U.S. Court of Appeals for Federal Circuit Rules No Jurisdiction Over Teradata’s Appeal Patent Infringement: Allegations Raised Only in a ‘Permissive Counterclaim’

U.S. Court of Appeals for Federal Circuit Rules No Jurisdiction Over Teradata’s Appeal Patent Infringement: Allegations Raised Only in a ‘Permissive Counterclaim’

The U.S. Court of Appeals for the Federal Circuit in case of Teradata Corporation vs. SAP Labs LLC has provided an exception to the general rule regarding the law of appellate jurisdiction. The general rule states that the law of appellate jurisdiction routes almost every patent appeal to the Court of Appeals for the Federal Circuit.

However, the bench comprising of Circuit Judges Lourie, Taranto and Hughes in its decision observed that the Federal Circuit lacked jurisdiction over Teradata’s appeal because the patent infringement allegations only been raised in a permissive counterclaim.

The Court observed that, “Having concluded that SAP’s patent-infringement claims are not compulsory counterclaims in this case, we hold that we lack jurisdiction over this appeal, which instead belongs in the Ninth Circuit. Because it is plainly in the interest of justice to transfer the appeal to the Ninth Circuit, we do so under 28 U.S.C. Section 1631. The appeal, based on the Rule 54(b) judgment, involves only (a subset of) Teradata’s claims, not SAP’s patent-law counterclaims.”

The factual matrix of the case is that Teradata Corp., Teradata Operations, Inc., and Teradata US, Inc. (collectively, Teradata) brought the present action against SAP America, Inc., SAP Labs LLC, and SAP SE (collectively, SAP) in the U.S. District Court for the Northern District of California.

The District Court initially declined to sever SAP’s patent, founding that they arose from the same transaction or occurrence as Teradata’s claims.

Eventually Though the District Court passed a summary judgment on the antitrust and certain ‘technical’ trade secret claims in SAP’s favor. Thereafter, the Court passed partial final judgment under Rule 54(b) on those claims while staying remaining ‘business’ trade secrets claim and the patent counterclaims. As per Rule 54(b) partial final judgment is designed to sever aspects of the case and allow those to be immediately appealed.

Teradata appealed the antitrust and trade secret losses to the Federal Circuit.

The Court upon perusal of Federal Rules of Civil Procedure (FRCP) noted that it permitted a defendant to file counterclaims against the plaintiff. The rules divide the counterclaims roughly into two categories: ‘compulsory and permissive.’

The rules encapsulate the following test for compulsory counterclaims:

(a) Arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim; and

(b) Does not require adding another party over whom the court cannot acquire jurisdiction.

The Court noted FRCP Rule 13(a) which states that Compulsory Counterclaims are important for Federal Circuit jurisdiction because the court’s jurisdictional statute routes cases to the Federal Circuit if either (1) the plaintiff asserts a clam that arises under the US patent laws; or (2) a party asserts a compulsory counterclaim that arises under the US patent laws.

The Court appositely noted that the Federal Circuit does not have jurisdiction if only patent claim is filed as a permissive counterclaim (or a crossclaim or third-party claim).

The Federal Circuit applied three tests in analyzing the same transaction test quoted from the Rule 13 of the Federal Rules of Civil Procedure (FRCP).

Firstly, whether the legal and factual issues were largely the same;

Secondly, whether substantially the same evidence supported or refuted the claims; and

Thirdly, whether there was a logical relationship between the claims.

In its analysis, the Court noted the complaints and counterclaims filed. In addition, the Federal Circuit treats claims dismissed without prejudice as having never been filed and referred to the decision passed in case of Chamberlain Group, Inc. vs. Skylink Technologies, Inc., (Fed. Cir. 2004).

The Court further examined the initial complaint filed Teradata wherein it had asserted a wide range of trade secret claims that would arguably overlap with the asserted patents. However, the company narrowed the scope of its claims via amended complaint and later stipulated dismissal without prejudice.

On appeal, the Federal Circuit concluded that those actions narrowed the operative claim to only what was finally asserted by Teradata.

Averting to the present case, the Court particularly remarked this to be ‘batched merge’ functionality. However, the patents asserted by SAP focused on a different technology and different products than batched merge.

The Federal Circuit categorically distinguished this case from prior compulsory counterclaim precedents.

Therefore, the Court noted that the legal and factual issues, as well as the evidence required, were not largely the same or substantially similar between Teradata’s narrowed trade secret claims and SAP’s patent counterclaims. As a result, there was not a sufficient logical relationship between the narrowed trade secret claims and the patent counterclaims to make the latter compulsory.

The Court rejected the appeal, holding that it lacked jurisdiction over Teradata’s appeal because SAP’s patent infringement counterclaims were not compulsory. Rather, holding the appeal should be heard by the appropriate regional Circuit Court of Appeals.

The Court ultimately held that for the present case- the Ninth Circuit is the appropriate jurisdictional Court since the Lower Court is located in Northern California.