Chandler v. Phoenix Services LLC

Case: 20-1848        Document: 54            Page: 1   Filed: 06/10/2021




   United States Court of Appeals
       for the Federal Circuit
                       ______________________

   RONALD CHANDLER, CHANDLER MFG., LLC,
    NEWCO ENTERPRISES LLC, SUPERTHERM
       FLUID HEATING SERVICES, LLC,
             Plaintiffs-Appellants

                                        v.

    PHOENIX SERVICES LLC, MARK H. FISHER,
              Defendants-Appellees
             ______________________

                             2020-1848
                       ______________________

    Appeal from the United States District Court for the
 Northern District of Texas in No. 7:19-cv-00014-O, Judge
 Reed O'Connor.
                 ______________________

      THEODORE G. BAROODY, Carstens & Cahoon, LLP, Dallas, TX, argued for plaintiffs-appellants. Also represented
 by DAVID W. CARSTENS.

     DEVAN V. PADMANABHAN, Padmanabhan & Dawson,
 PLLC, Minneapolis, MN, argued for defendants-appellees.
 Also represented by PAUL J. ROBBENNOLT.
                    ______________________

   Before CHEN, WALLACH*, and HUGHES, Circuit Judges.
     ________________________________

     *  Circuit Judge Evan J. Wallach assumed senior status on May 31, 2021.
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 2                        CHANDLER   v. PHOENIX SERVICES LLC



 HUGHES, Circuit Judge.
                         ORDER
     Appellants assert antitrust claims based on the prior
 enforcement of 

 in a separate
 case and, after we held the patent unenforceable due to inequitable conduct, the alleged continued enforcement
 through Appellee’s listing the patent on their website. We
 lack jurisdiction because this case does not arise under the
 patent laws of the United States. Accordingly, we transfer
 the case to the United States Court of Appeals for the Fifth
 Circuit, which has appellate jurisdiction over cases from
 the District Court for the Northern District of Texas.
                              I
     This appeal comes to us from a Walker Process monopolization action under § 2 of the Sherman Act. 1 To succeed
 on a Walker Process claim, a plaintiff must prove (1) that
 “the antitrust-defendant obtained the patent by knowing
 and willful fraud on the patent office and maintained and
 enforced that patent with knowledge of the fraudulent procurement,” and (2) that the plaintiff can satisfy “all other
 elements necessary to establish a Sherman Act monopolization claim.” TransWeb, LLC v. 3M Innovative Props. Co.,
 

 (Fed. Cir. 2016). Here, Plaintiffs
 Ronald Chandler, Chandler Manufacturing, LLC, Newco
 Enterprises, LLC, and Supertherm Heating Services, LLC
 (Chandler) allege that the first prong of the Walker Process
 claim is met by Defendants Phoenix Services, LLC and
 Mark     Fisher    (Phoenix)     asserting    

.



     1   In Walker Process Equip., Inc. v. Food Mach. &
 Chem. Corp., the Supreme Court held that enforcement of
 a patent procured by fraud on the PTO can be the basis for
 an antitrust claim. 

, 176–77 (1965).
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 CHANDLER   v. PHOENIX SERVICES LLC                            3



     Beginning in 2006, a business called Heat On-The-Fly
 began using a new fracking technology on certain jobs.
 Heat On-The-Fly’s owner, Mark Hefley, later filed a patent
 application regarding the process, but failed to disclose 61
 public uses of the process that occurred over a year before
 the application was filed. This application led to the ’993
 patent, and Heat On-The-Fly asserted the ’993 patent
 against a number of parties. In 2014, Defendant Phoenix
 acquired Heat On-The-Fly and the ’993 patent. Chandler
 alleges that enforcement of the ’993 patent continued in
 various forms. Then, in an unrelated 2018 suit, we affirmed
 a holding that the knowing failure to disclose prior uses of
 the fracking process rendered the ’993 patent unenforceable due to inequitable conduct. See Energy Heating, LLC v.
 Heat On-The-Fly, LLC, 

 (Fed. Cir.
 2018).
     Chandler alleges that Phoenix’s assertion of the ’993
 patent against Chandler constitutes a Walker Process antitrust violation.
                                II
     We have jurisdiction over the appeal of a final decision
 of a district court “in any civil action arising under . . . any
 Act of Congress relating to patents.” 

(a)(1).
 However, while Walker Process antitrust claims may relate
 to patents in the colloquial use of the term, our jurisdiction
 extends “only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the
 cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of
 federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.” Christianson v.
 Colt Indus. Operating Corp., 

 (1988); see
 also Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc.,
 

 (2002) (“Not all cases involving a patent-law claim fall within the Federal Circuit’s jurisdiction . . .
 Congress referred to a well-established body of law that
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 4                         CHANDLER   v. PHOENIX SERVICES LLC



 requires courts to consider whether a patent-law claim appears on the face of the plaintiff’s well-pleaded complaint.”), superseded in part by statute, Leahy-Smith
 America Invents Act sec. 19(b), 

 Stat. 284, 331–32 (2011) (amending 

(a)(1)
 to add compulsory patent counterclaims) (hereinafter AIA);
 Xitronix Corp. v. KLA-Tencor Corp., 

 (Fed. Cir. 2018) (Xitronix I) (applying Christianson, 

, to our current jurisdictional statute). Here, because Chandler’s cause of action arises under the Sherman
 Act rather than under patent law, and because the claims
 do not depend on resolution of a substantial question of patent law, we lack subject matter jurisdiction.
                               A
     We recently analyzed a similar situation in Xitronix I.
 See 

. There, the plaintiff asserted a
 standalone Walker Process monopolization claim based on
 enforcement of a live patent, alleging fraud on the PTO in
 procuring that patent. 

 We held that we lacked jurisdiction. 

 While acknowledging that issues regarding “alleged misrepresentations to the PTO will almost certainly
 require some application of patent law,” we held that a
 Walker Process claim does not inherently present a substantial issue of patent law under Supreme Court precedent. 

.
      To aid our interpretation of the words “arising under”
 in 

(a)(1), we drew from the Supreme
 Court’s decision in Gunn v. Minton, where the Court interpreted those same words in 

. 

 at 1077
 (citing Gunn v. Minton, 

 (2013)); see also
 Christianson, 486 U.S. at 808–09 (demanding “linguistic
 consistency” in interpreting various jurisdictional statutes
 involving “arising under” language). In Gunn, the Supreme
 Court held that a patent attorney malpractice case did not
 “arise under” federal patent law for the purposes of § 1338,
 even though it necessarily involved the resolution of a
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 CHANDLER   v. PHOENIX SERVICES LLC                           5



 patent law question. 568 U.S. at 258–59. The Court reasoned that resolution of the patent “case within a case”
 would have no effect on “the real-world result of the prior
 federal patent litigation,” id. at 261, and that allowing a
 state court to resolve the underlying patent issue would not
 undermine the uniform body of patent law because “federal
 courts are of course not bound by state court case-withina-case patent rulings.” Id. at 262. “[T]he possibility that a
 state court will incorrectly resolve a state claim is not, by
 itself, enough to trigger the federal courts’ exclusive patent
 jurisdiction, even if the potential error finds its root in a
 misunderstanding of patent law.” Id. at 263. Similarly, in
 Xitronix I, we found that the risk of another circuit making
 an erroneous or inconsistent patent law decision within a
 Walker Process claim is not enough to trigger our jurisdiction over federal patent law cases:
     The underlying patent issue in this case, while important to the parties and necessary for resolution
     of the claims, does not present a substantial issue
     of patent law. . . . Patent claims will not be invalidated or revived based on the result of this case.
     Because Federal Circuit law applies to substantive
     questions involving our exclusive jurisdiction, the
     fact that at least some Walker Process claims may
     be appealed to the regional circuits will not undermine our uniform body of patent law. . . . As in
     Gunn, even if the result of this case is preclusive in
     some circumstances, the result is limited to the
     parties and the patent involved in this matter.
 Xitronix I, 

 (citations omitted).
      Our Xitronix I decision is precedential and adherence
 to that precedent mandates transfer of this case to the
 Fifth Circuit. As in Xitronix I, there are no patent issues
 outside of the Walker Process antitrust claim. Further, because a prior decision declared the ’993 patent unenforceable, the appellate court hearing this case may have little or
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 6                          CHANDLER   v. PHOENIX SERVICES LLC



 no need to delve into patent law issues. Although we do not
 hold that our jurisdiction turns on whether a patent can
 still be asserted, we find it significant that Appellants fail
 to clearly raise any patent law questions not already addressed in Energy Heating. See Energy Heating, 

. The enforceability of the patent is no longer at issue and Chandler’s arguments center on the nature of
 Phoenix’s relationship to the inventor’s inequitable conduct rather than on the conduct before the patent office itself. See, e.g., Appellant’s Br. 44 (arguing that Phoenix
 should be treated as a “single enterprise” with Heat On-The-Fly). Therefore, the case to invoke our jurisdiction is
 even weaker here than in Xitronix I.
                               B
     On transfer of Xitronix I, the Fifth Circuit held our conclusion to be implausible, and returned the case to us.
 Xitronix Corp. v. KLA-Tencor Corp., 

 (5th Cir. 2019) (Xitronix II); see also Christianson, 

 (1988) (“[I]f the transferee court can find the
 transfer decision plausible, its jurisdictional inquiry is at
 an end.”). Respectfully, we disagree with the Fifth Circuit’s
 interpretation.
     After noting that “Christianson linked § 1295 to § 1338
 and § 1331,” which makes Gunn relevant to our analysis of
 § 1295, the Fifth Circuit attempted to distinguish Gunn by
 emphasizing that “[w]hen Christianson was decided,
 § 1295 referred to § 1338 expressly, [but] [b]y the time of
 Gunn . . . the phrase ‘any civil action arising under . . . any
 Act of Congress relating to patents’ replaced the reference
 to § 1338.’” Xitronix II, 916 F.3d at 442–43.
     We do not read this minor change to § 1295 as being so
 sweeping as to divorce § 1295’s connection to § 1338 and
 § 1331. Section 19 of the AIA amended both § 1295(a)(1)
 and § 1338(a). It revised § 1295(a)(1) to parallel § 1338(a)
 while expanding Federal Circuit jurisdiction to cover compulsory counterclaims, a situation not at issue here. The
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 CHANDLER   v. PHOENIX SERVICES LLC                            7



 Supreme Court in Christianson linked § 1331 and § 1338
 for the purpose of “linguistic consistency,” 

,
 and the AIA made the relevant wordings of § 1295 and
 § 1338 essentially identical. Compare 

(a)(1) (giving us jurisdiction over appeals of “any
 civil action arising under . . . any Act of Congress relating
 to patents”), with 

(a) (giving federal courts
 jurisdiction over “any civil action arising under any Act of
 Congress relating to patents”). We think it is clear that
 Congress intended the link between the statutes to continue rather than end. Thus, we respectfully disagree with
 the Fifth Circuit’s conclusion that the Supreme Court’s interpretation of § 1331 and § 1338 in Gunn is irrelevant to
 our interpretation of § 1295.
     The Fifth Circuit also intimated that our precedent dictates that we have jurisdiction over standalone Walker Process claims, but we respectfully disagree. See Xitronix II,
 

 (“[T]he Federal Circuit read its precedent
 predating Gunn in a manner at odds with our reading of
 that caselaw.”). The Fifth Circuit cited two Federal Circuit
 decisions for this proposition. First, in Nobelpharma AB v.
 Implant Innovations, Inc., 

 (Fed. Cir.
 1998), we held that it was appropriate to apply “Federal
 Circuit law,” rather than regional law, to a Walker Process
 claim. See Xitronix II, 

. But this does not
 mean that we have jurisdiction over all Walker Process
 claims. While the scope of our jurisdiction and whether
 Federal Circuit law applies are related questions, they are
 distinct. See FilmTec Corp. v. Hydranautics, 

 (Fed. Cir. 1995) (“Unless a procedural matter is importantly related to an area of this court’s exclusive jurisdiction, . . . we will usually be guided by the views of the
 circuit in which the trial court sits. . . .”) (emphasis added).
 As we recognized in Nobelpharma, Walker Process claims
 usually arise in the context of patent litigation and therefore “clearly involve[]” our jurisdiction, but that does not
 mean every Walker Process claim gives rise to Federal
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 8                         CHANDLER   v. PHOENIX SERVICES LLC



 Circuit jurisdiction. See Nobelpharma, 

;
 

 (“Because most cases involving [inequitable conduct] will therefore be appealed to this court, we conclude
 that we should decide these issues as a matter of Federal
 Circuit law, rather than rely on various regional precedents.”) (emphasis added); Xitronix I, 

.
      Second, the Fifth Circuit quoted a footnote in In re
 Ciprofloxacin Hydrochloride Antitrust Litig., 

, 1330 n.8 (Fed. Cir. 2008) (Cipro) to support its conclusion. See Xitronix II, 

 (“Accepting the
 transfer, the Federal Circuit observed that ‘the determination of fraud before the PTO necessarily involves a substantial question of patent law.’”) (quoting Cipro, 

 n.8)). But as we noted in Xitronix I, we must consider
 this footnote in context. 

. In Cipro, jurisdiction was not disputed, and because we received the case
 on transfer, we reviewed the issue under the plausibility
 standard of Christianson rather than conducting de novo
 analysis. See 

 As such, we do not interpret our precedent
 to mandate exclusive Federal Circuit jurisdiction over all
 Walker Process cases. To the contrary, our precedential
 opinion in Xitronix I is directly on-point here and therefore
 governs our decision.
                              C
     On return of Xitronix from the Fifth Circuit, we accepted jurisdiction as plausible. Xitronix Corp. v. KLA-Tencor Corp., 

, 1010 (Fed. Cir. 2019)
 (nonprecedential) (Xitronix III). In our nonprecedential
 opinion, we stated:
     Despite [its] flaws, the Transfer Order’s conclusion
     that we have jurisdiction is not implausible. The
     Court’s decision in Gunn could be read to imply
     that whether the patent question at issue is substantial depends on whether the patent is “live”
     such that the resolution of any question of patent
     law is not “merely hypothetical.” See Gunn, 568
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 CHANDLER   v. PHOENIX SERVICES LLC                          9



     U.S. at 261. . . . Here, the underlying patent has
     not expired, and the resolution of the fraud question could affect its enforceability.
 Id.; see also Xitronix II, 916 F.3d at 439–41 (emphasizing
 that in Xitronix, the patent at issue was “currently valid
 and enforceable,” so the “litigation [had] the potential to
 render that patent effectively unenforceable and to declare
 the PTO proceeding tainted by illegality. This alone distinguishes the present case from Gunn.”). 2 We therefore followed the Fifth Circuit’s conclusion and accepted
 jurisdiction.
      Here however, even that reasoning would not lead us
 to find a “plausible” basis for jurisdiction, much less jurisdiction under our court’s binding precedent in Xitronix I.
 The patent allegedly being enforced by Phoenix has already
 been ruled unenforceable. Energy Heating, 

 (“We affirm the district court’s declaratory judgment
 that 

 is unenforceable due to inequitable conduct.”). This case will not alter the validity of
 the ’993 patent. Any discussion of the ’993 patent would be
 “merely hypothetical,” and would not “change the real-world result of the prior federal patent litigation.” See
 Gunn, 

.




     2    We reiterate, however, that although we found this
 reasoning plausible, we did not endorse it. Compare Xitronix III, 757 F. Appx. at 1010 (“[W]e reject the theory that
 our jurisdiction turns on whether a patent can still be asserted. Under this logic, cases involving Walker Process
 claims based on expired patents would go to the regional
 circuits while those with unexpired patents would come to
 us, despite raising the same legal questions.”), with Appellant’s Reply Br. 28 (citing Xitronix III in support of jurisdiction).
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 10                         CHANDLER   v. PHOENIX SERVICES LLC



     Simply put, this is not a patent case. Rather, this case
 purports to raise novel Fifth Circuit antitrust issues. See
 Chandler v. Phoenix Servs., No. 7:19-CV-00014-O, 

, at *12 (N.D. Tex. Apr. 13, 2020) (“Whether a
 parent may be liable for the attempted monopolization of
 its subsidiary is an issue of first impression in the Fifth
 Circuit.”). We find it unpersuasive that we should exercise
 jurisdiction over such questions merely because a now-unenforceable patent was once involved in the dispute.
                              III
     Because this case presents even less reason for Federal
 Circuit jurisdiction than the Xitronix case, our decision in
 Xitronix I governs. We lack subject matter jurisdiction over
 this appeal.
      Accordingly,
      IT IS ORDERED THAT:
    The case is transferred to the United States Court of
 Appeals for the Fifth Circuit.


                                      FOR THE COURT

  June 10, 2021                       /s/ Peter R. Marksteiner
      Date                            Peter R. Marksteiner
                                      Clerk of Court