HIF Bio, Inc. v. Yung Shin Pharmaceuticals Industrial Co. (Fed. Cir. 2010)

    By Kevin E. Noonan --

It has been a staple of introductory civil procedure exams to include a complicated fact pattern that, at root, leads to a determination that the lawsuit should be dismissed for failure to state a claim for which relief can be granted.  The salience of such a fact pattern can be appreciated by the Federal Circuit's decision in HIF Bio, Inc. v. Yung Shin Pharmaceuticals Industrial Co., where after extensive proceedings in state and federal courts, including the U.S. Supreme Court, the ultimate determination is that the case should be dismissed.

The case arose from a discovery by two inventors of the effects of a chemical, designated YC-1, on a protein complex called HIF-1.  This protein complex stimulates blood vessel growth in tumors that express it.  The inventors believed that YC-1 could be useful as a cancer treatment by inhibiting blood vessel growth, which could "kill the tumor by starving it for oxygen and nutrients."  These inventors assigned their rights, including rights to a provisional application, to plaintiff HIF Bio, Inc.

According to the facts established in earlier proceedings, the two inventors discussed their research with another scientist, Dr. Teng, who provided the YC-1 necessary for the inventors to perform their experiments.  "As an academic courtesy," the opinion notes, the inventors provided this scientist with information about their work, including pre-publication drafts of scientific papers disclosing their results.  Without the inventors' knowledge, however, Dr. Teng disclosed these results to defendant Yung Shin Pharmaceuticals, a Taiwanese company, and more than one year before the inventors filed their provisional application Dr. Teng filed his own provisional application and later a PCT application, claiming the use of YC-1 as an anti-angiogenesis agent for use in treating cancer (and naming Yung Shin's President, Dr. Lee as a co-inventor), assigning his rights to Yung Shin.

The lawsuit was first brought in California state court, naming Drs. Teng and Lee, Yung Shin, and Carlsbad Technology, Inc. (CTI, a California company helping to commercialize the invention), as well as Yung Shin's patent counsel and another Taiwanese company Yung Zip Chemical Co.  Upon motion by CTI the case was moved to U.S. District Court for the Central District of California.  Among the twelve counts alleged in the complaint were a declaratory judgment for ownership and inventorship of "the invention" disclosed in Yung Shin's patent applications, a RICO count for conspiracy, and counts for "slander of title, conversion, actual and constructive fraud, intentional interference with contractual relations and prospective economic advantage, negligent interference with contractual relations and prospective economic advantage, breach of implied contract, unfair competition and fraudulent business practices, unjust enrichment-constructive trust, and permanent injunction."

The District Court dismissed CTI's motions under Fed. R. Civ. P. 12(b)(1) and 12(b)(6) and remanded the case to state court, holding that "the first and second causes of action claimed 'rights of inventorship and ownership of inventions [which] are valid state law claims'" and refusing to exercise supplemental jurisdiction over the state law claims.  CTI appealed to the Federal Circuit, which refused to recognize jurisdiction based on the panel's interpretation that review was barred under 28 U.S.C. § 1447(d), a decision overturned by the Supreme Court, which specifically held that the Federal Circuit had jurisdiction and that § 1447(d) did not bar appellate review.  The Court remanded the case to the Federal Circuit for further proceedings, which this opinion has now resolved.

The opinion, written by Judge Gajarsa and joined by Chief Judge Michel and Judge James F. Holderman of the Northern District of Illinois, sitting by designation, reviewed the District Court's refusal to exercise supplemental jurisdiction under an abuse-of-discretion standard (i.e., granting the district court substantial deference).  However, the opinion notes that the discretion not to exercise supplemental jurisdiction does not apply to any claims "arising under" federal law, citing Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1328 (Fed. Cir. 1998), as well as several precedents from other circuit courts of appeal.  Moreover, the Federal Circuit reviewed the question of whether the District Court had jurisdiction without deference, being limited to "only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff's right to relief necessarily depends on the resolution of a substantial question of federal patent law, in that patent law is a necessary element of the well-pleaded claims," citing Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808-09 (1988).

Under these standards, the panel held that the District Court erred in refusing jurisdiction on the second cause of action, which sought a declaratory judgment that assignors of plaintiff HIF Bio were "the first and true inventors" of the invention, defined as the discovery that "YC-1 had the potential to become the first anti-angiogenic, anti-cancer agent to HIF-1."  The "case-or-controversy" arose, according to the complaint, from Drs. Teng and Lee filing (and having published) their PCT application claiming inventorship of the use of YC-1 for treating cancer.  Not helping the District Court were averments made by plaintiffs that "they are not contesting patents or patent applications, but are instead seeking declaratory judgment on the issue of inventorship under state common law."  In determining that the question of inventorship was a "valid state law claim" the District Court erred, according to the Federal Circuit.  The panel noted that this question was directly addressed in Univ. of Colo. Found. v. Am. Cyanamid Co., 196 F.3d 1366, 1372 (Fed. Cir. 1999), where the CAFC held that "the field of federal patent law preempts any state law that purports to define rights based on inventorship."  Policy rationales, including varying standards of inventorship between different states and the potential for different remedies for improper inventorship, any of which "might frustrate the dual federal objectives of rewarding inventors and supplying uniform national patent law standards."  The panel's interpretation was supported by the allegations made in the complaint, which all depended on inventorship of pending patent applications.  Therefore:

[T]he only possible theory upon which relief could be granted to the plaintiffs would be one in which determining the true inventor(s) of competing patent applications is essential.  Because inventorship is a unique question of patent law, the cause of action arises under § 1338(a).

However, the panel noted that these claims were for pending applications, thus making the complaint "tantamount to a request for either a modification of inventorship on pending patent applications or an interference proceeding," citing Larson v. Correct Craft, Inc., 569 F.3d 1319, 1325 (Fed. Cir. 2009).  However, this relief is not within the Court's purview, according to the panel; whether an interference is granted is a power invested in the Director of the Patent and Trademark Office and Undersecretary of Commerce under 35 U.S.C. §§ 116 and 135.  "While the question of who invented an invention disclosed in pending patent applications is a question of federal patent law, Congress, through §§116 and 135(a), has limited the avenues by which such inventorship can be contested," said the Court.  While admitting that some district courts have recognized a private cause of action under § 116, the Court takes this opportunity to "expressly hold" that § 116 of the patent statute does not contain a private cause of action to challenge inventorship of a pending application (the opportunity for which having increased dramatically upon publication of pending U.S. patent applications).  (And of course the Court does recognize the private cause of action provided by 35 U.S.C. § 356 for issued U.S. patents.)  As a result:

Given their proper import, §§ 116 and 135(a) preclude the district court from granting plaintiffs' requested relief -- a declaration of the "true" inventor of a pending patent application.  Accordingly, while the district court has jurisdiction over the cause of action, it should have dismissed the claim under Rule 12(b)(6) because no private right of action exists.  See Litecubes, LLC v. N. Light Prods., Inc., 523 F.3d 1353, 1361 (Fed. Cir. 2008) ("[If] the complaint fails to allege a cause of action upon which relief can be granted, this 'failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction.'" (quoting Bell v. Hood, 327 U.S. 678, 682 (1946))).

As for the remaining causes of action, which more readily fall within the ambit of state law, CTI contended that they all depend on the patent law issue recognized in count 2 of the complaint, inventorship of the patents in suit.  The panel notes that while inventorship is a question that "arises under" federal patent law, the Court's own precedent has cautioned that "a claim arises under the patent laws only if the inventorship issue is essential to the resolution of the claim," citing Bd. of Regents, Univ. of Tex. Sys., 414 F.3d at 1363 and Thompson v. Microsoft Corp., 471 F.3d 1288, 1291-92 (Fed. Cir. 2006).  Existence of "an alternative, non-patent theory" for relief "compels the conclusion" that the question does not arise under the patent laws and thus that the District Court was within the exercise of its sound discretion in refusing supplemental jurisdiction.  Of the remaining nine causes of action cited in the complaint for which inventorship was "essential" was slander of title, according to the panel.  Plaintiffs' burden is to establish that they invented the subject matter in Defendants' claims first, and that "public statements" (including publication of Defendants' PCT application) "are false and caused plaintiffs damage."  The opinion states that this cause of action "is indisputably a question of federal patent law," since it requires a determination of who was the correct inventor.  Accordingly, the District Court's decision to remand to state court rather than exercise supplemental jurisdiction was an abuse of discretion.  However, as above, the panel determines that the question of who is the correct inventor in a pending application is not within the proper jurisdiction of the District Court but of the Patent Office.  Thus, as with the two frank federal law claims, the District Court "should dismiss [the complaint] under Rule 12(b)(6) for failure to state a claim for which relief may be granted."

Nor were any of the other causes of action recited in the complaint sufficient to "arise under" the patent laws, "because each cause of action could be resolved without reliance on the patent laws."  Thus, the panel decision reversed the decision of the District Court not to exercise jurisdiction and remanded, with a mandate to dismiss the complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim for which the Court could grant relief.

HIF Bio, Inc. v. Yung Shin Pharmaceuticals Industrial Co. (Fed. Cir. 2010)
Panel:  Chief Judge Michel, Circuit Judge Gajarsa, and Chief District Judge Holderman
Opinion by Circuit Judge Gajarsa

Image of HIF1A protein (above) by Emw, from the Wikipedia Commons under the Creative Commons license.

Comments

[EG]

Kevin,

Oh yeah, I now remember the SCOTUS version of this case. Scalia, who I'm normally not fond of, had some pretty choice words for SCOTUS' interpretation of 28 USC 1447: "Over the years, the Court has replaced the statute’s clear bar on appellate review with a hodgepodge of jurisdictional rules that have no evident basis even in common sense." He even referred to "this mess" as being "entirely of our own making." (Bully for Scalia admitting that SCOTUS does make mistakes.)

Jurisdictional "fights" like this one which bounce the litigants back and forth between various courts without resolution don't make our system of justice look very good (or competent). And when large sums of money are spent (and some would say wasted) on something other than the merits of the suit, our judicial system particularly appears incapable of rendering true justice. Just my 2 cents.

[James Demers]

Cases where an invention has been stolen in this way have come up on more than one occasion, and they rarely turn out well for the inventor. The inventor can sue under 35 USC 256, but only after the patent issues, and that action risks having the patent declared invalid for inequitable conduct. The only alternative I'm aware of is quite expensive: file an application, copy the claims, and have an interference declared.

Although it's not material to patentability per se, I wonder if the attorney prosecuting the application has a duty to disclose to the PTO the fact that someone not named on the application is claiming to be an inventor. If not, perhaps the PTO should establish such a duty.