Choice Of Law In The United States Circuit Court Of Appeals For The Federal Circuit
This article does not deal with the usual choice of law problem in which a judicial forum must choose between or among the substantive or procedural laws of multiple states of the United States or multiple nations, each of which has some contact with the dispute being resolved. Instead, it deals with an unusual, if not unique, problem posed by the unusual, if not unique, jurisdiction of the United States Circuit Court of Appeals for the Federal Circuit. That court has jurisdiction defined by subject matter, not by geographical area, including jurisdiction over two categories of appeals from the United States district courts. Since appeals from the district courts normally go to one of the regional circuit courts, and since 28 USC 1295(a) provides that (with certain exceptions) appeals go to the Federal Circuit if jurisdiction of the district court was based "in whole or in part" (emphasis supplied) on 28 USC 1338 or 28 USC 1346, the question addressed by this article is what law to apply to the part of such cases jurisdiction of which was not based on 28 USC 1338 or 28 USC 1346. For instance, if the case in question was filed in a district court in the Nth Circuit with two counts, one for patent infringement and one for breach of contract, jurisdiction of the district court was based "in part" on 28 USC 1338, and (with certain possible exceptions1) any appeal must consequently be directed to the Federal Circuit. While it is clear from the legislative history of the act creating the Federal Circuit that the Federal Circuit is to develop its own law as to the "purely patent" aspects of such appeals, the question soon arose of what law the district courts and the Federal Circuit should apply (1) to the non-patent (primarily procedural) aspects of patent appeals and (2) to the substantive (as well as the procedural) aspects of non-patent appeals.2
It seems fair to say that the question discussed in this article was not anticipated either by the authors of the act creating the Federal Circuit or by Congress. None of the cases discussing this issue points to any pertinent legislative history,3 and the author of this article has found no pertinent legislative history. Thus, this appears to be an area in which the court is entitled to do a little interstitial judicial legislation4 based on extrapolations from perceived Congressional intent and the court's own assessment of desirable public policy. The questions remain, however, whether the bar will agree with the court's assessment of desirable public policy and whether, if it does not, the court's interstitial judicial legislation should be overruled by Congressional legislation.
II. Development of the Law
In American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 220 USPQ 763 (Fed. Cir. 1984) (Rich, C.J.), cert. den., ____U.S.____, 224 USPQ 520 (1984), which was an appeal from a district court in the Ninth Circuit, a panel of the Federal Circuit gave careful consideration to opinions from the Ninth Circuit concerning an antitrust issue as to which there was a split among the circuits. However, the panel did not indicate that it was bound by the Ninth Circuit's view. In fact, it chose to follow contrary precedent from other circuits, and it reversed the district court with the comment that the losing party below (which had not argued to the district court that it should follow the contrary precedent rather than the Ninth Circuit's precedent) "may have been misled by the Ninth Circuit precedent."5 In its unsuccessful petition for certiorari, Sowa and Sons, Inc. argued vigorously that the Federal Circuit had erred in failing to follow the Ninth Circuit's precedent.
In In re International Medical Prosthetics Research Associates, Inc., 739 F.2d 618, USPQ (Fed. Cir. 1984) (Markey, Ch. J.), a different panel of the Federal Circuit held (without citation of authority and without discussion of American Hoist) that, in cases that are appealable to the Federal Circuit and that involve issues concerning "purely procedural matters" (in that case, disqualification of counsel), the district court should and the Federal Circuit would apply "the . . . guidance previously made available by the circuit . . . having authority over the district court under 28 U.S.C. § 1294."6 Since In re International Medical, the Federal Circuit has held that the "guidance" of the otherwise applicable regional circuit court should be followed on the following procedural issues:
- (1) whether or not the district court had abused its desertion in dismissing a count alleging unfair competition based on state law in a multi-count complaint that also alleged patent infringement, the alleged unfair competition consisting of the misappropriation of trade secrets later embodied in the patent7;
(2) whether or not the district court had abused its discretion by denying a preliminary injunction on a trade secret count in a multi-count complaint that also alleged patent infringement8; and
(3) whether or not the district court had abused its discretion by denying a stay pending arbitration of the scope of the claims in a licensed patent in a suit to recover royalties under the license.9
On the other hand, the court made no effort to follow the "guidance" of the otherwise applicable regional circuit court as to the following procedural issues:
- (1) the standard to be employed in deciding an FRCP 15(b) motion to amend the complaint to conform to the evidence concerning a non-patent issue,10 and
(2) the propriety of the district court's denial of an FRCP 15(a) motion to amend a reply.11
While the opinion in In re International Medical announced the court's holding with very little discussion of the choice-of-law issue, the court's subsequent opinion in Panduit Corp. v. All States Plastics Mfg. Co., 774 F.2d 1564, 223 USPQ 465 (Fed. Cir. 1984) (per curiam), contained an extended discussion of the choice-of-law issue. In Panduit, the court explicitly limited its decision to be bound by the law of the otherwise applicable regional circuit court to procedural issues,12 and even as to procedural issues the court said that it would be bound by the law of the otherwise applicable regional circuit court as to "procedural matters that do not pertain to the patent issues,"13 but not as to procedural matters that do "pertain to the patent issues." Unfortunately, Panduit provided no guidance for distinguishing one type of procedural matter from the other.
In Panduit, the court acknowledged that its decision on choice of law was not compelled by statutory law. Instead, it stated that its ruling was made in light of "an analysis of legislative history [of the court's enabling statute]"14 and "as a matter of policy."15 The legislative history showed that the primary reason for the creation of the Federal Circuit was to "increase doctrinal stability in the field of patent law,"16 but it did not indicate that the Federal Circuit has any particular mandate to bring "increase[d] doctrinal stability" to non-patent procedural issues. As for the policy question, the court stated that there is a "general policy of minimizing confusion and conflicts in the federal judicial system,"17 and it reasoned that:
Where, as here, a procedural question that is independent of the patent issues is in dispute, practitioners within the jurisdiction of a particular regional circuit court should not be required to practice law and to counsel clients in light of two different sets of law for an identical issue due to the different routes of appeal. An equal, if not more important, consideration is that district judges also should not be required to decide cases in this fashion.18
In Al Bolser's Tire Stores, Inc. v. Bandag, Inc., 750 F.2d 903, 223 USPQ 982 (Fed. Cir. 1984) (Bennett, C. J.), and Atari, Inc. v. JS&A Group, Inc., 747 F.2d 1422, 223 USPQ 1074 (Fed. Cir. 1984) (in banc) (Markey, Ch. J.), the court extended In re International Medical and Panduit to non-patent substantive as well as procedural law, thereby apparently overruling this aspect of American Hoist sub silentio. In Al Bolser's the court stated that, "[i]n the trademark portion of this case[,] we will be guided by the relevant law in the Ninth Circuit, to the extent it can be discerned, and not require the district court here to follow conflicting rules, if any, arrived at in the other circuits,"19 and in Atari the court ruled that it would treat Seventh Circuit law on certain copyright issues as controlling. According to the opinion by Chief Judge Markey for a majority of the in banc court in the Atari case:
The freedom of the district courts to follow the guidance of their particular circuits in all but the substantive law fields assigned exclusively to this court is recognized in the foregoing opinions and in this case.20
Since Al Bolser's and Atari, the court has also held that the "guidance" of the otherwise applicable regional circuit court should be followed as to Federal preemption of state-law intellectual property protection21 and in determining the validity and enforceability of an agreement settling a patent infringement dispute.22 Judge Bennett's opinion in Cable Electric Products Inc. v. Genmark, Inc., 770 F.2d 1015, 226 USPQ 881 (Fed. Cir. 1985), represents the court's most recent effort to clarify this issue, and it is worth quoting at some length:
Notwithstanding the fact that the Supreme Court has made several pronouncements on the interrelationship of the federal patent laws to state protection of intellectual property, we conclude that the proper reach of the preemptive effect of the federal patent laws in relation to the diverse assortment of trade regulation laws existing in the fifty states is not a matter over which this court has a mandate to unify the law evolved in the regional circuits.
This issue is not one that can come before this court in the appeal of a case that was based at the district court level solely on the patent provisions of 28 U.S.C. §1338(a). The federal-state preemption question is presented exclusively in state intellectual property causes of action. When a patent cause is joined with a state intellectual property cause of action in a single "mixed" case, and both causes are appealed, the issue of the federal-state preemption can reach this court for review. In the absence of a patent count below, the appeal of the state action and the associated preemption issue will be resolved in the regional circuit. Thus, the correct application of the preemption principles voiced in Sears and Compco is a responsibility which is shared between this court and the regional circuits.
Consequently, under the guidance of Atari, when the preemption issue is reviewed in this circuit[,] we will apply the law that has evolved in the regional circuit in which the case containing the issue was originally tried.23 Adopting this course will then assure that preemption is applied uniformly in the cases of a given regional circuit, whether they are appealed there or, by including a nonfrivolous patent cause of action, reviewed here. Such a rule will reduce the incentive for forum shopping with respect to a significant threshold issue in state causes of action.24
The author believes that the Federal Circuit's holdings in the foregoing opinions are highly unfortunate for three reasons.
First, despite its disclaimers, the Federal Circuit has gone far to revive the forum shopping that creation of the Federal Circuit was designed to eliminate. Counsel contemplating the filing of an action in which jurisdiction is based in whole or in part on 28 U.S.C. 1338 but which includes other possibly outcome-determinative issues (of either substantive or procedural law) know that the appeal will go to the Federal Circuit.25 However, he or she has to consider which regional circuit has the most favorable law as to the possibly outcome-determinative non-patent procedural or substantive issues and, if necessary, he or she has to strain to file the action in that circuit regardless of considerations of convenience and economy that might suggest bringing the action in another circuit. Similarly, counsel representing the defendant has to consider which regional circuit has the most favorable law as to the possibly outcome-determinative non-patent procedural or substantive issues and, if necessary, move to transfer the action accordingly. Thus, the Federal Circuit's opinions discussed above have brought back the bad old days of forum shopping (albeit, of course, in a less exacerbated form).
Second, if the Federal Circuit is really going to treat itself as bound by the law of the otherwise applicable regional circuit court on non-patent procedural and substantive issues, that presumably eliminates or sharply curtals the possibility of arguing that the precedent of the otherwise applicable regional circuit should not be followed. If one is in a regional circuit court that has enunciated a rule of law at variance with other regional circuit courts, one can at least argue that that regional circuit court should overrule its own precedent and adopt the law enunciated by other regional circuit courts. The Federal Circuit, however, will presumably be very loath to rule that it is "bound" by the law of the Nth Circuit, but that the precedent of the Nth Circuit is so clearly wrong that the Federal Circuit feels sure that the Nth Circuit would overrule itself at the first opportunity. Thus, from a practical point of view, it seems likely that, in situations of this type, the Federal Circuit will either ignore the law of the Nth Circuit (as it has in several cases already) or follow it, but that it will seldom if ever purport to overrule the law of one of the regional circuit courts.
Third, Panduit is going to lead to a great deal of avoidable uncertainty in at least the near term as the Federal Circuit endeavors to categorize all procedural matters into "procedural matters that do not pertain to the patent issues" (as to which it is bound by the law of the otherwise applicable regional circuit) and "procedural matters that do . . . pertain to the patent issues" (as to which it is at liberty to fashion its own synthesis of the law from the precedents of the regional circuit courts and the precedents of its predecessor courts). For instance, does the court's already vast body of conflicting pronouncements on the use of FRCP 49(a) written questions to juries in patent infringement cases concern a procedural matter that does "pertain to the patent issues" or a procedural matter that does not "pertain to the patent issues"? On the one hand, the use of FRCP 49(a) written questions to juries is certainly not limited to patent issues, and there is a great deal of precedent concerning their use in nonpatent cases. On the other hand, however, their use in patent cases does present particular difficulties which the court seems to want to address without being unduly confined by what the regional circuit courts have said on the subject. Clearly, categorizing all procedural issues one way or the other is going to require metaphysical decisions of exceptional delicacy.
Moreover, the two rationales advanced by the Panduit court in support of its policy choice are singularly unpersuasive. In Panduit, the court first said that, "[w]here . . . a procedural question that is independent of the patent issues is in dispute, practitioners within the jurisdiction of a particular regional circuit court should not be required to practice law and to counsel clients in light of two different sets of laws for an identical issue due to the different routes of appeal."26 However, the court's statement exhibits an archaic view of how law in general and patent law in particular is practiced in this country. It suggests that the practice of law is primarily divided on a geographical basis (i.e., that a majority of patent cases are tried by lawyers who are "practitioners within the jurisdiction of a particular regional circuit court" who try both patent cases and non-patent cases), whereas it seems to the author that the practice of law is primarily divided on a specialty basis (i.e., that a majority of patent cases are tried by intellectual property lawyers who handle intellectual property cases to the virtual exclusion of other types of cases, but who handle intellectual property cases in any circuit where their clients' business takes them). Of course, either view is a generalization, but the author submits that his view much more closely corresponds to present day reality than does the court's view. If that is true, it suggests that it is more important "as a matter of policy" to have a uniform body of procedural law applicable in all cases appealable to the Federal Circuit than it is to uniformly apply the procedural law applicable within a particular regional circuit to cases that are appealable to the Federal Circuit as well as to cases that are appealable to that particular regional circuit.
In addition to the alleged convenience of counsel, Panduit says that "[a]n equal, if not more important, consideration [favoring the Federal Circuit's choice-of-law rule] is that district judges also should not be required to decide cases in this fashion [i.e., by applying different laws depending on to which circuit court appeal may be taken]."27 However, once again the court's argument is unpersuasive. In the first place, the simple jurisdiction-triggering mechanism in 28 USC 1295(a)(1) insures that the district judge as well as counsel will know right from the outset to which appellate court any appeal will lie.28 And, in the second place, district court judges are accustomed to applying the law of various states (and, indeed, of various nations) other than the state and nation in which they sit pursuant to normal choice-of-law rules. Thus, no great or unusual burden would be imposed upon the district court judges by requiring them to follow Federal Circuit precedent in cases that they know would go to the Federal Circuit if appealed.
By now the Federal Circuit's law on choice-of-law appears to be too firmly entrenched to hope for the court to overrule its own precedent. Thus, if the law on this point is to be changed, it probably must be changed by Congressional legislation rather than by further judicial interstitial legislation. To accomplish that result, the author proposes amending Title 28 to add the following new section dealing specifically with this situation:
§ 1297. Choice of Law in Cases Appealable to the United States Court of Appeals for the Federal Circuit.
In cases which are appealable to the United States Court of Appeals for the Federal Circuit under section 1295(a)(1) of this title, neither the district court nor the United States Court of Appeals for the Federal Circuit shall be bound by the law of the regional circuit court in whose circuit the district court is located as to either patent or non-patent issues of Federal law and as to either substantive or procedural Federal law. As to any issue of Federal law which has not been decided by the United States Supreme Court or the United States Court of Appeals for the Federal Circuit (or its predecessors in jurisdiction), the district court and the United States Court of Appeals for the Federal Circuit shall give the precedent of all the regional circuit courts the same respect under the doctrine of comity as is given by the district courts and the regional circuit courts to precedents from other circuits on issues not yet decided by that regional circuit court.
First published in American Intellectual Property Law Association Quarterly Journal, Volume 13 (1985), page 309.
*.Copyright ©1985 Charles L. Gholz. All Rights Reserved.
.See, e.g., USM Corp. v. SPS Technologies, Inc., 770 F.2d 1035, 226 USPQ 1038 (Fed. Cir. 1985) (transferring an appeal to the Seventh Circuit in a case in which jurisdiction was based partly on 28 USC 1338, but no patent issue was involved on the appeal and a previous appeal on the non-patent issues had gone to the Seventh Circuit), and Colt Industries Operating Corp. v. Index-Werke K. G., 739 F.2d 622, ____ USPQ ____ (Fed. Cir. 1984) (authorizing transfer of an appeal to the D.C. Circuit in a case in which jurisdiction was based on 28 USC 1338, but a pre-Federal Circuit appeal had gone to the D.C. Circuit and the only issue on the second appeal was the meaning of the D.C. Circuit's judgment in the first appeal). Of course, both these cases deal with transitional issues, but USM Corp. may suggest that a similar result would have been obtained even if the first appeal had not gone to the Seventh Circuit.
.The same type of questions arise in cases in which jurisdiction of the district court was based in part on 28 USC 1346. However, since this article is addressed to intellectual property lawyers, it will focus on appeals in which jurisdiction of the district court was based in part on 28 USC 1338.
.See particularly Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1572-76, 223 USPQ 465, 469-72 (Fed. Cir. 1984) (per curiam), which contains an extended discussion of what legislative history there is.
.A. F. Stoddard & Co. v. Dann, 564 F.2d 556, 566, 195 USPQ 97, 105 (D.C. Cir. 1977) (Markey, Ch.J.) ("Courts of the Judicial Branch, . . . having the obligation to administer justice, may on rare occasions be required to delve within the interstices of a statute to do justice, not only to the individual or individuals involved, but to the statutory scheme itself."), and Chief Judge Markey's concurring opinion in Paulik v. Rizkalla, 760 F.2d 1270, 1282-83, 226 USPQ 224, 233-34 (Fed. Cir. 1985) (en banc).
.725 F.2d at 1367, 220 USPQ at 776.
.739 F.2d at 620, USPQ at . The specific holding in In re International Medical (i.e., that the law of the otherwise applicable regional circuit as to the disqualification of counsel should be followed in cases appealable to the Federal Circuit) was followed in Panduit Corp. v. All States Plastic Mfg. Co., 774 F.2d 1564, 223 USPQ 465 (Fed. Cir. 1984) (per curiam); W. L. Gore & Associates, Inc. v. International Medical Prosthetics Research Associates, Inc. 745 F.2d 1463, 223 USPQ 884 (Fed. Cir. 1984) (Nies, C.J.); E Z Paintr Corp. v. Padco, Inc., 746 F.2d 1459, 223 USPQ 1065 (Fed. Cir. 1984) (Davis, C.J.); and Sun Studs, Inc. v. Applied Theory Associates, Inc., 772 F.2d 1557, 227 USPQ 81 (Fed. Cir. 1985) (Baldwin, C.J.), but it was ignored in Kearns v. Fred Lavery Porsche Audi Co., 745 F.2d 600, 223 USPQ 881 (Fed. Cir. 1984) (Davis, C.J.).
.Verdegaal Bros., Inc. v. Union Oil Co., 750 F.2d 947, 224 USPQ 249 (Fed. Cir. 1984) (Markey, Ch.J.).
.Litton Systems, Inc. v. Sunstrand Corp., 750 F.2d 952, 224 USPQ 252 (Fed. Cir. 1984) (Markey, Ch.J.).
.Rhone-Poulenc Specialities Chimiques v. SCM Corp., 769 F.2d 1569, 226 USPQ 873 (Fed. Cir. 1985) (Rich, C.J.).
.Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 224 USPQ 259 (Fed. Cir. 1984) (Friedman, C.J.).
.Tenneco Resins, Inc. v. Reeves Bros., Inc., 752 F.2d 630, 224 USPQ 536 (Fed. Cir. 1985) (Davis, C.J.).
.744 F.2d at 1574 n.12, 223 USPQ at 471 n.12.
.744 F.2d at 1575, 223 USPQ at 469.
.744 F.2d at 1573, 223 USPQ at 470.
.744 F.2d at 1574, 223 USPQ at 471.
.Id., citing S. Rep. 97-275, 97th Cong., 1st Sess. 5, reprinted in 1982 U.S. Code Cong. & Ad. News. 15.
.744 F.2d at 1574, 223 USPQ at 471.
.750 F.2d at 909, 223 USPQ at 986. Al Bolser's was followed on the same point in Cable Electric Products, Inc. v. Genmark, Inc., 770 F.2d 1015, 1029, 226 USPQ 881, 890 (Fed. Cir. 1985) (Bennett, C.J.).
.747 F.2d at 1439, 223 USPQ at 1087. This passage followed a discussion of In re International Medical Prosthetics; W. L. Gore & Associates, Inc. v. International Medical Prosthetics Research Assoc.; Panduit Corp. v. All States Plastic Mfg. Co.; Al Bolser's Tire Stores, Inc. v. Bandag, Inc.; and American Hoist & Derrick Co. v. Sowa & Sons, Inc. Surprisingly, the latter was said to support the result reached by the court in Atari.
.Cable Electric Products, Inc. v. Genmark, Inc., 770 F.2d 1015, 226 USPQ 881 (Fed. Cir. 1985) (Bennett, C.J.).
.Sun Studs, Inc. v. Applied theory Associates, Inc., 772 F.2d 1557, 227 USPQ 81 (Fed. Cir. 1985) (Baldwin, C.J.).
.Presumably the use of the word "originally" was not intended to suggest that a different result would be reached if a case were transferred from a district court in one regional circuit to a district court in another regional circuit after an "original" trial and before a "second" trial.
.772 F.2d at 1033, 226 USPQ at 892-93; footnote omitted.
.But see the cases cited in footnote 1, supra.
.744 F.2d at 1574, 223 USPQ at 471.
.774 F.2d at 1574, 223 USPQ at 471. The same point is made with Chief Judge Markey's characteristically colorful language in Atari, Inc. v. JS&A Group, Inc., 747 F.2d 1422, 223 USPQ 1074 (Fed. Cir. 1984) (in banc):
It would be at best unfair to hold in this case that the district court, at risk of error, should have "served two masters," or that it should have looked, Janus-like, in two directions in its conduct of . . . [the judicial process leading to the order appealed from]. It is, moreover, difficult to envisage how the district court might have disregarded the established guidance of its circuit in favor of a guess respecting what this court's view might be respecting the appealed injunctive order. [747 F.2d at 1439, 223 USPQ at 1087].
With respect, it is submitted that it is no more difficult to envisage how the district court might have decided Atari in the absence of pre-existing guidance from the Federal Circuit on the particular substantive law issue involved than in any case where a district judge must decide an issue as to which there is no guidance from its circuit but as to which there is guidance from other circuits.
.But see the cases cited in footnote 1, supra.