Semiconductor Energy presents assignor estoppel issue

From the decision, Semiconductor Energy v. Nagata

Semiconductor Energy Laboratory Co., Ltd. (“SEL”) appeals from the order of the United States District Court for the Northern District of California dismissing SEL’s complaint with prejudice pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction under 28 U.S.C. § 1338(a) and declining to exercise supplemental jurisdiction over a number of state law claims. Semiconductor Energy Lab. Co. v. Nagata, No. 11-02793, 2012 WL 177557, at *8 (N.D. Cal. Jan. 23, 2012). Because the district court did not err in holding that there is no federal cause of action based on assignor estoppel and did not abuse its discretion in declining supplemental jurisdiction over the state law claims, we affirm.

The facts of the case are more interesting than the legal conclusions. The defendant, Nagata, is a named inventor of the patent in question ( U.S. Patent 6,900,463 ) and Nagata assigned his rights to SEL’s founder Dr. Shunpei Yamazaki. Nagata helped SEL with one litigation BUT served as a fact witness for Samsung, a later infringement defendant. Therein, Nagata repudiated his signature on declaration and assignment documents. Thus, SEL raises "assignor estoppel" although the fact of assignment is at issue. At stake before the CAFC is whether the case belongs in federal court.

Of the law, the CAFC noted:

Federal courts may hear only those cases over which they have subject matter jurisdiction. See Dow Jones & Co., Inc. v. Ablaise Ltd., 606 F.3d 1338, 1348 (Fed. Cir. 2010) (“Subject matter jurisdiction is a threshold requirement for a court’s power to exercise jurisdiction over a case.”); see also Willy v. Coastal Corp., 503 U.S. 131, 137 (1992) (“A final determination of lack of subject-matter jurisdiction of a case in a federal court, of course, precludes further adjudication of it.”). Subject matter jurisdiction may be based upon either diversity of citizenship or federal question jurisdiction, and where, as here, appellants do not claim diversity of citizenship, there must be federal question jurisdiction. ExcelStor Tech., Inc. v. Papst Licensing GmbH & Co. KG, 541 F.3d 1373, 1375 (Fed. Cir. 2008).

To invoke federal question jurisdiction, a complaint must either plead a federal cause of action or necessarily implicate a substantial issue of federal law. In pertinent part, 28 U.S.C. § 1338(a) provides that “district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents.” The Supreme Court has interpreted the “arising under” lan- guage of § 1338(a) in the same fashion as that of 28 U.S.C. § 1331, which governs the federal courts’ original jurisdic- tion over federal questions. The Court thereby incorpo- rated the principles underlying the “well pleaded complaint” rule into the root of our patent law jurisdic- tion, stating:

[Section] 1338 jurisdiction . . . extend[s] only to those cases in which a well-pleaded complaint es- tablishes either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a sub- stantial 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., 486 U.S. 800, 808–09 (1988) (citations omitted); see also Cedars-Sinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1577–78 (Fed. Cir. 1993). In appropriately dismissing SEL’s complaint for lack of subject matter jurisdiction, the district court correctly held that SEL neither established that federal patent law created a cause of action as pleaded nor that federal patent law was a necessary element of its claims.

The only claim asserted by SEL that purports to arise under federal law, which SEL labeled “Declaratory Judgment – Violation of Federal Patent Law,” was premised on the doctrine of assignor estoppel. As we explained in Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220, 1224 (Fed. Cir. 1988), assignor estoppel is an equitable doctrine that prohibits an assignor of a patent or patent application, or one in privity with him, from attacking the validity of that patent when he is sued for infringement by the assignee. See also Checkpoint Sys., Inc. v. All-Tag Sec. S.A., 412 F.3d 1331, 1336 (Fed. Cir. 2005) (“The doctrine of assignor estoppel prevents a party that assigns a patent to another from later challenging the validity of the assigned patent.”). Assignor estoppel is thus a defense to certain claims of patent infringement.

Estoppel is a defense:

Despite SEL’s contentions, assignor estoppel is a form of estoppel, and with rare exception, estoppel is a shield; it is an affirmative defense, not a claim for relief on its own. See, e.g., Fed. R. Civ. P. 8(c)(1) (estoppel is an af- firmative defense). Indeed, the Supreme Court has explic- itly recognized assignor estoppel to be “the functional equivalent of estoppel by deed.” Diamond Scientific, 848 F.2d at 1225 (citing Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342, 348–49 (1924)). Under the doctrine, an assignor sued for infringement may not defend or counterclaim that the patent he as- signed is invalid or unenforceable. Id. at 1226 (“When the inventor . . . has assigned the patent rights to another for valuable consideration, he should be estopped from de- fending patent infringement claims by proving that what he assigned was worthless.”). That is not the case here, and we are not inclined to transform the shield into a sword. The relief requested by SEL is akin to seeking a declaratory judgment of patent validity, which is not a viable cause of action. As the district court fittingly noted, “it simply makes no sense to use a doctrine intend- ed to estop a party from advancing a particular claim or defense in a legal case as a way to sue a non-party who has made no claim or defense in a legal case.” Semicon- ductor, 2012 WL 17757, at *4 (citation omitted).

The "substantial issue" matter-->

Even where a plaintiff does not state a federal cause of action, a federal court may still have subject matter jurisdiction if the plaintiff’s claims implicate a substantial issue of federal law. Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 312 (2005); Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 13 (1983). Thus, a well-pleaded complaint presents a federal question only when the federal issue is sufficiently sub- stantial; there is no federal question when the federal law claim is insubstantial, implausible, or otherwise devoid of merit. Franchise Tax Bd., 463 U.S. at 8–9; Oneida Indian Nation v. Cnty. of Oneida, 414 U.S. 661, 666–67 (1974).

The CAFC noted:

We disagree, because the asserted federal issue was insubstantial, implausible, and without merit. For the same reasons that reliance on the doctrine of assignor estoppel does not present a substantial issue of federal law in connection with SEL’s purported federal claim, it likewise fails to provide a substantial issue of federal law justifying federal jurisdiction over SEL’s state law claims. SEL’s contrived federal issue is not a necessary element of its state law claims, which are each independent issues of state law, separately supported by alternative state law theories that do not necessarily require resolution of any disputed substantial question of federal patent law. See Grable, 545 U.S. at 314. “[T]he mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction.” Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 813 (1986). The district court was therefore correct in holding that SEL’s artful pleading did not give rise to federal subject matter jurisdiction.

Alternative theory:

Furthermore, in support of its analysis, the district court also determined that, even if SEL had invoked federal subject matter jurisdiction, it nevertheless failed to state a claim under its own count for “Violation of Federal Patent Law” based on the requirements for the application of the doctrine of assignor estoppel. Semicon- ductor, 2012 WL 17757, at *5–7. In particular, the dis- trict court determined that, under our precedent, the assignor estoppel doctrine would not bar Nagata’s testi- mony because (1) he was neither in privity with the defendant nor a party to the Wisconsin proceedings; and (2) his conduct in repudiating his signature on the as- signment documents in that case merely challenged the veracity of those underlying contracts, not the validity of the ’463 patent itself. Id. (citing Univ. W. Va. Bd. of Trs. v. VanHoorhies, 278 F.3d 1288 (Fed. Cir. 2002); Intel Corp. v. U.S. Int’l Trade Comm’n, 946 F.2d, 821 (Fed. Cir. 2001); Mentor Graphics Corp. v. Quicktum Design Sys., Inc., 150 F.3d 1374 (Fed. Cir. 1998); Shamrock Techs. v. Med. Sterilization, Inc., 903 F.2d 789 (Fed. Cir. 1990)). Nonetheless, because we conclude that the district court did not err in dismissing SEL’s complaint for lack of subject matter jurisdiction as insubstantial and without merit in the first instance, we need not address this alternative basis of decision.