by Dennis Crouch
The law of appellate jurisdiction routes almost every patent appeal to the Court of Appeals for the Federal Circuit. This result is by design to ensure more national uniformity in application of the U.S. patent laws. The court’s recent decision in Teradata Corp. v. SAP SE, 22-1286 (Fed. Cir. Aug. 1, 2023) provides an exception to the general rule. In its decision, the Federal Circuit held it lacked jurisdiction over Teradata’s appeal because the patent infringement allegations only been raised in a permissive counterclaim. Although the counterclaims might have been compulsory if compared against Teradata’s original complaint, during the litigation Teradata narrowed its claims in a way that caused separation from the counterclaims.
After a brief partnership pursued under an NDA, SAP began offering a product similar to that of Teradata. Teradata then sued for trade secret misappropriation and antitrust violations. SAP responded with denials and also added patent infringement counterclaims.
Counterclaims: The Federal Rules of Civil Procedure permit a defendant to file counterclaims against the plaintiff. The rules divide the counterclaims roughly into two categories: compulsory and permissive. Although no one actually forces defendant to any counterclaims, failure to assert the compulsory counterclaims is seen as a forfeiture of those claims. Permissive counterclaims are not lost and instead can be raised in a separate, subsequent lawsuit (so long as a statute of limitations has not run, etc.). The rules spell out 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.
FRCP 13(a). 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. Note here the gap — The Federal Circuit does not get jurisdiction if only patent claim is filed as a permissive counterclaim (or a crossclaim or third-party claim). A final quirk of the appellate jurisdiction is that the jurisdiction statute applies even if non-patent issues are the only ones being appealed.
In Teradata, the district court initially declined to sever SAP’s patent, finding they arose from the same transaction or occurrence as Teradata’s claims. Eventually though the district court entered summary judgment on the antitrust and certain “technical” trade secret claims in SAP’s favor. The court then entered partial final judgment under Rule 54(b) on those claims while staying remaining “business” trade secrets claim and the patent counterclaims. R.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 has rejected the appeal, holding that it lacks 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. For this case that is the 9th Circuit because the lower court is located in Northern California.
The Federal Circuit applies three tests in analyzing the same transaction test quoted above from R.13: (1) whether the legal and factual issues are largely the same; (2) whether substantially the same evidence supports or refutes the claims; and (3) whether there is a logical relationship between the claims. In this analysis, the court looks to the complaints and counterclaims as filed. In addition, the Federal Circuit treats claims dismissed without prejudice as having never been filed. Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178, 1189 (Fed. Cir. 2004)
In its initial complaint Teradata 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. In the case, this was particularly the “batched merge” functionality. But, the patents asserted by SAP focus on a different technology and different products than batched merge. This weighed heavily in the Federal Circuit’s analysis, distinguishing this case from prior compulsory counterclaim precedents. The court noted that the legal and factual issues, as well as the evidence required, are not largely the same or substantially similar between Teradata’s narrowed trade secret claims and SAP’s patent counterclaims. As a result, there is not a sufficient logical relationship between the narrowed trade secret claims and the patent counterclaims to make the latter compulsory.
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At the district court, Teradata was seeking to have the patent claims severed for a separate trial and, at that time, SAP provided evidence it claimed “demonstrates the substantial overlap between Teradata’s alleged trade secrets and SAP’s asserted patents.” This statement on the record apparently occurred after the narrowing of the trade secrets claims. On appeal the sides were reversed. In particular, SAP stepped back from the argument because it preferred to have the 9th Circuit decide the case rather than the Federal Circuit. When questioned about its prior statements, SAP responded that estoppel cannot be used to shift a court’s jurisdictional requirements.
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A strange aspect of the case has to do with the trade secret claims that were dropped during litigation. There does not appear to be an express statement in the record that they were dropped “without prejudice.” And, even if they were dropped without prejudice, res judicata likely still applies to block those trade secrecy claims from being raised in a subsequent lawsuit. Res judicata would apply because they are clearly part of the same transaction-or-occurrence of the other trade secrecy claims that were litigated. During oral arguments, Judge Taranto asked an astute question of SAP’s lawyers seeking an admission that Teradata would have a right to relitigate those claims. SAP’s lawyers refused to make that admission. The opinion itself offers nothing here and appears to simply assume that the dismissals were without prejudice.
Not a perfect triangle: Even though the dropped trade secret claims likely relate to the same transaction or occurrence as the remaining “batched merge” trade secret claims; AND the dropped trade secret claims likely relate to the same transaction or occurrence as SAP’s patent counterclaims; It does NOT necessarily follow that the remaining “batched merge” trade secret claims arise from the same transaction or occurrence as the patent counterclaims. The relationship between the claims is not transitive – each comparison must be made directly based on the elements and facts required to prove each claim.
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The underlying appeal is interesting and relates to per se antitrust violations and market analysis.
