Noted with Interest: Federal Circuit Holds a Walker Process Claim Does Not Arise Under Patent Law

Because of the hybrid nature of “Walker Process” claims, which involve patent and antitrust law, courts have disagreed as to when a Walker Process claim arises under the patent law for jurisdictional purposes.  In the U.S., all cases “arising under” patent law are heard exclusively by the federal district courts (28 U.S.C. § 1338(a)) and appealed exclusively to the Federal Circuit (28 U.S.C. § 1295(a)(1)).  This aims to provide a uniform national body of patent law.  However, not all cases involving patents “arise under” patent law.  The so called “Walker Process” claims are named after the case Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), where the Supreme Court held that enforcement of a fraudulently procured patent may constitute a basis for an antitrust claim under the Sherman Act.  A Walker Process claim has two prongs: (1) the antitrust defendant enforced a patent that was obtained upon knowing and willful fraud on the patent office, and (2) the antitrust plaintiff must satisfy all the necessary elements to establish an antitrust claim under the Sherman Act.  Thus, whether a Walker Process claim arises under the patent law for jurisdictional purpose may not be straightforward.

In the recent case of Chandler v. Phoenix Services LLC, No. 2020-1848 (Fed. Cir. June 10, 2021), the plaintiffs sued over the defendants’ enforcement of a patent that had been held unenforceable in another case, due to inequitable conduct.  The Federal Circuit found that the Walker Process claim did not arise under patent law and transferred the case to the Fifth Circuit.  In a precedential opinion, the panel reiterated that the Court’s exclusive jurisdiction over patent matters extends only to cases in which (1) “federal patent law creates the cause of action” or (2) “the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law.”  Because the case arose under the Sherman Act after the patent at issue had already been declared unenforceable in a separate case, the Court found that it lacked jurisdiction over the Walker Process claim.

Relevant Background Facts

The antitrust claim in Chandler arose from the defendant Phoenix Service’s enforcement of a patent (the ‘993 patent) issued to its subsidiary, Heat On-The-Fly, LLC.  The ‘993 patent claims a specific method and apparatus to heat water for use in hydraulic fracturing, also known as “fracking.”  When Heat On-The-Fly filed the patent application, it failed to disclose numerous prior art on-sale and public uses that would have rendered the patent invalid.  After the ‘993 patent issued, Heat On-The-Fly aggressively enforced it against competitors, including the plaintiffs in the Chandler case.  One of the competitors filed a separate lawsuit against Heat On-The-Fly and obtained a declaratory judgment that the ‘993 patent was unenforceable due to inequitable conduct.  The Federal Circuit affirmed that decision.

The plaintiffs in Chandler filed antitrust claims  alleging that the defendants had continued to enforce the ‘993 patent during their appeal of the inequitable conduct finding.  The district court held that those facts constituted anticompetitive behavior and allowed the Walker Process claim to proceed.  On appeal, the threshold issue was whether the Walker Process claim fell within the Federal Circuit exclusive jurisdiction over matters arising under the patent law.

Xitronix v. KLA-Tencor

This is not the first time the Federal Circuit was presented with the issue of jurisdiction over Walker Process claims.  In Xitronix Corp. v. KLA-Tencor Corp., 882 F.3d 1075 (Fed. Cir. 2018) (Xitronix), the plaintiff asserted a standalone Walker Process monopolization claim based on the patent owner’s enforcement of a live patent.  The Federal Circuit held that it lacked jurisdiction because the case did not present a substantial issue of patent law.  Although the underlying issue of whether the patent was fraudulently procured turned on patent law, no patent will be invalidated or revived based on the result of the case.  The Court also relied on a 2013 Supreme Court decision, Gunn v. Minton, 568 U.S. 251 (2013), which held that a patent attorney malpractice lawsuit did not arise under patent law for purpose of section 1338 (which grants district courts exclusive original jurisdiction), even if it would be necessary to resolve patent law questions.  As in Gunn, the Court reasoned that allowing a state court to resolve in a “case-within-a-case” issues of misrepresentation to the patent office would not disturb the uniform body of federal patent law since the result was limited to the specific parties and patent.  The case was transferred to the Fifth Circuit after the Federal Circuit’s finding of lack of jurisdiction.

Curiously, the Fifth Circuit flipped the case back to the Federal Circuit, holding that the latter’s conclusion was implausible.  The Fifth Circuit ruled that Gunn was inapplicable because Gunn interpreted section 1338, not section 1295.  It also cited to two Federal Circuit precedents to intimate that standalone Walker Process claims should be appealed to the latter: In Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998), the court held that Federal Circuit law, rather than regional law, applies to Walker Process claims; in In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d. 1323, 1330 n.8 (Fed. Cir. 2008), the court adjudicated on a Walker Process claim on transfer and wrote in a footnote that “the determination of fraud before the PTO necessarily involves a substantial question of patent law.” 

Procedurally, a court receiving a case on transfer should accept the case so long as jurisdiction is plausible.  Under a plausibility analysis, the Federal Circuit accepted jurisdiction in a nonprecedential opinion and ultimately heard the Xitronix case on the merits.

The Federal Circuit’s Chandler Decision

The panel in Chandler concluded that it lacked jurisdiction over the appeal, on multiple grounds:

            First, unlike in Xitronix, Chandler does not present even a “plausible” basis for jurisdiction because the underlying patent had already been ruled unenforceable.  However, though status of the underlying patent was an important factor, the Court noted that it should not be determinative.  The court’s main concern was that, if the appellate jurisdiction solely turns on whether a patent is still valid and enforceable, it would create an arbitrary split where claims involving live patents would go to the Federal Circuit and those with expired patents would go to the regional circuit, even though the legal claims are the same.

            Second, the Fifth Circuit’s jurisdiction over Plaintiffs’ Walker Process claim will not undermine the uniform body of federal patent law.  As explained in Xitronix, the mere risk of another circuit making an erroneous patent law decision was not enough to trigger the Federal Circuit’s exclusive jurisdiction.  Where the result is “limited to the parties and the patent involved” in the instant matter, it will not produce rippling effect throughout the patent law system.  Moreover, the appellate court in this case had little if any need at all to delve into substantive patent law issues since the ‘993 patent was already declared unenforceable in another lawsuit. 

            Third, the Court’s ruling is consistent with its precedents.  Although Nobelpharma held that Federal Circuit instead of regional circuit law applies to Walker Process claims, the scope of jurisdiction and choice of law are distinct questions.  As for cases like Cipro and Xitronix where the court ultimately exercised jurisdiction over some Walker Process claims, the jurisdictional issues were reviewed under the lower plausibility standard instead of a de novo standard.  The Court also disagreed with the Fifth Circuit’s interpretation of sections 1295 and 1338 in Xitronix and opined that the two provisions are not divorced from each other as the Fifth Circuit suggested.

Conclusion

The Fifth Circuit has yet to react to the Chandler decision.  But given the differing views of the Fifth Circuit and the Federal Circuit, jurisdiction over Walker Process claims may become a narrow, case-specific inquiry.