Chandler v. Phoenix Services LLC

Case: 20-1848 Document: 54 Page: 1 Filed: 06/10/2021

United States Court of Appeals
for the Federal Circuit
______________________

RONALD CHANDLER, CHANDLER MFG., LLC,
NEWCO ENTERPRISES LLC, SUPERTHERM
FLUID HEATING SERVICES, LLC,
Plaintiffs-Appellants

v.

PHOENIX SERVICES LLC, MARK H. FISHER,
Defendants-Appellees
______________________

2020-1848
______________________

Appeal from the United States District Court for the
Northern District of Texas in No. 7:19-cv-00014-O, Judge
Reed O'Connor.
______________________

THEODORE G. BAROODY, Carstens & Cahoon, LLP, Dal-
las, TX, argued for plaintiffs-appellants. Also represented
by DAVID W. CARSTENS.

DEVAN V. PADMANABHAN, Padmanabhan & Dawson,
PLLC, Minneapolis, MN, argued for defendants-appellees.
Also represented by PAUL J. ROBBENNOLT.
______________________

Before CHEN, WALLACH*, and HUGHES, Circuit Judges.
________________________________

* Circuit Judge Evan J. Wallach assumed senior sta-
tus on May 31, 2021.
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2 CHANDLER v. PHOENIX SERVICES LLC

HUGHES, Circuit Judge.
ORDER
Appellants assert antitrust claims based on the prior
enforcement of U.S. Patent No. 8,171,993 in a separate
case and, after we held the patent unenforceable due to in-
equitable conduct, the alleged continued enforcement
through Appellee’s listing the patent on their website. We
lack jurisdiction because this case does not arise under the
patent laws of the United States. Accordingly, we transfer
the case to the United States Court of Appeals for the Fifth
Circuit, which has appellate jurisdiction over cases from
the District Court for the Northern District of Texas.
I
This appeal comes to us from a Walker Process monop-
olization action under § 2 of the Sherman Act. 1 To succeed
on a Walker Process claim, a plaintiff must prove (1) that
“the antitrust-defendant obtained the patent by knowing
and willful fraud on the patent office and maintained and
enforced that patent with knowledge of the fraudulent pro-
curement,” and (2) that the plaintiff can satisfy “all other
elements necessary to establish a Sherman Act monopoli-
zation claim.” TransWeb, LLC v. 3M Innovative Props. Co.,
812 F.3d 1295, 1306 (Fed. Cir. 2016). Here, Plaintiffs
Ronald Chandler, Chandler Manufacturing, LLC, Newco
Enterprises, LLC, and Supertherm Heating Services, LLC
(Chandler) allege that the first prong of the Walker Process
claim is met by Defendants Phoenix Services, LLC and
Mark Fisher (Phoenix) asserting U.S. Patent
No. 8,171,993.

1 In Walker Process Equip., Inc. v. Food Mach. &
Chem. Corp., the Supreme Court held that enforcement of
a patent procured by fraud on the PTO can be the basis for
an antitrust claim. 382 U.S. 172, 176–77 (1965).
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CHANDLER v. PHOENIX SERVICES LLC 3

Beginning in 2006, a business called Heat On-The-Fly
began using a new fracking technology on certain jobs.
Heat On-The-Fly’s owner, Mark Hefley, later filed a patent
application regarding the process, but failed to disclose 61
public uses of the process that occurred over a year before
the application was filed. This application led to the ’993
patent, and Heat On-The-Fly asserted the ’993 patent
against a number of parties. In 2014, Defendant Phoenix
acquired Heat On-The-Fly and the ’993 patent. Chandler
alleges that enforcement of the ’993 patent continued in
various forms. Then, in an unrelated 2018 suit, we affirmed
a holding that the knowing failure to disclose prior uses of
the fracking process rendered the ’993 patent unenforcea-
ble due to inequitable conduct. See Energy Heating, LLC v.
Heat On-The-Fly, LLC, 889 F.3d 1291, 1296 (Fed. Cir.
2018).
Chandler alleges that Phoenix’s assertion of the ’993
patent against Chandler constitutes a Walker Process anti-
trust violation.
II
We have jurisdiction over the appeal of a final decision
of a district court “in any civil action arising under . . . any
Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1).
However, while Walker Process antitrust claims may relate
to patents in the colloquial use of the term, our jurisdiction
extends “only to those cases in which a well-pleaded com-
plaint establishes either that federal patent law creates the
cause of action or that the plaintiff’s right to relief neces-
sarily depends on resolution of a substantial question of
federal patent law, in that patent law is a necessary ele-
ment of one of the well-pleaded claims.” Christianson v.
Colt Indus. Operating Corp., 486 U.S. 800, 809 (1988); see
also Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc.,
535 U.S. 826, 834 (2002) (“Not all cases involving a patent-
law claim fall within the Federal Circuit’s jurisdiction . . .
Congress referred to a well-established body of law that
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4 CHANDLER v. PHOENIX SERVICES LLC

requires courts to consider whether a patent-law claim ap-
pears on the face of the plaintiff’s well-pleaded com-
plaint.”), superseded in part by statute, Leahy-Smith
America Invents Act sec. 19(b), Pub. L. No. 112-29, 125
Stat. 284, 331–32 (2011) (amending 28 U.S.C. § 1295(a)(1)
to add compulsory patent counterclaims) (hereinafter AIA);
Xitronix Corp. v. KLA-Tencor Corp., 882 F.3d 1075, 1076
(Fed. Cir. 2018) (Xitronix I) (applying Christianson, 486
U.S. at 809, to our current jurisdictional statute). Here, be-
cause Chandler’s cause of action arises under the Sherman
Act rather than under patent law, and because the claims
do not depend on resolution of a substantial question of pa-
tent law, we lack subject matter jurisdiction.
A
We recently analyzed a similar situation in Xitronix I.
See 882 F.3d at 1075. There, the plaintiff asserted a
standalone Walker Process monopolization claim based on
enforcement of a live patent, alleging fraud on the PTO in
procuring that patent. Id. We held that we lacked jurisdic-
tion. Id. While acknowledging that issues regarding “al-
leged misrepresentations to the PTO will almost certainly
require some application of patent law,” we held that a
Walker Process claim does not inherently present a sub-
stantial issue of patent law under Supreme Court prece-
dent. Id. at 1078.
To aid our interpretation of the words “arising under”
in 28 U.S.C. § 1295(a)(1), we drew from the Supreme
Court’s decision in Gunn v. Minton, where the Court inter-
preted those same words in 28 U.S.C. § 1338. Id. at 1077
(citing Gunn v. Minton, 568 U.S. 251, 259 (2013)); see also
Christianson, 486 U.S. at 808–09 (demanding “linguistic
consistency” in interpreting various jurisdictional statutes
involving “arising under” language). In Gunn, the Supreme
Court held that a patent attorney malpractice case did not
“arise under” federal patent law for the purposes of § 1338,
even though it necessarily involved the resolution of a
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CHANDLER v. PHOENIX SERVICES LLC 5

patent law question. 568 U.S. at 258–59. The Court rea-
soned that resolution of the patent “case within a case”
would have no effect on “the real-world result of the prior
federal patent litigation,” id. at 261, and that allowing a
state court to resolve the underlying patent issue would not
undermine the uniform body of patent law because “federal
courts are of course not bound by state court case-within-
a-case patent rulings.” Id. at 262. “[T]he possibility that a
state court will incorrectly resolve a state claim is not, by
itself, enough to trigger the federal courts’ exclusive patent
jurisdiction, even if the potential error finds its root in a
misunderstanding of patent law.” Id. at 263. Similarly, in
Xitronix I, we found that the risk of another circuit making
an erroneous or inconsistent patent law decision within a
Walker Process claim is not enough to trigger our jurisdic-
tion over federal patent law cases:
The underlying patent issue in this case, while im-
portant to the parties and necessary for resolution
of the claims, does not present a substantial issue
of patent law. . . . Patent claims will not be invali-
dated or revived based on the result of this case.
Because Federal Circuit law applies to substantive
questions involving our exclusive jurisdiction, the
fact that at least some Walker Process claims may
be appealed to the regional circuits will not under-
mine our uniform body of patent law. . . . As in
Gunn, even if the result of this case is preclusive in
some circumstances, the result is limited to the
parties and the patent involved in this matter.
Xitronix I, 882 F.3d at 1078 (citations omitted).
Our Xitronix I decision is precedential and adherence
to that precedent mandates transfer of this case to the
Fifth Circuit. As in Xitronix I, there are no patent issues
outside of the Walker Process antitrust claim. Further, be-
cause a prior decision declared the ’993 patent unenforcea-
ble, the appellate court hearing this case may have little or
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6 CHANDLER v. PHOENIX SERVICES LLC

no need to delve into patent law issues. Although we do not
hold that our jurisdiction turns on whether a patent can
still be asserted, we find it significant that Appellants fail
to clearly raise any patent law questions not already ad-
dressed in Energy Heating. See Energy Heating, 889 F.3d
at 1302. The enforceability of the patent is no longer at is-
sue and Chandler’s arguments center on the nature of
Phoenix’s relationship to the inventor’s inequitable con-
duct rather than on the conduct before the patent office it-
self. See, e.g., Appellant’s Br. 44 (arguing that Phoenix
should be treated as a “single enterprise” with Heat On-
The-Fly). Therefore, the case to invoke our jurisdiction is
even weaker here than in Xitronix I.
B
On transfer of Xitronix I, the Fifth Circuit held our con-
clusion to be implausible, and returned the case to us.
Xitronix Corp. v. KLA-Tencor Corp., 916 F.3d 429, 444
(5th Cir. 2019) (Xitronix II); see also Christianson, 486 U.S.
800, 819 (1988) (“[I]f the transferee court can find the
transfer decision plausible, its jurisdictional inquiry is at
an end.”). Respectfully, we disagree with the Fifth Circuit’s
interpretation.
After noting that “Christianson linked § 1295 to § 1338
and § 1331,” which makes Gunn relevant to our analysis of
§ 1295, the Fifth Circuit attempted to distinguish Gunn by
emphasizing that “[w]hen Christianson was decided,
§ 1295 referred to § 1338 expressly, [but] [b]y the time of
Gunn . . . the phrase ‘any civil action arising under . . . any
Act of Congress relating to patents’ replaced the reference
to § 1338.’” Xitronix II, 916 F.3d at 442–43.
We do not read this minor change to § 1295 as being so
sweeping as to divorce § 1295’s connection to § 1338 and
§ 1331. Section 19 of the AIA amended both § 1295(a)(1)
and § 1338(a). It revised § 1295(a)(1) to parallel § 1338(a)
while expanding Federal Circuit jurisdiction to cover com-
pulsory counterclaims, a situation not at issue here. The
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CHANDLER v. PHOENIX SERVICES LLC 7

Supreme Court in Christianson linked § 1331 and § 1338
for the purpose of “linguistic consistency,” 486 U.S. at 808,
and the AIA made the relevant wordings of § 1295 and
§ 1338 essentially identical. Compare 28 U.S.C.
§ 1295(a)(1) (giving us jurisdiction over appeals of “any
civil action arising under . . . any Act of Congress relating
to patents”), with 28 U.S.C. § 1338(a) (giving federal courts
jurisdiction over “any civil action arising under any Act of
Congress relating to patents”). We think it is clear that
Congress intended the link between the statutes to con-
tinue rather than end. Thus, we respectfully disagree with
the Fifth Circuit’s conclusion that the Supreme Court’s in-
terpretation of § 1331 and § 1338 in Gunn is irrelevant to
our interpretation of § 1295.
The Fifth Circuit also intimated that our precedent dic-
tates that we have jurisdiction over standalone Walker Pro-
cess claims, but we respectfully disagree. See Xitronix II,
916 F.3d at 439 (“[T]he Federal Circuit read its precedent
predating Gunn in a manner at odds with our reading of
that caselaw.”). The Fifth Circuit cited two Federal Circuit
decisions for this proposition. First, in Nobelpharma AB v.
Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir.
1998), we held that it was appropriate to apply “Federal
Circuit law,” rather than regional law, to a Walker Process
claim. See Xitronix II, 916 F.3d at 439. But this does not
mean that we have jurisdiction over all Walker Process
claims. While the scope of our jurisdiction and whether
Federal Circuit law applies are related questions, they are
distinct. See FilmTec Corp. v. Hydranautics, 67 F.3d 931,
935 (Fed. Cir. 1995) (“Unless a procedural matter is im-
portantly related to an area of this court’s exclusive juris-
diction, . . . we will usually be guided by the views of the
circuit in which the trial court sits. . . .”) (emphasis added).
As we recognized in Nobelpharma, Walker Process claims
usually arise in the context of patent litigation and there-
fore “clearly involve[]” our jurisdiction, but that does not
mean every Walker Process claim gives rise to Federal
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8 CHANDLER v. PHOENIX SERVICES LLC

Circuit jurisdiction. See Nobelpharma, 141 F.3d at 1067;
id. at 1068 (“Because most cases involving [inequitable con-
duct] will therefore be appealed to this court, we conclude
that we should decide these issues as a matter of Federal
Circuit law, rather than rely on various regional prece-
dents.”) (emphasis added); Xitronix I, 882 F.3d at 1078.
Second, the Fifth Circuit quoted a footnote in In re
Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d
1323, 1330 n.8 (Fed. Cir. 2008) (Cipro) to support its con-
clusion. See Xitronix II, 916 F.3d at 437 (“Accepting the
transfer, the Federal Circuit observed that ‘the determina-
tion of fraud before the PTO necessarily involves a substan-
tial question of patent law.’”) (quoting Cipro, 544 F.3d at
1330 n.8)). But as we noted in Xitronix I, we must consider
this footnote in context. 882 F.3d at 1079. In Cipro, juris-
diction was not disputed, and because we received the case
on transfer, we reviewed the issue under the plausibility
standard of Christianson rather than conducting de novo
analysis. See id. As such, we do not interpret our precedent
to mandate exclusive Federal Circuit jurisdiction over all
Walker Process cases. To the contrary, our precedential
opinion in Xitronix I is directly on-point here and therefore
governs our decision.
C
On return of Xitronix from the Fifth Circuit, we ac-
cepted jurisdiction as plausible. Xitronix Corp. v. KLA-
Tencor Corp., 757 F. App’x 1008, 1010 (Fed. Cir. 2019)
(nonprecedential) (Xitronix III). In our nonprecedential
opinion, we stated:
Despite [its] flaws, the Transfer Order’s conclusion
that we have jurisdiction is not implausible. The
Court’s decision in Gunn could be read to imply
that whether the patent question at issue is sub-
stantial depends on whether the patent is “live”
such that the resolution of any question of patent
law is not “merely hypothetical.” See Gunn, 568
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CHANDLER v. PHOENIX SERVICES LLC 9

U.S. at 261. . . . Here, the underlying patent has
not expired, and the resolution of the fraud ques-
tion could affect its enforceability.
Id.; see also Xitronix II, 916 F.3d at 439–41 (emphasizing
that in Xitronix, the patent at issue was “currently valid
and enforceable,” so the “litigation [had] the potential to
render that patent effectively unenforceable and to declare
the PTO proceeding tainted by illegality. This alone distin-
guishes the present case from Gunn.”). 2 We therefore fol-
lowed the Fifth Circuit’s conclusion and accepted
jurisdiction.
Here however, even that reasoning would not lead us
to find a “plausible” basis for jurisdiction, much less juris-
diction under our court’s binding precedent in Xitronix I.
The patent allegedly being enforced by Phoenix has already
been ruled unenforceable. Energy Heating, 889 F.3d at
1296 (“We affirm the district court’s declaratory judgment
that U.S. Patent No. 8,171,993 is unenforceable due to in-
equitable conduct.”). This case will not alter the validity of
the ’993 patent. Any discussion of the ’993 patent would be
“merely hypothetical,” and would not “change the real-
world result of the prior federal patent litigation.” See
Gunn, 568 U.S. at 261.

2 We reiterate, however, that although we found this
reasoning plausible, we did not endorse it. Compare Xitro-
nix III, 757 F. Appx. at 1010 (“[W]e reject the theory that
our jurisdiction turns on whether a patent can still be as-
serted. Under this logic, cases involving Walker Process
claims based on expired patents would go to the regional
circuits while those with unexpired patents would come to
us, despite raising the same legal questions.”), with Appel-
lant’s Reply Br. 28 (citing Xitronix III in support of juris-
diction).
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10 CHANDLER v. PHOENIX SERVICES LLC

Simply put, this is not a patent case. Rather, this case
purports to raise novel Fifth Circuit antitrust issues. See
Chandler v. Phoenix Servs., No. 7:19-CV-00014-O, 2020
WL 1848047, at *12 (N.D. Tex. Apr. 13, 2020) (“Whether a
parent may be liable for the attempted monopolization of
its subsidiary is an issue of first impression in the Fifth
Circuit.”). We find it unpersuasive that we should exercise
jurisdiction over such questions merely because a now-un-
enforceable patent was once involved in the dispute.
III
Because this case presents even less reason for Federal
Circuit jurisdiction than the Xitronix case, our decision in
Xitronix I governs. We lack subject matter jurisdiction over
this appeal.
Accordingly,
IT IS ORDERED THAT:
The case is transferred to the United States Court of
Appeals for the Fifth Circuit.

FOR THE COURT

June 10, 2021 /s/ Peter R. Marksteiner
Date Peter R. Marksteiner
Clerk of Court