United States Court of Appeals,
Fifth Circuit.
No. 97-20287
Summary Calendar.
Serge A. SCHERBATSKOY, Jr., Jonathan D. Scherbatskoy, Mary N.
Scherbatskoy, and Timothy D. Scherbatskoy, as Trustees and
Beneficiaries of Scherbatskoy Family Trust, Plaintiffs-Appellants,
v.
HALLIBURTON COMPANY, Defendant-Appellee.
Oct. 16, 1997.
Appeal from the United States District Court for the Southern
District of Texas.
Before POLITZ, Chief Judge, DAVIS and BENAVIDES, Circuit Judges.
POLITZ, Chief Judge:
Serge A. Scherbatskoy, Jr., Jonathan D. Scherbatskoy, Mary N.
Scherbatskoy, and Timothy D. Scherbatskoy appeal the summary
judgment in favor of Halliburton Company dismissing their contract
and breach of fiduciary duty claims. The Scherbatskoys challenge
the district court's exercise of jurisdiction over the proceeding
and seek a remand to the state court from which the action was
removed. Contending that this circuit does not have jurisdiction
over the appeal, Halliburton moves to dismiss or in the alternative
to transfer to the Court of Appeals for the Federal Circuit. For
the reasons assigned, we conclude that the district court properly
exercised jurisdiction, deny the motion to dismiss, and grant the
motion to transfer.
BACKGROUND
Serge A. Scherbatskoy, Sr., father of the appellants, invented
1
and received patents for procedures relating to "measuring while
drilling" (MWD) technology; a process by which information and
measurements are obtained while a well is being drilled, obviating
the need for costly wire line and logging testing. In 1976,
Scherbatskoy contracted with Gearhart-Owen Industries, Inc.,
granting it a license for the use of his MWD patents. In 1987, as
a result of a dispute concerning the patent rights, another
contract was executed in which Scherbatskoy assigned the ownership
of his patents to the Scherbatskoy Family Trust and Gearhart
continued to have a license for same. Gearhart subsequently was
acquired by Halliburton Company and new disputes arose about the
rights and obligations related to the licensing of Scherbatskoy's
MWD patents.
On March 31, 1992, Scherbatskoy, individually, the
Scherbatskoy Family Trust, and Halliburton entered into a
Settlement Agreement and a Patent License Agreement. Under these
contracts Halliburton was granted a license to use the MWD patents
in return for royalties at an agreed rate. The Patent License
Agreement also provides that if Halliburton acquires a "New
Company" which offered MWD services prior to the date of its
acquisition, and that new company did not have immunity from suit
or a royalty-free license under the patent rights of Scherbatskoy
or the Scherbatskoy Family Trust, then Halliburton is to pay
additional defined royalties.
On December 11, 1992, Halliburton issued a press release
announcing its intent to purchase certain assets from Smith
2
International, Inc., including all of Smith's MWD technology. In
light of the press release, the Scherbatskoys asked Halliburton
whether the acquisition would trigger the additional royalties
provision of the Patent License Agreement. Halliburton responded
that such a determination was then premature and would not be
considered unless the purchase actually was consummated. The sale
was concluded on January 14, 1993. Thereafter, the Scherbatskoys
again contacted Halliburton about the effect of the purchase on the
Patent License Agreement. By letter dated June 16, 1993,
Halliburton responded that the additional royalties provision was
not triggered because the transaction with Smith International did
not result in the acquisition of a "New Company."
On June 27, 1996, the Scherbatskoys, as trustees and
beneficiaries of the Scherbatskoy Family Trust, filed suit against
Halliburton in Texas state court, alleging breach of contract and
breach of fiduciary duty. Halliburton removed the action on the
basis of federal question jurisdiction, asserting that the
complaint invokes the patent laws and thus the federal district
court has exclusive jurisdiction under 28 U.S.C. § 1338. The
Scherbatskoys filed a motion to remand, contending that the action
does not arise under patent law, but constitutes a state law
contract claim.
Halliburton filed a second notice of removal, asserting
diversity of citizenship jurisdiction. Although Halliburton is a
Delaware corporation with its principal place of business in Texas,
discovery revealed that none of the Scherbatskoys were citizens of
3
Texas. Based on the second notice of removal and the assertion of
diversity of citizenship jurisdiction, the Scherbatskoys conceded
federal jurisdiction and notified the court that their motion to
remand was moot. Thereafter, Halliburton withdrew its second
notice of removal, acknowledging that even though there was
diversity of citizenship, removal was not proper because
Halliburton was a resident of Texas.1 Although the Scherbatskoys
did not formally re-urge their motion to remand, they contested
federal jurisdiction in a case management plan. Following a
conference with the parties, the court denied the motion to remand.
Thereafter Halliburton moved for summary judgment, maintaining
that there was no breach of contract because Halliburton did not
acquire a "New Company," and that the breach of fiduciary duty
claim was barred by the statute of limitations. The district court
granted this motion. The Scherbatskoys timely appealed.2
Halliburton moved this court to dismiss or in the alternative to
transfer the appeal for lack of subject matter jurisdiction.
ANALYSIS
We first must resolve whether we have authority to determine
1
Under 28 U.S.C. § 1441, an action may be removed based on
diversity of citizenship jurisdiction only if none of the
defendants are citizens of the state where the action was filed.
McKay v. Boyd Const. Co., 769 F.2d 1084 (5th Cir.1985).
2
We note that the appellants did not file a notice of appeal
from the denial of their motion to remand as required by Federal
Rule of Appellate Procedure 3(c) in order to obtain review of the
district court's exercise of jurisdiction. Nevertheless, we must
examine a district court's jurisdiction even if not formally
raised. Mitchell v. Maurer, 293 U.S. 237, 55 S.Ct. 162, 79 L.Ed.
338 (1934).
4
if the district court had jurisdiction under 28 U.S.C. § 1338(a).
If we have jurisdiction to do so, we must then determine if the
action arises under patent law giving the Court of Appeals for the
Federal Circuit exclusive appellate jurisdiction under 28 U.S.C. §
1295. If the Federal Circuit has exclusive jurisdiction, we must
then determine whether to transfer or dismiss the appeal.
This court necessarily has the inherent jurisdiction to
determine its own jurisdiction.3 Under section 1295, the Federal
Circuit is granted exclusive jurisdiction to review a district
court's final decision if that court's jurisdiction was based in
whole or in part on section 1338.4 Section 1338 provides that the
district courts shall have exclusive original jurisdiction of any
civil action arising under any Act of Congress relating to
patents.5
Just as this court has the inherent power to determine is own
jurisdiction, so too does the Federal Circuit.6 The question we
address is whether the Federal Circuit has the exclusive right to
determine if a district court has jurisdiction under section 1338,
or whether such power concurrently exists with the regional
circuits. One panel of the Federal Circuit has stated that it has
3
United States v. United Mine Workers of America, 330 U.S.
258, 67 S.Ct. 677, 91 L.Ed. 884 (1947).
4
28 U.S.C. § 1295(a)(1).
5
28 U.S.C. § 1338(a).
6
C.R. Bard, Inc. v. Schwartz, 716 F.2d 874 (Fed.Cir.1983).
5
exclusive jurisdiction to make such a determination.7 A subsequent
Federal Circuit panel rejected this proposition as dicta and
contrary to Supreme Court precedent and Congress' intent.8 Of the
two regional circuits that specifically have addressed the issue,
both found that jurisdiction was concurrent.9
We conclude and hold that we have the requisite jurisdiction
to consider the district court's jurisdiction herein. We decline
to read section 1295 as granting exclusive jurisdiction to the
Federal Circuit over issues of the propriety of a district court's
jurisdiction under section 1338. Such an interpretation conflicts
with the inherent principles that a regional circuit court can
determine its own jurisdiction and supervise the exercise of
jurisdiction by the district courts within its circuit.10 The
delegation of this authority to the Federal Circuit would
subordinate regional circuits to the Federal Circuit in
contravention of Congress' stated intent that the Court of Appeals
of the Federal Circuit be on line with the other circuit courts and
not constitute a new tier in the federal judicial structure.11
In addition, our conclusion that jurisdiction exists to review
7
Id. (we are the arbiter of our own jurisdiction).
8
Smith v. Orr, 855 F.2d 1544 (Fed.Cir.1988).
9
Shaw v. Gwatney, 795 F.2d 1351, 1353 n. 2 (8th Cir.1986);
Chabal v. Reagan, 822 F.2d 349 (3d Cir.1987).
10
Shaw, 795 F.2d at 1353 n. 2.
11
Smith, 855 F.2d at 1548 citing S.Rep. No. 275, 97th Cong.,
2d Sess. 2-3, reprinted in 1982 U.S.Code Cong. & Admin. News 11,
12-13.
6
the district court's jurisdiction coincides with the transfer
principles necessarily invoked under section 1295. The inquiry
into our own jurisdiction requires that we first consider the
district court's jurisdiction. The absence of district court
jurisdiction in this instance would result in the absence of
federal jurisdiction, mandating a remand to state court.
Concluding that we have jurisdiction to determine the
district court's jurisdiction, we address that inquiry. Section
1338(a) grants exclusive jurisdiction to the federal district
courts in cases arising under the patent laws. An action arises
under the federal patent laws if the complaint includes allegations
that federal patent law creates the cause of action or federal
patent law is a necessary element of the claim.12 We are persuaded
that resolution of the Scherbatskoys' substantive claim implicates
the federal patent laws. Plaintiffs' original petition alleges
Halliburton breached the contract when it failed to pay additional
royalties under the Patent License Agreement after acquiring a new
company, Smith International, which, it is alleged, infringed the
Scherbatskoys' patents. Clearly, determining whether Smith
International infringed the Scherbatskoys' patents is a necessary
element to recovery of additional royalties or a finding that
Halliburton breached the Patent License Agreement. Both issues
require the application of the federal patent laws.13 It is
12
Christianson v. Colt Indus. Operating Corp., 486 U.S. 800,
108 S.Ct. 2166, 100 L.Ed.2d 811 (1988).
13
See Kunkel v. Topmaster Int'l, Inc., 906 F.2d 693
(Fed.Cir.1990).
7
irrelevant that the summary judgment appealed did not address the
patent issue for purposes of section 1338 and section 1295
jurisdiction.14 Therefore, we conclude and hold that the district
court properly exercised jurisdiction under section 1338 and that
the Court of Appeals for the Federal Circuit has exclusive
jurisdiction over this appeal under section 1295.
Finding that appellate jurisdiction lies exclusively with the
Federal Circuit, we decline to dismiss the appeal, but instead
transfer it to that sister court. An appeal may be transferred if
the transfer is in the interests of justice.15 Here, a balancing
of equities weighs in favor of transfer because a new appeal by the
Scherbatskoys at this point would be barred as untimely and we find
nothing to indicate that the Scherbatskoys acted in bad faith by
filing the instant appeal.
We therefore deny the appellee's motion to dismiss and grant
the alternative motion of the appellee to transfer the appeal to
the Court of Appeals for the Federal Circuit. The clerk of this
court is directed to transmit the record, briefs, and other
documents relating to this appeal to the clerk of that court.
APPEAL TRANSFERRED.
14
Kennedy v. Wright, 851 F.2d 963 (7th Cir.1988), aff'd. 867
F.2d 616 (Fed.Cir.1989).
15
28 U.S.C. § 1631.
8