IP Law Daily District court improperly exercised supplemental jurisdiction over state-law claims
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Tuesday, November 8, 2016

District court improperly exercised supplemental jurisdiction over state-law claims

By Peter Reap, J.D., LL.M.

In a dispute between medical device companies over an invention of an angioplasty balloon catheter by Eitan Konstantino, a co-founder of AngioScore, after he left AngioScore, the federal district court in San Francisco improperly exercised supplemental jurisdiction over the AngioScore’s state-law claims, but did not err in denying attorney fees, the U.S. Court of Appeals for the Federal Circuit has decided. Therefore, the ruling of the district court was reversed-in-part, affirmed-in-part, vacated-in-part, and remanded with instructions to dismiss the state-law claims for lack of subject matter jurisdiction (AngioScore, Inc. v. TriReme Medical, LLC, November 8, 2016, Hughes, T.).

In March 2003, Eitan Konstantino co-founded AngioScore to develop and market a new angioplasty balloon catheter that he had co-invented, called AngioSculpt. While AngioScore was reducing his role, Dr. Konstantino increased his involvement with TriReme Medical, a separate company that he had co-founded. In the fall of 2009, Dr. Konstantino and Tanhum Feld conceived of a new angioplasty balloon catheter which they named Chocolate. On October 9, 2009, Dr. Konstantino filed a provisional patent application for Chocolate, naming himself and Mr. Feld as co-inventors.

On June 29, 2012, AngioScore sued the defendants (TriReme Medical, Quattro Vascular PTE Ltd., QT Vascular Ltd., and Eitan Konstantino) for infringing United States Patent No. 7,691,119 (the ’119 patent) by making and selling Chocolate. AngioScore later added state-law claims for breach of fiduciary duty, aiding and abetting, and unfair competition. AngioScore asserted that Dr. Konstantino violated Delaware’s corporate opportunity doctrine. Further, AngioScore contended that the Corporate Defendants aided and abetted Dr. Konstantino’s alleged breach of fiduciary duty, which constituted unfair competition.

The defendants moved to dismiss the state-law claims for lack of subject matter jurisdiction. In denying the motion to dismiss, the district court concluded that the exercise of jurisdiction was proper under 28 U.S.C. § 1367 because "the core of this case concerns the Chocolate device." The district court found that Chocolate was a corporate opportunity and Dr. Konstantino breached his fiduciary duty by failing to offer it to AngioScore. The district court awarded AngioScore $20,034,000 in lost profits. A separate trial was held on AngioScore’s federal patent infringement claim. The jury found that Chocolate did not infringe any asserted claim of the ’119 patent and that all of AngioScore’s asserted claims were invalid. The district court subsequently denied the corporate defendants’ request for attorney fees under 35 U.S.C. § 285. The defendants appealed the district court’s exercise of jurisdiction over the state-law claims and the denial of attorney fees.

Supplemental jurisdiction. The threshold question was whether the district court properly exercised jurisdiction over the state-law claims. If diversity jurisdiction is lacking and the case involves state-law claims that are not independently subject to federal jurisdiction, a district court may exercise supplemental jurisdiction over those state-law claims only if they "are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). For this relatedness requirement to be satisfied, the state and federal claims must derive from a common nucleus of operative fact.

Here, no common nucleus of operative fact exists, the appellate court determined. The patent infringement claim relates generally to whether the Chocolate device satisfies the ’119 patent’s claim limitations, while the state-law claims relate solely to whether the Chocolate device was a "corporate opportunity," which requires evidence that: (1) the opportunity is within the corporation’s line of business; (2) the corporation has an interest or expectancy in the opportunity; (3) the corporation is financially able to exploit the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary is placed in a position inimical to his duties to the corporation.

Although the district court was required to have a general understanding of how Chocolate operated to determine if Chocolate fell within AngioScore’s line of business, this does not create a common nucleus of operative fact because it is simply general background information, according to the Federal Circuit. Additionally, the fact that the same experts calculated the patent damages and opined on damages relating to the state-law claims is not an operative fact sufficient to confer jurisdiction. Thus, the district court erred in exercising supplemental jurisdiction over the state-law claims pursuant to 28 U.S.C. § 1367(a).

Attorney fees. The corporate defendants also appealed the denial of attorney fees under 35 U.S.C. § 285. The corporate defendants asserted that because the district court’s denial of summary judgment was premised on an incorrect view of the doctrine of equivalents, reversal of the denial of attorney fees was proper since "legal error invaded the district court’s evaluation of whether AngioScore’s patent infringement claim was ‘exceptionally meritless.’"

However, the corporate defendants did not argue claim vitiation in their initial motion for summary judgment, the appellate court noted. The district court’s failure to grant summary judgment on an argument that was never properly presented did not constitute a legal error, the court ruled. Therefore, the district court did not abuse its discretion in denying attorney fees under § 285.

The case is Nos. 2016-1126 and -1142.

Attorneys: Robert Paul Feldman (Quinn Emanuel Urquhart & Sullivan, LL) for AngioScore, Inc. Lisa Schiavo Blatt (Arnold & Porter LLP) for TriReme Medical, Quattro Vascular PTE LTD., and QT Vascular LTD. Adrian Mary Pruetz (Glaser, Weil, Fink, Jacobs, Howard, Avchen & Shapiro LLP) for Eitan Konstantino.

Companies: AngioScore, Inc.; TriReme Medical; Quattro Vascular PTE LTD.; QT Vascular LTD

MainStory: TopStory Patent FedCirNews

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