Recent Cases Citing Holmes v. Vornado Presented By:Steven P. Scuderi Pepe & Hazard LLP Pepe & Hazard LLP

Background of Holmes v. Vornado I) Issue: Whether a counter claim asserting an issue under patent law could give rise to the Court of Appeals for the Federal (the CAFC) appellate jurisdiction, when no issue of patent law is stated in the complaint. 2 The Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc. 122 S.CT U.S. 826 June 3, 2002

3 II) Ruling of the U.S. Supreme Court: Only appeals cases in which the well pleaded complaint itself contains a claim for relief arising under the patent fall within the Federal Circuit Court’s appellate jurisdiction. III) Concerns: A) Unduly encourage forum shopping; B) Create a diversity in the application of the patent laws; and C)Contrary to the express intentions of Congress when creating the Federal Circuits.

4 IV) Regulations: A) 28 USC 1295(a) vests the CAFC with exclusive jurisdiction over appeals from District Courts if based, in whole or in part, on 28 USC 1338; and B) 28 USC 1338(a) provides that District Courts have jurisdiction over civil action arising under the Constitution, laws or treaties of the United States.

5 V) Analysis: A) Based on the statues, the Supreme Court stated that the CAFC’s jurisdiction is fixed with reference to that of the District Court, i.e., 28 USC 1338, and turns on whether the action “arises under” Federal patent law; B)Supreme Court focused on the term “arising under” and noted that since the same operative language is used in another jurisdictional statute 28 USC 1331, the same test should apply; and C)Test is the “well pleaded complaint rule,” which provides that a case “arises under” patent law only when a Federal question (of patent law) is presented on the face of the plaintiff’s properly pleaded complaint.

6 Recent Cases I) 35 Citied Decisions: A)1 Supreme Court case; B)18 U.S. District Court cases; C)2 U.S. Circuit Court of Appeals cases; D)9 CAFC cases; E)3 State Court cases; F)1 U.S. Bankruptcy Court case; and G)1 U.S. Court of Appeals for Veterans Claims case.

7 II) 1 Distinguished: Wells Fargo Bank Northwest, N.A. v. TACA Int’l Airlines, S.A., 2003 U.S. Dist. Court, Lexis (2 nd Cir., S.D.N.Y, August 27, 2003). (i) Holmes held that a case did not “arise under” Federal patent law where defendants asserted a patent law counterclaim for purposes of original jurisdiction; (ii) The issues are radically different when the jurisdictional questions is raised after judgment; and (iii) In the absence of an objection to removal in the District Court, the Appellate Court will not disturb the District Court’s judgment based on the improper removal of the case from the State Court if the structure of the case was such that the District Court had jurisdiction at the time judgment was entered.

B) 1 Court of Appeals case: Adkins v. I11. Cent. R.R., Co., 326 F.3d 828, 2003 U.S. App. Court, Lexis 3969 (7 th Cir. I ). R.F. Shinn Contrs., Inc. v. Rick D. Shinn & Shinn Sys., 2002 U.S. Dist. Court, Lexis (4 th Cir., M.D.N.C., November 8, 2002). III) 9 Followed: A)1 District Court case: (i)District Court remanded back to the State Courts because the plaintiff’s complaint did not allege infringement of patents, only the defendant’s counterclaim did. (i)Since compulsory counterclaims do not pass the well pleaded complaint rule under Holmes than by the same reasoning neither can permissive counterclaims or permissive third party actions. 8

C) 6 CAFC cases: 1) Pharm. Research & Mfrs. Of Am. v. Walsh, 2003 U.S. App., Lexis (Fed. Cir., November 3, 2003); 9 (i)Transferred to the Court of Appeals for the First Circuit for not passing the Holmes well pleaded complaint rule. (i)The CAFC has appellate jurisdiction if the District Court’s original jurisdiction was based in part on Section 1338, as determined by the well pleaded complaint rule. 2) Apotex, Inc. v. Thompson, 347 F.3d 1335, 2003 U.S. App., Lexis 21818, 68 USPQ 2d (BNA) 1725 (Fed. Cir. 2003); 3) Morgan v. Principi, 327 F.3d 1357, 2003 U.S. App., Lexis 8528 (Fed. Cir. 2003); (i)An appeal from the U.S. Court of Appeals for Veteran’s Claims in which the CAFC had to interpret an amendment of the jurisdictional statute 38 USCS 7292; and

10 C) 6 CAFC cases (continued): 4) Golan v. Pingel Enter., 310 F.3d 1360, 2002 U.S. App., Lexis 23139, Trade Cas. (CCH) P73857, 64 USPQ 2d (BNA) 1911 (Fed. Cir. 2002); (ii)In deciding that it had jurisdiction, the Courts followed the reasoning in Holmes stating that, in references to jurisdictional statute, “our task here is not to determine what would further Congress’s goal…, but to determine what the words of the statute must fairly be understood to mean.” (i)The Court held that the defendants counterclaim for patent infringement was not sufficient to establish appellate jurisdiction, but the plaintiffs request for a declaration of non-infringement was.

D) 1 State Supreme Court of Indiana case: Green v. Hendrickson Publrs., 770 N.E. 2d 784, 2002 Ind., Lexis 541, Copy. L. Rep. (CCH) P28491, 63 USPQ 2d (BNA) 1852 (Ind. 2002). 5) Telecomm Tech. Servs., Inc. v. Siemens Rolm Communs, Inc., 295 F.3d 1249, 2002 U.S. App., Lexis 13189, Trade Cas. (CCH) P73732, 63 USPQ 2d (BNA) 1606 (Fed. Cir. 2002); and (i)Transferred to the Court of Appeals for the Eleventh Circuit for not passing the Holmes well pleaded complaint rule. 6) Medigene v. Loyola Univ., 41 Fed. Appx. 450, 2002 U.S. App., Lexis (2002). (i)The CAFC granted the parties consent motion to transfer to the Seventh Circuit based upon principles established in Holmes. (i)See next slide. 11

Green v. Hendrickson Publrs. I) Issue: If a claim under the copyright act is contained in a counterclaim, can it be adjudicated in a State Court? II) Ruling: Based on the Holmes decision, a State Court may now entertain a counterclaim under patent or copyright law. 12 III) Facts: A) The plaintiff publisher (Hendrickson) contracted to publish and distribute books to which the defendant writers (Green) claimed a copyright;

B)The publisher’s sought monies due from the writers for books sold on account; C)The writers counterclaimed alleging the publisher breached a contract not to reproduce a copyrighted writing and to pay royalties on books sold under the copyright; and D)The publisher asserted that the writers claims were merely couched as claims for breach of contract and were based on the federally preempted copyright law which could not be adjudicated in a State Court. 13

IV) State Supreme Court’s Analysis: A)Court held that a claim for breach of covenant not to reproduce a copyrighted writing is preempted by the federal copyright law; B)Court then specifically addressed the question: Does a counterclaim give rise to a civil action subject to exclusive federal jurisdiction under 28 USC 1338?; 14

C)The Court reasoned that: 15 (i)“The only basis for concluding that a State Court may not entertain patent or copyright counterclaims is the exclusive jurisdiction conferred by (28 USC) Section 1338 over “any civil action arising under” the patent or copyright laws”; (ii)Holmes v. Vornado, however, teaches that the “well pleaded complaint rule” should be used to determine jurisdiction under Section 1338, and as such, requires the States Courts to reject the previous Federal authorities stating or implying that a State Court may not entertain a counterclaim under patent or copyright law;

C)The Court reasoned that (continued): (iii) It makes no difference that Holmes was a patent case, not one dealing with copyright; (iv) Holmes dealt with the appellate jurisdiction of the Federal Circuit, but tied that jurisdiction to the original exclusive jurisdiction of the Federal District Court; and (v) “Copyright and patent jurisdictions are identical at the District Court level. Both are set forth in the same Federal statute in the same terms. Accordingly, we think Holmes controls this case under copyright law.” 16