Critique and consequences of the Supreme Court's decision in Holmes v. Vornado.

• Author: Bass, Kenneth C., III

1. INTRODUCTION

   The Spring 2003 issue of this journal included a practice note assessing the impact that the Supreme Court's recent decision in Holmes v. Vornado might have on the practices of appellate lawyers who are not specialists in patent litigation. (1) This article analyzes Holmes from a different perspective. We will first discuss the fundamental flaws in the Court's decision--flaws that were perhaps induced by a failure of appellate counsel to pay close attention to the jurisdictional facts. We will also discuss the implications of the decision from the perspective of practitioners who focus on intellectual property trials and appeals. In the process we will explore the intricacies of the unique jurisdiction of the Court of Appeals for the Federal Circuit.

   The Holmes case was little noticed as it progressed through the judicial system, being largely eclipsed by the contemporaneous and widely followed Festo litigation. (2) Holmes may, however, turn out to be at least as significant. The issue in Holmes was whether the Federal Circuit or the appropriate regional court of appeals has jurisdiction over a case that involves a patent counterclaim. The law on point had been settled since the Federal Circuit held in Aerojet-General Corporation v. Machine Tool Works, Oerlikon-Buehrle Ltd., (3) that such appeals are to come before it. That practice appears never to have been seriously challenged until the plaintiff's counsel in Holmes decided to question it. Indeed, the issue was regarded as so well-settled that it was not even addressed by the Federal Circuit when it decided the appeal that resulted in the Supreme Court's decision to grant review.

   The change in law wrought by Holmes rests on a tenuous base. Justice Scalia's majority opinion adopts his oft-invoked literalist methodology and rests on a linguistic analysis. The opinion thus eschews any reliance on the policy impact of the Court's decision, but even the linguistic analysis employed is faulty at its core. The opinion fails to quote and consider the most relevant language of the pertinent statute, focuses on the wrong words in that statute, and ultimately fails to consider the linchpin of a proper linguistic analysis. But these deficiencies cannot, in fairness, be attributed solely to the Court. None of the appellate counsel focused on the details of the jurisdictional statute that framed the appellate issue. (4) Despite these apparent errors, however, the decision will remain as controlling law, providing litigation counsel with a potent new weapon that allows them effectively to avoid the Federal Circuit and channel patent cases to their favorite regional court of appeals.

2. BACKGROUND

   On its face the decision in Holmes seems reasonable and correct. A proper evaluation of the opinion, however, requires consideration of the history of the specific case as well as the prior Supreme Court and Federal Circuit decisions, and that consideration suggests a different conclusion.

   1. The Parties and the Prior Litigation

      The Supreme Court's decision in Holmes is the latest round in a ten-year battle between Vornado and its competitors. Vornado's corporate history began in the 1940s with the manufacture of fans in Wichita, Kansas. (5) In 1990 it obtained a patent (6) for a fan front-grill design with a series of spiral vanes, and it marketed the model incorporating this feature as having its "Patented AirTensity[R] Grill." In 1992, Vornado filed an action against one of its competitors, the Duracraft Corporation, alleging that a Duracraft fan infringed Vornado's trade dress in the configuration of its spiral grill design, but failing to assert a claim for patent infringement. The trial court found that Duracraft's fan infringed Vornado's trade dress, (7) but the Tenth Circuit reversed, holding that because the claimed trade dress was "a significant inventive component" of a utility patent, it could not also be protected under the Lanham Act. (8)

      In November 1999 Vornado filed a complaint with the International Trade Commission, claiming that Holmes was importing fans that infringed Vornado's patent as well as the trade dress that had been litigated in Duracraft. (9) Holmes parried with a complaint in the United States District Court in Kansas, seeking a declaratory judgment that its fan did not infringe Vornado's trade dress, and asserting a variety of claims based on Vornado's advertising and the institution of the ITC proceedings. (10) Holmes argued that Vornado was estopped by virtue of the Duracraft decision from alleging protectible trade dress, but apparently avoided making a claim for a declaratory judgment that its product did not infringe Vornado's patent. (11) Vornado's riposte was a compulsory counterclaim in the Kansas court alleging patent infringement. (12)

   2. The Trial Court Decision

      Holmes moved for summary judgment on a theory of collateral estoppel, arguing that the Tenth Circuit's Duracraft decision precluded Vornado's assertion of trade-dress protection. The court agreed, entering summary judgment in favor of Holmes on this issue, (13) and granting the parties' joint motion to enter partial final judgment under Rule 54(b) of the Federal Rules of Civil Procedure. The parties then agreed to a conditional dismissal of Vornado's counterclaim that allowed Vornado to appeal the adverse trade-dress decision and, if successful on appeal, to reinstate its patent counterclaim. (14) Vornado timely filed a notice of appeal to the Federal Circuit. The stage was thus set for the eventual Supreme Court decision, but because familiarity with the relevant statutes and cases is useful to an understanding of the appellate courts' decisions, we turn first to a summary of those authorities.

   3. The Statutes and the Precedents

      1. The Statutes

         The Federal Circuit has exclusive jurisdiction over appeals "from a final decision of a district court of the United States ... if the jurisdiction of that court was based, in whole or in part, on [28 U.S.C.] section 1338." (15) Section 1338(a), in turn, provides that "the district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks." (16)

      2. The Cases

         1. The Supreme Court's Decision in Christianson

            The Supreme Court first addressed the interaction of these two provisions in Christianson v. Colt Industries Operating Corp., (17) considering in that case whether appellate jurisdiction over a long-running patent dispute lay with the Federal Circuit or the regional circuit. In Colt, the plaintiff had obtained a manufacturing license under a group of patents that covered "certain specifications essential to the mass production of interchangeable parts for the M16 rifle." Colt had, however, used nondisclosure agreements as one means of concealing many of the manufacturing specifications that might otherwise have been revealed by the engineering drawings disclosed in the patents. (18) Christianson was a Colt employee who learned about the secret specifications upon signing a nondisclosure agreement, eventually left Colt, and then established a company that "began selling M16 parts to various customers domestically and abroad." (19) Colt sued him, seeking an injunction against his further disclosure of the secret specifications and claiming that he was violating his nondisclosure agreement.

            The district court denied Colt's motion for an injunction, and Colt voluntarily dismissed its claims, but it continued to notify Christianson's customers that he was allegedly misappropriating Colt's trade secrets. (20) Christianson responded by suing Colt under the Sherman and Clayton Acts, claiming that Colt had illegally monopolized the market through reliance on the patents. (21) He claimed that the patents were invalid because the specifications failed to disclose the essential manufacturing details, and he specifically raised a patent-invalidity issue. (22)

            Christianson moved for summary judgment on the ground that the patent failed to disclose the "best mode of enablement" and was therefore invalid. The district court granted Christianson's motion. (23) Colt then appealed to the Federal Circuit. After full briefing and argument, that court decided that it did not have jurisdiction, and ordered the case transferred to the Seventh Circuit. (24) The Seventh Circuit responded by deciding that the Federal Circuit decision was "clearly wrong," and ordered the appeal transferred back. (25) The Federal Circuit, finding that the Seventh Circuit decision was itself "clearly wrong," and that its decision reflected "a monumental misunderstanding of the patent jurisdiction" of the Federal Circuit, nonetheless proceeded to decide the merits "in the interests of justice," and reversed the district court. (26) Christianson sought and obtained review by the Supreme Court.

            Justice Brennan's majority opinion sided with the Federal Circuit. The Supreme Court held that appellate jurisdiction was determined solely by reference to the district court's jurisdiction, and resolution of that issue in turn rested on a proper construction of [section] 1338(a). The central question, then, was how to interpret the phrase "arising under" in [section] 1338. The Court pointed to the long history of cases interpreting the identical term in the general federal-question statute. (27) Jurisdiction under that statute exists only when "a well-pleaded complaint establishes either that a federal law creates the cause of action or that the plaintiff's fight to relief necessarily depends on resolution of a substantial question of federal law." (28) The Court held in Christianson that "arising under" had the same meaning in both statutes, and that jurisdiction under [section] 1338 existed only if "patent law is a necessary element of one of the well-pleaded claims" of the complaint. (29)

            While a patent issue had been raised in Christianson's complaint, and...