concerning inventorship (a federal question). The Federal Circuit held that, even accepting StoneEagle's factual allegations, its complaint failed to allege a sufficient controversy regarding inventorship. Significantly, StoneEagle did not allege claims by Gillman of having invented the payment system, but only of having written the patent application. Thus, Gillman's contribution was, at most, assisting in constructively reducing the invention to practice. The Court reasoned that constructive reduction to practice alone could not constitute inventorship. Otherwise, patent attorneys and agents would be considered inventors on all patents.

Since StoneEagle's complaint did not plead any other facts giving rise to a federal question or other claim for relief properly before a federal court, the Court held that the district court lacked subject-matter jurisdiction over the case. Accordingly, the Court vacated the preliminary injunction and remanded with instructions to dismiss.

Strategy and Conclusion

This case shows that parties may need to use state courts, rather than federal courts, to resolve disputes about patent and technology agreements, particularly when the issues are confined to patent ownership or other issues that are not governed by federal law.