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Issue 21 | June 4, 2002
US Supreme Court Reverses Patent Decision
 On June 3, 2002, the United States Supreme Court issued a decision in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., in which the Court decided that regional appellate courts, not the U.S. Court of Appeals for the Federal Circuit, would have jurisdiction over appeals in which patent infringement was asserted only as a counterclaim. The decision reverses the trend towards seeking greater uniformity in patent precedent that started with the creation of the Federal Circuit over a decade ago. Furthermore, although the question posed to it was phrased in terms of the narrow issue of appellate court jurisdiction, the Court addressed the issue in light of trial court jurisdiction. Thus, the Court may have shifted certain patent claims - those brought as compulsory counterclaims to unremovable state court actions - to the state court systems.

Prior to the filing of the Holmes case, Vornado had brought an unsuccessful trade dress infringement case against Holmes. Despite having lost that case (which established an important point of trade dress law) on the basis of owning no protectable trade dress, Vornado brought another trade dress infringement action against Holmes based on the same design. In an attempt to terminate the second round of litigation, Holmes brought an action for a declaratory judgment that its products did not infringe Vornado’s trade dress and an injunction against further trade dress infringement claims. Vornado counterclaimed based on allegations of patent infringement. The district court granted the declaratory judgment and injunction and stayed consideration of the patent issues. Vornado appealed to the Federal Circuit, which considered the merits of the case. The Supreme Court granted certiorari to consider the question of whether the Federal Circuit, or the appropriate regional circuit, had jurisdiction over the case.

In deciding that the Federal Circuit could not exercise jurisdiction over the case, the Supreme Court relied upon well-established precedent that provides that trial court jurisdiction over cases “arising under” Federal law must be determined based solely on a well-pleaded complaint, not counterclaims. The statute establishing the Federal district courts’ exclusive jurisdiction over patent cases and the Federal Circuit’s exclusive jurisdiction over patent appeals uses the same “arising under” language. For the sake of linguistic consistency, the Supreme Court found that it could not consider Vornado’s patent infringement counterclaim in determining which appellate court would have jurisdiction over the case and therefore found that the appropriate regional appellate court would have jurisdiction over the case.

While the Supreme Court’s Holmes decision appears to be nothing more than an application of well-established precedent to an arcane question of appellate jurisdiction, it hides insidious possibilities for the future. The Federal Circuit was created for the purpose of harmonizing patent precedent because the regional appellate courts had reached widely divergent decisions in identical situations. Before the Federal Circuit, the situation had created races to the courthouse in which where a case was first filed was almost as important as the merits of the case itself. The Holmes decision revives that possibility by allowing non-patent claims arising out of the same facts or occurrences as a patent infringement counterclaim to dictate which regional appellate court will decide the appeal of the case. Three of the Supreme Court justices (Justices Stevens, O’Connor, and Ginsburg) recognized the potential harm of the situation in future cases. But the same reasoning could extend the Holmes decision even further - a state court in which unremovable non-patent claims are filed, and as to which patent infringement counterclaims are compulsory counterclaim, could dictate that the state court systems could be the sole route for appeal of patent infringement counterclaims. Thus, the Holmes decision undermines the efforts of the patent bar to reach precedential uniformity through the Federal Circuit.

To discuss this topic further, please contact the author, Joshua Rich at McDonnell Boehnen Hulbert & Berghoff. The information contained in this email is provided for informational purposes only and does not represent legal advice. Neither the APLF nor the author intends to create an attorney client relationship by providing this information to you through this message.

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