Xitronix Corporation v. KLA-Tencor Corporation
Opinion
The substantive issue in this appeal is whether a jury should hear Xitronix Corporation's claim that KLA-Tencor Corporation violated the Sherman Act's prohibition of monopolies by obtaining a patent through a fraud on the U.S. Patent and Trademark Office ("PTO"). What must first be decided, however, is whether we can reach that issue despite the Federal Circuit's exclusive jurisdiction over cases arising under federal patent law. That court transferred this case to us, but we find it implausible that we are the proper court to decide this appeal. With respect, therefore, we transfer it to the U.S. Court of Appeals for the Federal Circuit.
I
This is the third round of litigation between Plaintiff-Appellant Xitronix Corporation and Defendant-Appellee KLA-Tencor Corporation ("KLA"), competitors in the "semiconductor wafer optical inspection market." Optical inspection technology is used for quality control in the production of semiconductor wafers, which are essential components of circuits in computers and other electronic devices. We understand from the parties that an optical inspection device employs two lasers, a "pump" beam and a "probe" beam, in tandem. The pump beam heats the surface of a semiconductor sample. The probe beam, in turn, detects changes in the semiconductor surface. The device converts the changes detected by the probe beam into an electrical signal, which it then measures. The device can thereby precisely observe the composition of the semiconductor sample, helping manufacturers ensure that their processes are working as intended.
A
Litigation began in 2008 with Xitronix seeking a declaratory judgment against KLA. According to Xitronix, KLA was and is the dominant player in the semiconductor optical inspection market, with approximately eighty-percent market share. KLA had examined the technology that Xitronix was then bringing to market and amended a pending patent application to cover Xitronix's technology. This application resulted in the issuance of U.S. Patent 7,362,441 ("the '441 patent"). In this first lawsuit, Xitronix sought a declaration of non-infringement and of the '441 patent's invalidity.
In November 2010, a jury entered a verdict in Xitronix's favor. When the district *432 court entered final judgment in January 2011, it explained that the central issue at trial was the wavelength of the probe beam used by Xitronix. The claims of the '441 patent at issue in the case specified a wavelength between 335 and 410 nanometers (nm) and said that such wavelength "is selected to substantially maximize the strength of the output signals corresponding to the modulated optical reflectivity response." 1 The probe beam in Xitronix's device was fixed at a wavelength of 373 nm, putting it and KLA's patent squarely in conflict. The jury found that Xitronix's technology infringed one claim of KLA's '441 patent but that this claim was anticipated by prior art: the "Therma-Probe" device and an earlier patent, the '611 or "Alpern" patent. The jury also found three other claims of KLA's '441 patent invalid due to obviousness. The district court ruled that ample evidence supported the jury's findings. It identified two additional pieces of prior art, Batista and Mansanares: "[E]ach and every element of the asserted claims were present in the combination of prior art Therma-Probe, Batista, Mansanares, and the '611 [Alpern] patent." The district court also ruled one of the claims invalid as indefinite. KLA did not appeal the judgment in the '441 litigation.
In March 2011, Xitronix commenced the second suit, bringing business tort claims against KLA for publicly accusing Xitronix of patent infringement. The district court, which remanded the case to Texas state court, later explained that the state district court ruled in favor of KLA "for unspecified reasons." Neither party advises that this second litigation has any bearing on the present appeal.
B
The present case began in December 2014. Xitronix alleged a single
Walker Process
claim: monopolization through use of a patent obtained by fraud on the PTO.
2
The patent purportedly resulting from KLA's fraud on the PTO is
*433 In February 2010, KLA submitted an Informational Disclosure Statement ("IDS") with sixty works potentially containing relevant prior art. This IDS included the key sources on which the jury would invalidate the '441 patent later that year as well as summary judgment briefing from the litigation. In August 2010, the PTO examiner, Layla Lauchman, initialed and signed the IDS, thereby acknowledging these sources. On November 5, 2010, the jury returned its verdict invalidating the '441 patent. On November 18, Michael Stallman, KLA's patent prosecution attorney, submitted the jury's verdict in the '441 litigation to the PTO and sought to explain its meaning. He acknowledged an Office Action of August 18 that rejected the claims in the '260 application on the grounds of "non-statutory obviousness-type double patenting" in view of the '441 patent. 4 This means that, as of 2010, the PTO saw claims in the '260 application as obvious in light of claims later invalidated in the '441 litigation. Stallman responded to this rejection by agreeing to a "terminal disclaimer" of the claims in the pending '260 application. 5
The district court entered final judgment in the '441 litigation on January 31, 2011. On February 2, Lauchman issued a Notice of Allowability as to the '260 patent application predicated on the terminal disclaimer to which KLA had agreed. On February 10, Stallman filed another IDS, bringing the final judgment in the '441 litigation and the district court's accompanying order to the PTO's attention. He submitted a Request for Continued Examination as well.
The PTO did not act on the application again for two years, by which time a new examiner, Willie Merrell, was handling it. His initials, dated July 12, 2013, appear on the IDS from February 2011 containing the final judgment and related documents, suggesting he had seen and considered the references. In an Office Action dated July 25, 2013, Merrell rejected much of the '260 application. He did so without reference to the final judgment in the '441 litigation, to the PTO's prior non-statutory double patenting rejection, or to the materials on which the judgment in the '441 litigation was based. Instead, he conducted a novel analysis based on other prior art further afield.
Despite this rejection, the '260 patent did eventually issue. Xitronix's claims concern the actions by KLA making that possible. Stallman filed a response to Merrell in October 2013. The remarks in that filing *434 are one basis for the fraud element of Xitronix's Walker Process claim. Merrell responded in January 2014, standing by his previous rejection. Stallman responded in March 2014 with more remarks-another filing central to Xitronix's Walker Process claim. A Notice of Allowability soon issued, in which Merrell briefly explained that KLA's arguments "have been fully considered and are persuasive." The '260 patent issued in August 2014, and Xitronix's Walker Process suit followed that December.
Xitronix alleged that KLA's procurement of the '260 patent impeded its ability to finance its entrance into the market for optical inspection technology. At summary judgment, the litigation focused on whether Xitronix had created issues of material fact as to two elements of fraud on the PTO: whether KLA had made material misrepresentations or omissions to the PTO, and whether those were a but-for cause of the '260 patent's issuance. The district court found that Stallman's remarks in his October 2013 and March 2014 filings were confined to those pieces of prior art specifically addressed by Merrell in previous Office Actions and contained no broader misrepresentations. To the extent Stallman mischaracterized the prior art, the district court reasoned, this was permissible attorney argument, not fraud. Stallman was free to make such argument, and the examiner was free to reject it, because Stallman had submitted all relevant materials from the '441 litigation already.
The district court also found no but-for causation. Notably, it was not because the court viewed the '441 and '260 patents as dissimilar, such that the former would not control the latter. Indeed, the court saw them as similar. Rather, it saw the PTO as making a fully conscious and informed choice. Granting summary judgment to KLA, the district court wrote:
Although Xitronix has repeatedly argued that the examiner was unaware of the jury verdict and final judgment invalidating the claims at issue, the Court suspects the examiner was in fact aware of the Court's holding but chose to ignore it. It would not be the first time the PTO, an administrative agency, overrode a final judgment of an Article III court, and it will likely not be the last.
That is, according to the district court, it could not be said that the PTO relied upon, and was thus defrauded by, KLA's alleged misrepresentations; rather, the PTO had a mind of its own. The district court's grant of summary judgment to KLA brought the case to a close, precipitating this appeal.
C
Xitronix's appeal went originally to the Federal Circuit. Before oral argument in the case, the panel of that court ordered briefing on transferring the case to our court for lack of jurisdiction.
Xitronix Corp. v. KLA-Tencor Corp.
,
II
"Federal courts are courts of limited jurisdiction," possessing "only that power authorized by Constitution and statute."
Kokkonen v. Guardian Life Ins. Co. of Am.
,
III
Under the law that prevailed for many years, it was clear that a standalone
Walker Process
claim such as this would belong in the Federal Circuit.
See
Christianson v. Colt Indus. Operating Corp.
,
The Federal Circuit nevertheless transferred the case to us, based on a jurisdictional analysis that we must accept if it is at least "plausible."
See
Christianson
,
A
The Federal Circuit has "exclusive jurisdiction of an appeal from a final decision of a district court of the United States ... in any civil action arising under ... any Act of Congress relating to patents or plant variety protection."
*436
The Supreme Court construed the earlier version of the statute in
Christianson v. Colt Industries Operating Corp.
,
The Supreme Court had to decide whether the appeal belonged in the Seventh Circuit or the Federal Circuit.
With the Federal Circuit's jurisdictional statute, § 1295, tied to § 1338, the Court had to construe the latter provision.
The Court noted that federal-question jurisdiction had long included state claims turning on substantial federal questions.
Linguistic consistency, to which we have historically adhered, demands that § 1338(a) jurisdiction likewise extend 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.
That did not resolve the case before it, however, because not all of Christianson's claims depended on resolving substantial questions of patent law.
The Court also addressed the "peculiar jurisdictional battle" between the
*437
Seventh and Federal Circuits.
Following
Christianson
, the Federal Circuit has regularly exercised jurisdiction over
Walker Process
claims.
See, e.g.,
Ritz Camera & Image
,
Other circuits have decided
Walker Process
cases, it should be said. Such cases have ended up in the regional circuits because of the line drawn in
Christianson
: cases depending
solely
on patent theories go to the Federal Circuit; cases not so dependent stay in the regional circuits.
See, e.g.
,
In re Lipitor Antitrust Litig.
,
B
The foregoing is the backdrop to
Gunn v. Minton
, on which the Federal Circuit relied here.
See
Xitronix
,
Gunn
called for the Supreme Court to decide whether a state-law legal malpractice case arising from a patent infringement suit could be brought only in federal court.
*438
The United States Supreme Court reversed, holding that the case could be brought in state court. The Court noted that both the federal-question statute, § 1331, and the district courts' patent jurisdiction statute, § 1338, were implicated.
The Court acknowledged that Minton's lawsuit against Gunn necessarily raised the disputed issue of Gunn's handling of a patent case.
Gunn
gave no indication that it meant to alter
Christianson
or the allocation of cases among the circuit courts. There was no occasion for it, because the case was appealed from a state's highest court. On the contrary, the centrality of the Federal Circuit to patent adjudication was a premise of
Gunn
's reasoning.
C
Since
Gunn
, the Federal Circuit has incorporated a substantiality inquiry into determinations of its own jurisdiction.
See, e.g.
,
Neurorepair, Inc. v. The Nath Law Group
,
The court's reasoning depended on several premises that we find implausible.
*439
First, the court said that there was no dispute about the validity of the patent at issue.
Next, the Federal Circuit read its precedent predating
Gunn
in a manner at odds with our reading of that caselaw. In
Nobelpharma
, a
Walker Process
case, the en banc Federal Circuit said that "[w]hether conduct in the prosecution of a patent is sufficient to strip a patentee of its immunity from the antitrust laws is one of those issues that clearly involves our exclusive jurisdiction over patent cases."
The court also sought to distinguish
Cipro
, a
Walker Process
case transferred from the Second to the Federal Circuit.
We note one more case indicating that, before
Gunn
, the Federal Circuit understood fraud on the PTO to present a substantial question of federal patent law implicating its exclusive jurisdiction. In
Ritz Camera & Image
, an interlocutory appeal arose from a suit in the Northern District of California about the standing of certain plaintiffs to bring a
Walker Process
action.
Another basis for the Federal Circuit's transfer decision is its interpretation of post-
Gunn
decisions from other circuit courts. The court cited
In re Lipitor
from
*440
the Third Circuit, which resolved a
Walker Process
claim in 2017.
Finally, the panel relied on an Eleventh Circuit case,
MDS (Canada) Inc. v. Rad Source Techs., Inc.
,
The Eleventh Circuit ruled that it, and not the Federal Circuit, had jurisdiction over the appeal.
In the present case, the Federal Circuit noted the Eleventh Circuit's substantiality analysis in
MDS
and said that it "confirm[ed] the correctness of [their] decision" to transfer the case.
D
To reject the Federal Circuit's transfer decision, we must not only disagree *441 with its reasoning; we must find it implausible. We do not take this step lightly. With due regard for our colleagues on a coordinate court, we nevertheless conclude that it is implausible for us to resolve this appeal.
The initial question is whether
Gunn
meant to change the Federal Circuit's jurisdiction, in addition to changing district courts' jurisdiction. Assuming that it did, we think that this appeal presents a substantial question in the sense that the Supreme Court has articulated. Under
Gunn
, "[t]he substantiality inquiry ... [looks] to the importance of the issue to the federal system as a whole."
This case concerns a patent that is currently valid and enforceable, issued following a PTO proceeding heretofore viewed as lawful. This litigation has 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 . 9 The adjudication of this Walker Process claim also implicates the interaction between the PTO and Article III courts. The district court's acerbic statements about the PTO at summary judgment point to the complexity of relations between proceedings in federal court and before the PTO.
Moreover, the fraud element of Xitronix's claim can be adjudicated only with reference to patent law.
Walker Process
requires showing that a given statement or omission was "material to patentability."
C.R. Bard, Inc.
, 157 F.3d at 1364. Here, that requires reference to the bases of the '441 patent's invalidation (anticipation, obviousness, and indefiniteness), the significance of non-statutory double patenting rejections, the nature of prior art analysis by patent examiners, and more. Xitronix's theories of fraud also put certain rules in issue. For example, Xitronix bases some of its theories on the regulations governing patent practitioners' duties of candor to the PTO.
See
The foregoing assumes that
Gunn
changed the scope of the Federal Circuit's jurisdiction, but there are compelling reasons to think that it did not.
Gunn
concerned the district courts' jurisdictional statute, § 1338, not the Federal Circuit's jurisdictional statute, § 1295. The Supreme Court never said it was changing the Federal Circuit's caseload. It spoke only to the allocation of cases between the state and federal systems, not to the allocation of cases between the circuit courts. The Court has said elsewhere of Congress that it does not "hide elephants in mouseholes."
Whitman v. Am. Trucking Ass'n
,
The four-factor test applied in
Gunn
was developed to sort cases between state and federal courts, and it is not a tool for the task of sorting cases between the circuits.
See
Gunn
,
Perhaps the strongest point in favor of incorporating Gunn into cases like this one is that Christianson linked § 1295 to § 1338 and § 1331. Gunn construed the latter two statutes together, so, under Christianson , Gunn 's holdings arguably *443 are automatically incorporated into § 1295. When Christianson was decided, § 1295 referred to § 1338 expressly. By the time of Gunn , § 1295 had been amended to stand on its own; the phrase "any civil action arising under ... any Act of Congress relating to patents" replaced the reference to § 1338. It is therefore not automatic that a change to § 1338 entails a change to § 1295.
To be sure, § 1295 retains the "arising under" formulation in common with the other two statutes, and the Supreme Court prefers to construe like text alike. It has refused to give identical terms the same meaning, however, when contexts and considerations differ.
See, e.g.
,
Wachovia Bank v. Schmidt
,
It would be quite reasonable to have a system that imposes different restrictions at the entrance to the federal system and at the fork in the road leading to different circuits. The exclusionary Gunn - Grable test, screening out most potential cases at the entrance, protects federal district courts from overload and reflects constitutional respect for state courts and state prerogatives. As to those cases that do make it into the federal system, preservation of uniformity comes to the fore, furthered by Christianson 's inclusionary test for routing appeals to the Federal Circuit. Such a test also promotes judicial economy by simplifying the jurisdictional inquiry and avoiding the jurisdictional ping-pong that Christianson aimed to end.
Supposing
Gunn
did not change the inquiry, the answer to the present question is simple and settled. According to
Christianson
, the Federal Circuit's jurisdiction includes "cases in which a well-pleaded complaint establishes ... 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."
IV
We undertake the preceding analysis with respect for our judicial colleagues and gratitude for the litigants' patience over the long pendency of this appeal. We nevertheless cannot conclude that the Federal Circuit's decision to transfer this case to us was plausible, given the Supreme Court's and Congress's decisions to the contrary. Accordingly, IT IS ORDERED that this case is TRANSFERRED to the United States Court of Appeals for the Federal Circuit.
Walker Process Equip., Inc. v. Food Machinery & Chem. Corp.
,
For simplicity's sake, we use "260" to identify this application.
Patent law guards against attempts to obtain multiple patents for the same invention. To that end, the PTO issues "double patenting rejections" in two forms. One is a "statutory" rejection, which reflects a judgment that a patent holder is trying to patent the same invention again. The other is a "non-statutory" rejection, which is "based on a judicially created doctrine grounded in public policy and which is primarily intended to prevent prolongation of the patent term by prohibiting claims in a second patent
not patentably distinct
from claims in a first patent." Manual of Patent Examination Procedure § 804 (emphasis added). "A rejection for obvious-type double patenting means that the claims of a later patent application are deemed obvious from the claims of an earlier patent."
Quad Envtl. Techs. Corp. v. Union Sanitary Dist.
,
A terminal disclaimer "relinquishes a terminal part of the time span of the patent right in the patent as a whole." 1 Moy's Walker on Patents § 3:68 (4th ed., 2017). "[A] terminal disclaimer is a strong clue that a patent examiner and, by concession, the applicant, thought the claims in the continuation lacked a patentable distinction over the parent."
SimpleAir, Inc. v. Google LLC
,
Oral Argument,
Xitronix Corp. v. KLA-Tencor Corp.
,
Notwithstanding its initial position, Xitronix opposed KLA's en banc petition, now agreeing with the panel that the case did not implicate the Federal Circuit's exclusive jurisdiction. Response of Plaintiff-Appellant Xitronix Corporation to Petition for Panel Rehearing and Rehearing En Banc,
Xitronix Corp. v. KLA-Tencor Corp.
,
In
Grable
, by contrast, a state quiet-title action turned on the Internal Revenue Code provision governing the notice that the IRS must provide to delinquent taxpayers before seizing their property.
The Federal Circuit reasoned that any result would be "limited to the parties and patent involved in this matter."
The Wright & Miller treatise describes the "centrality" requirement-"the requirement that the federal law injected by the plaintiff's well-pleaded complaint be sufficiently central to the dispute to support federal question jurisdiction"-as "the most difficult problem in determining whether a case arises under federal law for statutory purposes." Wright, Miller, et al., Federal Practice & Procedure § 3562 (3d ed., 2018). "This problem has attracted the attention of such giants of the bench as Marshall, Waite, Bradley, the first Harlan, Holmes, Cardozo, Frankfurter, and Brennan. It has been the subject of voluminous scholarly writing. Despite this significant attention, however, no single rationalizing principle will explain all of the decisions on centrality."
We recognize that not all view these interests as worthwhile or as achieved in practice by exclusive Federal Circuit jurisdiction. For instance, uniformity maintained by a single court is the inverse of percolation across multiple courts, a feature of our judiciary we venerate. See Hon. Diane P. Wood, Keynote Address: Is It Time to Abolish the Federal Circuit's Exclusive Jurisdiction in Patent Cases? 13 Chi.-Kent J. Intell. Prop. 1, 10 (2013) (advocating " 'wide open spaces' for development of patent law, allowing new ideas to percolate and grow"); see also Paul R. Gugliuzza, Patent Law Federalism , 2014 Wisc. L. Rev. 11, 37-42 (questioning "the assumption that exclusive patent jurisdiction, coupled with the centralization of appeals in the Federal Circuit, provides legal uniformity"); id at 49 (suggesting "legal uniformity may not be as critical to the patent system as is assumed"). But we take uniformity and competence through specialization to be Congress's aims in centralizing exclusive jurisdiction in the Federal Circuit, hence we must adhere to that choice in our analysis here.
Reference
- Full Case Name
- XITRONIX CORPORATION, Plaintiff-Appellant v. KLA-TENCOR CORPORATION, Doing Business as KLA-Tencor, Incorporated, a Delaware Corporation, Defendant-Appellee
- Cited By
- 25 cases
- Status
- Published