Last week, the U.S. Court of Appeals for the Federal Circuit issued an opinion in Warsaw Orthopedic, Inc. et al. v. Sasso, No. 2019-1583 (Oct. 14, 2020), affirming a district court’s application of the doctrine of federal court “abstention” to dismiss without prejudice the declaratory judgment complaint filed by the plaintiffs (collectively “Medtronic”).
In 1999, Medtronic entered into a purchase agreement with Dr. Sasso to purchase certain of Dr. Sasso’s inventions. The agreement called for quarterly royalty payments based on sales of defined medical devices. A dispute arose over which devices were within the scope of the agreement and, in June 2014, Dr. Sasso filed suit in the state of Indiana for breach of contract and damages. In November 2018, after a trial at which Medtronic was not permitted to question the validity of the patent claims alleged to cover the disputed devices, a jury found Medtronic had breached the agreement and awarded damages. Medtronic appealed, and that appeal was pending in the Indiana state Court of Appeals.
Meanwhile, before the state court trial commenced Medtronic filed an action for declaratory judgment in federal court seeking a declaration of no breach of the agreement on the ground that no valid patent claim covers the disputed devices. After the state court trial concluded, Dr. Sasso moved the federal court for dismissal of the declaratory action. The district court granted dismissal without prejudice because it found that, at the time, no purpose could be served by maintaining the action as it had no power to undo the judgment entered by the state court.
Medtronic appealed, arguing that federal courts have exclusive jurisdiction over issues of patent validity and the state court erred in ruling that validity was irrelevant to the issue of breach of the agreement. Dr. Sasso challenged federal jurisdiction, arguing the declaratory judgment action did not “arise under” the patent laws.
The Federal Circuit first held the “arising under” standard supported federal jurisdiction in the action. Moving to the merits, the Court concluded that application of the Wilton/Brillhart abstention doctrine, under which district courts have significant discretion, was appropriate. Under the applicable abuse of discretion standard, the Court concluded that the district court exercised “common-sense accommodation of judgment” and did not abuse its discretion in abstaining.