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Attorneys

Contingent Patent Ownership is Not Sufficient for Federal Court Jurisdiction

December 7 2017

By Audrey Millemann

There is no federal court jurisdiction for disputes involving patents where the claimant does not actually own the patents. The possibility that one might own a patent, if a contingent future event occurs, is not enough. This seems like an obvious rule, but it ended up before the Federal Circuit Court of Appeals.

The case is First Data Corp. v. Inselberg  (Fed. Cir. 9/15/17).  The defendants were Eric Inselberg, an inventor, and his company, Inselberg Interactive, LLC.  Inselberg Interactive owned several of the inventor’s patents.  In connection with a loan transaction in which Interactive borrowed money from Frank Bisignano, Interactive gave Bisignano a security interest in the patents.  After Interactive defaulted on the loan, Interactive was required to, and did, enter into an assignment agreement with Bisignano. Interactive assigned all of its rights in the patents to Bisignano.  Bisignano then became the CEO of First Data Corp.

Several years later, Inselberg told Bisignano that First Data was infringing the patents and did not have a license. Inselberg demanded that First Data either buy the patents or license them, contending that the assignment Interactive had made to Bisignano was not valid. Bisignano then licensed the patents to First Data. Inselberg continued to assert that First Data was infringing the patents. Inselberg’s counsel sent Bisignano and First Data a draft complaint that Inselberg stated he intended to file in state court, alleging that Inselberg owned the patents and could sue First Data for patent infringement.

Bisignano and First Data jumped the gun and filed suit in the federal district court for the District of New Jersey.  The complaint sought a declaratory judgement that Bisignano owned the patents and that the license to First Data was valid. The complaint also sought a declaratory judgement that First Data did not infringe the patents because Bisignano owned the patents and had licensed them to First Data.

Inselberg and Interactive filed suit in New Jersey state court, seeking a declaratory judgment that they owned the patents because the assignment to Bisignano was invalid. Bisignano and First Data answered the complaint and filed counterclaims seeking a declaratory judgement of noninfringement of the patents and of invalidity of one of the patents. The defendants then removed the state court action to federal court, relying on the district court’s jurisdiction over patent cases.

In the federal court action, Inselberg and Interactive moved to dismiss Bisignano and First Data’s complaint and their counterclaims in the removed action, and sought remand of the state law claims.

The district court granted the motion to dismiss on the grounds that the federal court had no jurisdiction because there was no federal question. The district court found that Inselberg and Interactive had conceded that Bisignano owned the patents by seeking to invalidate the assignment agreement in their state court complaint, and, therefore did not own the patents. The district court held that Inselberg and Interactive did not have a claim for patent infringement and would not have such a claim unless they obtained ownership of the patents under their state law claims. Thus, the patent claims were contingent on the outcome of Inselberg and Interactive’s state law claims.

On appeal, the Federal Circuit affirmed the district court’s order dismissing Bisignano and First Data’s federal claims and remanding the state law claims. The court held that there was no federal question jurisdiction because Inselberg and Interactive did not, and could not, assert a threat of infringement against First Data as Inselberg and Interactive did not own the patents. In addition, the court held that Bisignano and Frist Data had no standing to assert their declaratory judgement claims.  For similar reasons, the court also held that Bisignano and Frist Data’s claims were not ripe for adjudication because all of the claims were based on a contingent future event, the state court awarding ownership of the patents to Inselberg and Interactive.