938 F.3d 1355
Fed. Cir.
2019
Read the full case

Background

  • Mitchell Prine formed Inspired Development (patent holder) and later KidsEmbrace (manufacturer); Inspired Development assigned design and utility patents and licensed them exclusively to KidsEmbrace in 2007.
  • A 2009 Binding Letter (condition of investor Boliari’s financing) required transfer of patent rights to KidsEmbrace if KidsEmbrace were acquired, in exchange for minimum royalty payments.
  • KidsEmbrace later terminated the license and Inspired Development sued in federal court (breach of contract, unjust enrichment, promissory estoppel), initially invoking diversity jurisdiction.
  • The Eleventh Circuit found parties were not diverse and remanded for the district court to determine whether federal question jurisdiction existed under 28 U.S.C. § 1338(a) (patent).
  • The district court concluded § 1338(a) supplied jurisdiction; the Eleventh Circuit transferred the question to the Federal Circuit.
  • The Federal Circuit held the state-law claims do not “aris[e] under” the patent laws under Gunn/Grable framework, vacated the district court’s judgment, and remanded for dismissal for lack of jurisdiction.

Issues

Issue Plaintiff's Argument (Inspired Development) Defendant's Argument (KidsEmbrace) Held
Whether the district court has subject-matter jurisdiction under 28 U.S.C. § 1338(a) for state-law contract and equitable claims No—parties are not diverse and the complaints assert only state-law claims, so federal jurisdiction is lacking Yes—state-law claims necessarily raise embedded patent issues (infringement/validity), so the case "arises under" patent law No—the Federal Circuit held § 1338(a) does not confer jurisdiction; case remanded for dismissal
Whether the unjust-enrichment claim necessarily raises a patent infringement issue Count III is a state quasi-contract claim and does not require proving infringement to prevail The unjust-enrichment claim is essentially a disguised patent-infringement claim that necessarily raises patent issues No—the court found infringement is not a necessary element of unjust enrichment here; the claim can succeed without proving infringement
Whether any embedded patent issue is "substantial" under Gunn (significant to federal system) The embedded patent questions (if any) are not substantial to the federal system; they are fact-bound and relate to this contractual relationship The patent issues (infringement/validity) are substantial because they implicate patent law uniformity and could produce conflicting rulings No—the court held the third Gunn factor (substantiality) fails: the issues are not dispositive systemwide and do not threaten federal-law uniformity
Whether Counts I/II (breach) or voluntarily dismissed counterclaims confer federal jurisdiction Counts I and II are ordinary state contract claims; dismissed counterclaims eliminate any remaining patent-based hook Counts I/II necessarily require resolving patent validity/infringement; counterclaims raise inventorship/validity questions and thus supply § 1338(a) jurisdiction No—breach counts do not meet Gunn’s substantiality and balance tests; dismissed counterclaims cannot confer jurisdiction after voluntary dismissal

Key Cases Cited

  • Gunn v. Minton, 568 U.S. 251 (2013) (sets two-path framework for "arising under" and articulates four-part test for embedded federal issues)
  • Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005) (foundation for federal jurisdiction over state claims that necessarily raise a substantial federal issue)
  • NeuroRepair, Inc. v. The Nath Law Group, 781 F.3d 1340 (Fed. Cir. 2015) (applies Gunn to § 1338(a) and discusses substantiality factors)
  • Litecubes, LLC v. N. Light Prods., Inc., 523 F.3d 1353 (Fed. Cir. 2008) (standard of review for subject-matter jurisdiction)
  • Jang v. Boston Scientific Corp., 767 F.3d 1334 (Fed. Cir. 2014) (discusses when federal patent issues in contract disputes affect federal-court interests)
  • MDS (Can.), Inc. v. Rad Source Techs., Inc., 720 F.3d 833 (11th Cir. 2013) (framework for assessing substantiality factors)
  • Forrester Envtl. Servs., Inc. v. Wheelabrator Techs., Inc., 715 F.3d 1329 (Fed. Cir. 2013) (explains why hypothetical or backward-looking embedded patent issues are insubstantial)
  • Wawrzynski v. H.J. Heinz Co., 728 F.3d 1374 (Fed. Cir. 2013) (confirms breach of contract and unjust enrichment are state-law counts)
  • Krauser v. BioHorizons, Inc., 753 F.3d 1263 (Fed. Cir. 2014) (dismissal of patent claims without prejudice removes federal appellate jurisdiction)
Read the full case