O'MALLEY, Circuit Judge.
In this patent case, Spread Spectrum Screening LLC ("S3") filed suit in the Northern District of Illinois against Eastman Kodak Company ("Kodak") and four of Kodak's customers—Continental Web Press, Inc., Graphic Partners, Inc., Genesis Press, Inc., and Johns-Byrne Company (collectively, "the Kodak Customers")—alleging infringement of U.S. Patent No. 5,689,623 ("the '623 Patent"). On September 1, 2010, the district court granted Kodak's motion to: (1) sever the claims against it from those against the other defendants; (2) stay the action against the Kodak Customers in Illinois; and (3) transfer the case against Kodak to the Western District of New York. S3 appeals only from the portion of the order granting Kodak's motion to stay the case against the Kodak Customers pending the outcome of its action against Kodak in New York. Spread Spectrum Screening, LLC v. Eastman Kodak Co., No. 10 C 1101, 2010 WL 3516106, 2010 U.S. Dist. LEXIS 90549 (N.D.Ill. Sept. 1, 2010) ("District Court Opinion"). Because this appeal is not from a final judgment within the meaning of 28 U.S.C. § 1295(a)(1), and does not otherwise qualify as an appealable order, we dismiss for lack of jurisdiction.
The '623 Patent—entitled "Spread Spectrum Digital Screening"—was invented by an individual named Adam Pinard and is currently assigned to S3, a patent holding company. The patent, which issued on November 18, 1997, discloses a type of screening mask that can be used in commercial printing software and includes claims drawn to a "spread spectrum digital screening mask," methods and systems for using the mask, and binary reproductions of a continuous tone image that have certain claimed characteristics.
The technology involved relates to digital "half-toning," which S3 describes as "a process used in the commercial printing industry to convert a continuous tone image, such as a photograph, into a half-tone image consisting of a pattern of minute dots that, when viewed at a suitable distance, appears to recreate the continuous tone image." Appellant's Br. 14. Newspapers, for example, are printed in half-tone.
The '623 Patent contains four sets of claims:
According to S3, the screening masks described in the '623 Patent result in "visually-pleasing half-tone images that [are] less susceptible to dot gain and dot loss and thus more commercially viable than the prior art." Appellant's Br. 17.
Kodak manufactures, uses, and licenses the allegedly infringing products under the brand name Staccato. The Kodak Customers are licensed to use the Staccato software products. According to Kodak, it has licensed 1,621 copies of the software in the United States, and the Kodak Customers represent only nine (9) licenses. Appellees' Br. 5.
On February 18, 2010, S3 filed suit against Kodak and the Kodak Customers in the Northern District of Illinois alleging infringement of the '623 Patent. S3 also named a Kodak competitor, Heidelberg U.S.A., Inc., and its customer, Hafner Printing Co., Inc., as defendants—both of which were later dismissed from the litigation.
Kodak and three of its Customers (Genesis, Johns-Byrne, and Graphic Partners) counterclaimed seeking declaratory judgment that the '623 Patent is invalid and not infringed. In addition, one of Kodak's Customers, Johns-Byrne, filed a cross-claim against Kodak for indemnification. In the cross-claim, Johns-Byrne alleged that it uses the Staccato product "in only one type of job, printing a white base on plastic" and that this use "amounts to perhaps 1% or 2% of Johns-Byrne's business, and can be accomplished with other software." J.A. 258 at ¶ 3.
On April 29, 2010, Kodak filed a motion to: (1) sever the case against it from the other defendants; (2) transfer the case against it to the Western District of New York; and (3) stay the case against the Kodak Customers in the Northern District of Illinois. The Kodak Customers joined in Kodak's motion.
On September 1, 2010, the district court granted Kodak's motion in full. Specifically, the court: (1) severed S3's claims against Kodak from the claims against its competitor, Heidelberg, on grounds that the actions did not arise from a common transaction or occurrence; (2) severed S3's claims against Kodak from its claims against the Kodak Customers; (3) stayed the case against the Kodak Customers pending resolution of S3's case against Kodak; and (4) transferred the case against Kodak to the Western District of New York pursuant to 28 U.S.C. § 1404(a), concluding
With respect to the motion to stay, the district court found that the Kodak Customers were "merely peripheral" to the action against Kodak, would "add nothing to plaintiff's infringement action against Kodak," and were named as defendants solely to establish venue in the Northern District of Illinois. Accordingly, the court stayed S3's action against the Kodak Customers pending the resolution of the case against Kodak in New York. In reaching this conclusion, the court noted that, "if the action against Kodak proceeds and Kodak's Staccato product is found to have infringed the '623 patent, and each of Kodak's Customers are found to have used Staccato in their processes, they will also have infringed the '623 patent." District Court Opinion, 2010 WL 3516106, at *3, 2010 U.S. Dist. LEXIS 90549, at *9. The court found that, because the customers "merely use" the Kodak product, "they have nothing substantive to offer during plaintiff's action against Kodak and likely do not even understand how the product software actually works and will not be helpful to determine whether Kodak's Staccato product infringes the '623 patent." Id.
S3 timely appealed to this court asserting jurisdiction under both 28 U.S.C. §§ 1292 and 1295.
On matters relating to this court's jurisdiction, we apply Federal Circuit law, "not that of the regional circuit from which the case arose." Nystrom v. TREX Co., Inc., 339 F.3d 1347, 1349-50 (Fed.Cir.2003). Whether the court has jurisdiction over an appeal from a district court decision is a question of law the court reviews "in the first instance." Pause Tech. LLC v. TiVo, Inc., 401 F.3d 1290, 1292 (Fed.Cir.2005) (citing Nystrom, 339 F.3d at 1349-50).
S3 argues that the stay order is a final appealable order and that the district court abused its discretion in granting the stay because its decision was based on "an incorrect finding that the Printer Defendants were mere customers of Kodak and peripheral to the litigation." Appellant's Br. 13. S3 asserts that there are three independent bases for jurisdiction in this court. First, S3 contends that the stay is appealable as a final order under § 1295. Second, it argues that jurisdiction is proper under the customer suit exception to the first-to-file rule discussed in Kahn v. General Motors Corp., 889 F.2d 1078 (Fed. Cir.1989). Finally, S3 argues that the stay is appealable under § 1292 because the district court effectively "issued an injunction barring S3 from proceeding against the Printer Defendants." Appellant's Br. 9.
For the reasons set forth below, we find Kodak's primary arguments well-taken. Because the stay was not a final appealable order, we lack jurisdiction over S3's appeal.
Under the "final judgment rule," parties may only appeal a "final decision of a district court." 28 U.S.C. § 1295(a)(1). A "final decision" is "one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945) (noting that the policy "is one against piecemeal litigation").
Here, the district court stayed S3's case against the Kodak Customers pending resolution of its case against Kodak. Because the stay does not dispose of S3's claims against the Kodak Customers or the pending counterclaims, and therefore was not a final judgment, the court lacks jurisdiction under § 1295. S3 argues, however, that the district court's order is final because: (1) it put S3 effectively "out of federal court"; and (2) under the Supreme Court's decision in Gillespie v. United States Steel Corp., 379 U.S. 148, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964), it was "practically final." We disagree.
Generally, a stay is not considered a final appealable order. A stay order is appealable, however, if it puts the plaintiff "effectively out of court." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 10, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). In Moses Cone, the Supreme Court held that an order staying litigation in federal court pending resolution of a case in state court that would have res judicata effect on the federal action put the plaintiff "effectively out of court." Id. (noting that the stay order "amounts to a dismissal of the suit").
This court similarly has held that a stay may be an appealable order "when it effectively puts the parties out of the district court, either permanently because it terminates the action as a practical matter, or, as some courts have held, for a protracted or indefinite period." Gould v. Control Laser Corp., 705 F.2d 1340, 1341 (Fed.Cir. 1983) (citation omitted). In Gould, the district court granted a stay pending reexamination. Id. On appeal, we found that the stay was "not for such a protracted or indefinite period as to render its issuance an abuse of discretion" and that it did not terminate the action but "merely shifted to the PTO an issue (patent claim validity) involved in the dispute before the district court." Id. at 1341-42. In reaching this conclusion, we distinguished Moses Cone on grounds that a stay pending reexamination normally does "not foreclose review on the merits by a federal court." Id. at 1342 ("District court and PTO decisions on the merits are both reviewable by this court."). We have, however, recognized a narrow exception where such a stay "effectively disposes of the district court action." Slip Track Sys., Inc. v. Metal Lite, Inc., 159 F.3d 1337, 1340 (Fed.Cir.1998). In Slip Track, we found that, under the facts of that case, a stay pending the outcome of
Here, S3 argues that, by granting the stay, the district court "effectively dismissed the case against the Printer Defendants." According to S3, the stay "is indefinite because it will remain in limbo for an indeterminable and substantial period of years." Appellant's Reply 15. In support of this argument, S3 points to the fact that: (1) the median time to trial in the Western District of New York is almost five years; and (2) Kodak moved to stay the New York case pending reexamination, possibly delaying its day in court even further. Indeed, as noted, the New York court recently granted Kodak's motion to stay pending reexamination ("the New York stay"). Given this potentially lengthy period of time, S3 submits that the district court's order puts it "effectively out of court with respect to the Printer Defendants." Appellant's Br. 9.
In response, Kodak argues that S3's reliance on the "out of court" line of cases is misguided because those cases "only apply where a stay surrenders federal court jurisdiction to a state court or administrative body." Appellees' Br. 15. We agree. See Slip Track, 159 F.3d at 1340 ("[F]ederal courts have often found jurisdiction to review stays in favor of state court suits when the state court judgment would have a fully preclusive effect on the federal action or moot the federal action entirely. Stays in favor of administrative proceedings are similarly reviewed on an `effectively out of court' standard.") (internal citations omitted). Here, the stay does not have the effect of surrendering the federal action to state court or to an administrative body. Instead, S3 has the ability to pursue its case against Kodak in federal court in New York. And, importantly, the stay is not indefinite—the proceedings against the Kodak Customers in Illinois will resume (to the extent necessary) after the action against Kodak in New York is resolved.
To the extent S3 argues that the stay is indefinite due to the pace of litigation in the Western District of New York, such delay inherent in the federal court system
S3 next relies upon a 1964 Supreme Court decision—Gillespie v. United States Steel Corporation, 379 U.S. 148, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964)—for the proposition that the stay should be considered final. In Gillespie, the Court noted that, "a decision `final' within the meaning of § 1291 does not necessarily mean the last order possible to be made in a case." 379 U.S. at 152, 85 S.Ct. 308 (citation omitted). On the unique facts presented in Gillespie, which involved a wrongful death claim under the Jones Act, the Ohio wrongful death statute, and general maritime law, the Court found that immediate appellate review of an interlocutory order was permissible because the effect of the trial court's ruling, which struck certain claims from the complaint, was "fundamental to the further conduct of the case." Id. at 154, 85 S.Ct. 308. The Court noted that, "in deciding the question of finality the most important competing considerations are `the inconvenience and costs of piecemeal review on the one hand and the danger of denying justice by delay on the other.'" Id. at 152-53, 85 S.Ct. 308 (citation omitted).
In a subsequent decision, the Supreme Court "severely limited Gillespie as a basis for accepting an appeal from an interlocutory decision." Copelands' Enters., Inc. v. CNV, Inc., 887 F.2d 1065, 1068 (Fed.Cir. 1989) (citing Coopers & Lybrand v. Livesay, 437 U.S. 463, 477 n. 30, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978)). In Coopers & Lybrand, the Supreme Court indicated that its decision in Gillespie:
Coopers & Lybrand, 437 U.S. at 477 n. 30, 98 S.Ct. 2454 (quoting Gillespie, 379 U.S. at 154, 85 S.Ct. 308). The Court further noted that, "[i]f Gillespie were extended beyond the unique facts of that case, § 1291 would be stripped of all significance." Id.
This court similarly has found that the "exception to the finality created by Gillespie is to be very rarely used beyond the
S3 next argues that interlocutory review is warranted because the district court's stay order resulted from "an erroneous application of the policy favoring manufacturer suits over those against customers." Appellant's Br. 3 (citing Kahn v. Gen. Motors Corp., 889 F.2d 1078 (Fed. Cir.1989)). In Kahn, we recognized a customer-suit exception "to the general rule that favors the forum of the first-filed action." Tegic Commc'ns Corp. v. Bd. of Regents of Univ. of Tex. Sys., 458 F.3d 1335, 1343 (Fed.Cir.2006). The exception provides that, in certain patent cases, "litigation against or brought by the manufacturer of infringing goods takes precedence over a suit by the patent owner against customers of the manufacturer." Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1464 (Fed.Cir.1990) (citation omitted).
The customer suit exception "is based on the manufacturer's presumed greater interest in defending its actions against charges of patent infringement; and to guard against possibility of abuse." Kahn, 889 F.2d at 1081 (citation omitted); see also Katz, 909 F.2d at 1464 (noting that "the manufacturer is the true defendant in the customer suit" and that it "must protect its customers, either as a matter of contract, or good business, in order to avoid the damaging impact of an adverse ruling against its products") (citation omitted). As this court has noted previously, "the guiding principles in the customer suit exception cases are efficiency and judicial economy." Tegic, 458 F.3d at 1343. Generally speaking, courts apply the customer suit exception to stay earlier-filed litigation against a customer while a later-filed case involving the manufacturer proceeds in another forum.
S3 argues that jurisdiction is proper based on language in Kahn which states that, "[d]ecrees staying an action based on an erroneously applied customer suit exception to the rules disfavoring stays have, without more, uniformly received interlocutory review." Kahn, 889 F.2d at 1080. According to S3, because the district court's stay order was based on an erroneous determination that the Kodak Customers were "merely peripheral," this court has jurisdiction on appeal.
In response, Kodak argues that Kahn is not controlling because it: (1) found interlocutory review only under the specific facts of that case; and (2) was limited to application of Second Circuit law. For the reasons articulated below, we find that the customer suit exception, which is a narrow exception to the first-to-file doctrine, does not create jurisdiction over this appeal.
First, the procedural posture in Kahn differed from that presented here. In Kahn, this court indicated that the customer suit exception applies "where the first suit is filed against a customer who is simply a reseller of the accused goods, while the second suit is a declaratory judgment action brought by the manufacturer of the accused goods." Kahn, 889 F.2d at 1081 (citing William Gluckin & Co., Inc. v. Int'l Playtex Corp., 407 F.2d 177, 178 (2d Cir.1969)). In that case, a patent holder sued General Motors ("GM") in the Southern District of New York for infringement of a patent covering AM stereo receivers. Id. at 1078. Motorola, the manufacturer of integrated circuit boards used in the receivers, subsequently filed a declaratory judgment action in Illinois, seeking judgment that Kahn's patent was invalid, unenforceable, and not infringed. Id. GM
On appeal, this court found that the customer suit exception did not apply because the second-filed action would not completely resolve the issues between the parties. Id. at 1082. The court noted that, "in those cases in which a customer suit exception has been held to favor the forum of the second-filed action, the second action would resolve all charges against the customers in the stayed suit, including liability for damages." Id. at 1081. The court also noted that GM had "not agreed to be bound by the Illinois decision or any injunction against Motorola." Id. at 1082. Accordingly, we found that the district court abused its discretion in granting the stay. Id. at 1083. In a subsequent decision, however, we clarified that the manufacturer's case need only have the potential to resolve the "major issues" concerning the claims against the customer—not every issue—in order to justify a stay of the customer suits. Katz, 909 F.2d at 1464.
As occurred in Kahn and Katz, the customer suit exception typically arises when the first-filed case is an infringement action against a customer and the manufacturer subsequently files a declaratory judgment action against the patent holder in a different forum. That is not what happened here. Instead, this case developed as follows: (1) S3 filed its patent infringement suit in Illinois against both Kodak and the Kodak Customers; (2) Kodak filed an answer and counterclaim for declaratory judgment of invalidity and noninfringement; and (3) Kodak sought and obtained severance of the case against it and transfer to its home forum: the Western District of New York. Because Kodak did not file a separate declaratory judgment action against S3, we are not presented with a traditional first-to-file scenario, and the underlying policy considerations associated with a "race to the courthouse," such as deterring forum shopping, are not implicated. Notably, in deciding to stay the case against the Kodak Customers, the district court did not apply the customer suit exception, and instead relied on Seventh Circuit case law in finding the Kodak Customers "merely peripheral" to the litigation against Kodak. See District Court Opinion, 2010 WL 3516106, at *2, 2010 U.S. Dist. LEXIS 90549, at *8 ("This court has held that such joinder of `peripheral' defendants to prevent the transfer of an action to a more appropriate venue is improper."). Given this posture, it is unclear that the customer suit exception to the first-to-file doctrine is even at issue.
Assuming the customer suit exception could apply on this record, moreover, the pertinent language in Kahn is not as expansive as S3 claims. Although Kahn contains broad language suggesting that a stay order "based on an erroneously applied customer suit exception" always receives interlocutory review, it does not specifically identify the statute under which such jurisdiction would arise. And, although S3 argues that this language represents Kahn's "jurisdictional holding," there is no indication that the language should be read so broadly. When read in its entirety, the decision in Kahn focuses exclusively on cases dealing with injunctive relief, which are appealable under § 1292(a)(1), and does not create an alternate route for appellate jurisdiction.
For example, the court in Kahn cites to the Second Circuit's decision in Gluckin, where the district court granted an injunction preventing the first-filed customer
The record before us does not fit within the rule of Kahn. As noted, Kahn was primarily concerned with injunctive relief, which is not at issue here. S3 did not seek a preliminary injunction, and there is no evidence that it will suffer irreparable harm stemming from the stay since it is not competing with Kodak and has pointed to no loss of business that could not be accounted for with money damages. And, unlike in Kahn, S3 is not being deprived of its ability to pursue claims in federal court—S3 will be able to pursue its central claims in New York after the stay pending reexamination is lifted. Accordingly, the customer suit exception does not justify our exercise of jurisdiction in this action.
Finally, S3 argues that this court has jurisdiction under 28 U.S.C. § 1292(a)(1), which provides that interlocutory orders "granting, continuing, modifying, refusing or dissolving injunctions" are appealable. According to S3, it should be permitted to appeal the stay order because it "is effectively an injunction barring S3 from pursuing its case against the Printer Defendants." Appellant's Br. 10. In making this argument, S3 relies on Katz for the proposition that "a grant of an injunction against continuing suit in another forum is appealable as of right" under § 1292. Id. at 9 (quoting Katz, 909 F.2d at 1461). It argues that "the stay order has the practical effect of barring S3 from filing suit against any printer that happens to use Kodak's software or hardware in any forum—even though they independently infringe the patent-in-suit by manufacturing and selling their own infringing products." Id. at 10. As such, S3 submits, it has been effectively enjoined from
As Kodak correctly notes, "[w]hile it is true that the stay temporarily suspends the case against the Kodak Customers during the case against Kodak, the same can be said about every stay that is issued by any court." Appellees' Br. 25. If every stay qualified as an injunction, all stays would be immediately appealable under § 1292(a)(1). Moreover, the Supreme Court has made clear that "a litigant must show more than that the order has the practical effect of [granting or] refusing an injunction" for an interlocutory order to be immediately appealable. Carson v. American Brands, Inc., 450 U.S. 79, 84, 101 S.Ct. 993, 67 L.Ed.2d 59 (1980). And, as Kodak points out, this case is distinguishable from the facts presented in Katz. In Katz, a Massachusetts federal court issued an injunction preventing the plaintiff "from prosecuting two pending actions in the Western District of New York." 909 F.2d at 1461.
For the foregoing reasons, and because we find that S3's remaining arguments are without merit, we conclude that this court lacks jurisdiction over this appeal. Accordingly, S3's appeal is dismissed for lack of jurisdiction.
