Tank Insulation Intl v. Insultherm Inc, et a

• Court: Court of Appeals for the Fifth Circuit
• Decided: January 29, 1997
• Docket: 96-40019
• Status: Published

Opinion

United States Court of Appeals,

Fifth Circuit.

No. 96-40019.

TANK INSULATION INTERNATIONAL, INCORPORATED, Plaintiff-Appellant,

v.

INSULTHERM, INC.; et al., Defendants,

Insultherm, Inc.; Mark A. McBride; Thermacon, Inc., Defendants- Appellees.

Jan. 29, 1997.

Appeal from the United States District Court for the Southern District of Texas.

Before REYNALDO G. GARZA, JOLLY and DeMOSS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This appeal presents the question whether a Sherman Act

antitrust claim is a compulsory counterclaim in a patent

infringement action. The district court concluded that the claim

was a compulsory counterclaim and held that, because it was not

raised in the prior infringement action, it was barred by Federal

Rule of Civil Procedure 13(a). The district court, therefore,

dismissed the antitrust complaint, and Tank Insulation

International, Inc. ("TII") appeals. We reverse the judgment of

the district court.

I

In the fall of 1993, Insultherm, Inc. ("Insultherm") filed a

patent infringement action against TII. TII counterclaimed for a

declaratory judgment that the patent was invalid. The action was

filed in the District Court for the Southern District of Texas,

1 Galveston Division. The district court dismissed Insultherm's case

under Federal Rule of Civil Procedure 52(c), holding that the

patent was unenforceable. Insultherm appealed, and the Federal

Circuit reversed and remanded, holding that the evidence was

insufficient to support dismissal of the case.

In January 1995, while the appeal of the dismissal of

Insultherm's action was pending, TII filed this antitrust action

against Insultherm, Thermacon, Inc. ("Thermacon"), and Mark McBride

("McBride") in the District Court for the Southern District of

Texas, Victoria Division. Upon agreement of the parties, the

antitrust action was transferred to the Galveston Division and was

consolidated with the infringement action that had, at that point,

been remanded by the Federal Circuit.

The trial court subsequently vacated its consolidation order.

The court then dismissed the antitrust suit, finding that it was a

compulsory counterclaim to the earlier patent infringement action

and that it had been waived by TII's failure to plead it in the

infringement answer. The district court further denied TII's

motion for leave to file the antitrust claim as a counterclaim to

the infringement action.

In accordance with 28 U.S.C. § 1295(a)(1), TII appealed to the

Federal Circuit the denial of the motion for leave to plead a

counterclaim. The Federal Circuit affirmed the denial.

Simultaneously, TII appealed the dismissal of its severed antitrust

suit to this court. It is this appeal that is before us today.

II

2 A

Insultherm, Thermacon and McBride first contend that this

court lacks appellate jurisdiction over TII's appeal. In support

of their position, they rely on 28 U.S.C.A. § 1295(a)(1), which

states that "[t]he United States Court of Appeals for the Federal

Circuit shall have exclusive jurisdiction ... of an appeal from a

final decision of a district court of the United States ... if the

jurisdiction of that court was based, in whole or in part, on

section 1338 of this title." Insultherm, Thermacon and McBride

assert that, because the trial court's jurisdiction over the

infringement action arose from section 1338, jurisdiction over the

consolidated action arose, at least in part, from that statute and,

therefore, jurisdiction is in the Federal Circuit. This

contention, however, fails to account for the trial court's

decision to vacate the consolidation order. The district court

originally had jurisdiction of the matter on appeal before us based

upon the Sherman Antitrust Act and federal question jurisdiction.

See 15 U.S.C.A. § 15(a) (West Supp.1996); 28 U.S.C.A. § 1331 (West

1993); 28 U.S.C.A. § 1337 (West Supp.1996). So long as the

actions were consolidated, section 1295 unquestionably vested the

Federal Circuit with exclusive jurisdiction of the entire action;

however, when the consolidation order was vacated, the antitrust

action returned to its original, independent status. Therefore,

appellate jurisdiction is proper in this court under 28 U.S.C.A. §

1291.

B

3 The sole question remaining before us is whether an antitrust

claim based upon an alleged conspiracy to file a wrongful patent

infringement lawsuit is barred by the failure to raise the

allegation as a counterclaim in the earlier infringement action.

In short, we must determine whether the antitrust action was a

compulsory counterclaim to the patent infringement action.

(1)

Compulsory counterclaims are addressed by Federal Rule of

Civil Procedure 13(a), which reads:

[a] pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.

This rule provides the test for determining whether TII's antitrust

claim is barred by TII's failure to assert the claim in the

infringement action filed by Insultherm against TII.

We have previously addressed the appropriate inquiry to

determine whether a claim is a compulsory counterclaim. In making

such a determination, courts should ask:

(1) whether the issues of fact and law raised by the claim and counterclaim largely are the same; (2) whether res judicata would bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule; (3) whether substantially the same evidence will support or refute plaintiff's claim as well as defendant's counterclaim; and (4) whether there is any logical relationship between the claim and the counterclaim.

Park Club, Inc. v. Resolution Trust Corp., 967 F.2d 1053, 1058 (5th

Cir.1992) (citing Plant v. Blazer Finan. Servs., 598 F.2d 1357,

1360 (5th Cir.1979)). If any of these four questions results in an

4 affirmative answer then the counterclaim is compulsory. Id.

The district court applied this test and concluded that TII's

claim was barred because it was a compulsory counterclaim that TII

had failed to assert in the infringement answer. We review the

district court's decision that the claim was barred de novo. See,

e.g., Driver Music Co. v. Commercial Union Ins. Cos., 94 F.3d 1428,

1435 (10th Cir.1996); Montgomery Ward Dev. Corp. v. Juster, 932

F.2d 1378, 1379 (11th Cir.1991). The claim asserted by TII is

logically related to the infringement action pursued by Insultherm.

The core tenet of TII's antitrust claim is that Insultherm violated

the antitrust laws by instituting an infringement action for the

allegedly invalid patent. Given this clear connection, it follows

that TII raised much of the same conduct by Insultherm as defenses

to the infringement action that it now asserts as the basis of its

antitrust claim. The evidence in the two actions is largely the

same, and the two claims raise common issues of law and fact,

including the allegedly fraudulent procurement of the subject

patent, the validity of the patent and the existence vel non of any

infringement. We therefore conclude that under the test set forth

above, TII's antitrust claim is properly classified as a compulsory

counterclaim that was required by rule 13(a) to be raised in the

original infringement action. Absent some exception, therefore,

TII is barred from pursuing this antitrust action, and the district

court's judgment must be affirmed.

(2)

(a)

5 TII argues that, even if its claim meets the established

definition of a compulsory counterclaim, it is not barred because

it is saved by Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S.

661, 64 S.Ct. 268, 88 L.Ed. 376 (1944). If TII is correct—that the

Supreme Court carved out an exception to rule 13(a) for antitrust

claims based on infringement actions—then this action must proceed.

We have taken a very careful look at Mercoid, including all of its

relevant background, especially because the case appears to be in

conflict with rule 13(a). Notwithstanding very little analysis by

the Supreme Court, we are persuaded that the Court fully intended

to say what it said and that the holding was not dicta. Mercoid

is, therefore, binding precedent and decides the question before

us.

In Mercoid, Mid-Continent sued Mercoid for contributory

infringement of a patent, contending that Mercoid manufactured a

heating control device that infringed a patent held by Mid-

Continent. Mercoid, 320 U.S. at 662, 64 S.Ct. at 269. Mercoid

then asserted an antitrust counterclaim against Mid-Continent,

alleging that Mid-Continent and its exclusive licensee under the

subject patent "had conspired to expand the monopoly of the patent

in violation of the anti-trust laws." Id. However, this suit by

Mid-Continent (and the counterclaim by Mercoid) was brought against

the background of another suit. Some five years earlier, Mid-

Continent had sued Smith, a Mercoid customer, for infringement of

the same patent. See Smith v. Mid-Continent Inv. Co., 106 F.2d 622

(8th Cir.1939). The defense for Smith "was conducted by the

6 attorney for and at the expense of Mercoid." Mid-Continent Inv.

Co. v. Mercoid Corp., 133 F.2d 803, 805 (7th Cir.1942). The Smith

court rendered judgment for Mid-Continent, holding that the subject

device was patentable and that Smith was guilty of infringement.

Smith, 106 F.2d at 631. The Smith court, however, did not address

the validity of the subject patent other than to ascertain that the

device was patentable. Id. at 631. The failure to address the

validity of the patent was attributable to the fact that Smith had

not raised the validity of the patent as a defense, nor had Smith

raised as a defense the misuse of the patent or the violation of

the antitrust laws. Id. at 624; see also Mercoid, 320 U.S. at

669-71, 64 S.Ct. at 273.

Thus, some five years later, when Mercoid was defending

against Mid-Contintent's suit for infringement and was asserting a

counterclaim for antitrust violations, Mid-Continent raised the

defense of res judicata as to both Mercoid's defenses and its

counterclaim. Mid-Continent argued that, because Mercoid had

defended the previous action, i.e., was in privity with Smith, the

principle of res judicata acted to bar litigation of "issues which

were actually litigated and all issues which might have been raised

in that earlier suit." Mercoid, 320 U.S. at 669, 64 S.Ct. at 273.

Specifically, Mid-Continent argued that misuse and antitrust

violations were among the defenses that Smith (Mercoid) could have

raised in the earlier litigation and that those defenses were no

longer available to Mercoid. Id.

The Supreme Court, it should be noted, was apparently

7 concerned that Mid-Continent lacked clean hands in the litigation

with Mercoid. The Court, clearly assuming that Mercoid was in

privity with Smith, concluded that even if Mercoid were

specifically bound by the earlier judgment, the additional defenses

would not be barred because, as a court of equity, it would not

"aid in the consummation of a conspiracy to expand a patent beyond

its legitimate scope." Id. The Court held that it had the

discretion to "withh[o]ld aid from a patentee in suits for either

direct or indirect infringement where the patent was being misused"

and that the failure to raise the defense of misuse of the patent

in the earlier action could not deprive the court of that

discretion. Id. Furthermore, the Court stated that, even if

Mercoid were bound by the earlier judgment as it related to

defenses to Mid-Continent's contributory infringement action,

Mercoid's counterclaim against Mid-Continent would still be valid.

Id., 320 U.S. at 669-72, 64 S.Ct. at 273-74. Specifically, the

Court stated

[even if] Mercoid were barred in the present case from asserting any defense which might have been interposed in the earlier litigation, it would not follow that its counterclaim for damages would likewise be barred. That claim for damages is more than a defense; it is a separate statutory cause of action. The fact that it might have been asserted as a counterclaim in the prior suit by reason of Rule 13(b) of the Rules of Civil Procedure ... does not mean that failure to do so renders the prior judgment res judicata as respects it.

Id. The Court held that the question whether Mercoid could bring

its counterclaim in the present action was controlled by the rule

that "where the second cause of action between the parties is upon

a different claim the prior judgment is res judicata not as to

8 issues which might have been tendered but "only as to those matters

in issue or points controverted upon the determination of which the

finding or verdict was rendered.' " Id.

There is little difference in the posture of the case before

the Court in Mercoid and our case today. The counterclaim that

Mercoid was asserting against Mid-Continent, which had been also

available in the earlier suit, was based upon the contention that

Mid-Continent was using the litigation process to extend the scope

of its patent to unpatented devices and that Mid-Continent thereby

was violating the antitrust laws by extending its monopoly beyond

the scope of the patent. See Excerpts from brief of Mercoid Corp.

(reprinted at 88 L.Ed. 377 (1943)); Mercoid, 320 U.S. at 662, 64

S.Ct. at 269. In short, Mercoid's counterclaim alleged that the

patent infringement litigation violated the antitrust laws. See

Hydranautics v. Filmtec Corp., 70 F.3d 533, 536 (9th Cir.1995).

This is the same allegation that TII asserts in its antitrust

claim, which we have made clear has every indicia of a compulsory

counterclaim under rule 13(a). It follows, therefore, that

Mercoid's counterclaim satisfied the established definition of a

compulsory counterclaim.

Thus, viewing the Supreme Court's statement, block-quoted

above, in the context of the full litigation in Mercoid, the Court

indeed created an exception to rule 13(a) for antitrust

counterclaims in which the gravamen is the patent infringement

lawsuit initiated by the counterclaim defendant. The Court clearly

accepted, at least for purposes of its opinion, that Mercoid

9 occupied a position equivalent to a party in the first action.

Furthermore, the Court plainly held that the antitrust counterclaim

was permissive—controlled by rule 13(b)—and, therefore, not barred

in the second action. Thus, we cannot agree with those

commentators who suggest that, because Mercoid was not a party to

the previous infringement action, any discussion of rule 13 by the

Mercoid Court is dicta.1 It is apparent from the Court's

discussion that it accepted Mid-Continent's position that Mercoid

could be bound by res judicata as a result of the Smith decision

and, consequently, treated Mercoid as a party to the previous

action. Furthermore, it is clear that the Court specifically

considered rule 13's application to the question before it and

expressly and unambiguously held that the counterclaim was

permissive.2 Such a holding is an express holding that the

counterclaim was not compulsory because under rule 13 a

counterclaim is either compulsory or permissive—it cannot be both.

(b)

We must admit that the courts that have considered Mercoid

have not reached uniform conclusions, although this lack of

uniformity may be partially explained by factual distinctions. The

1 See 6 Charles A. Wright, Federal Practice and Procedure § 1412, at 91 (West 1990) (noting "the discussion of whether the counterclaim was compulsory in the first action was entirely unnecessary to the court's ultimate decision, since Mercoid, although it provided the defense in the prior action, had not been a party to it and could not possibly have been foreclosed from bringing its claim ... by Rule 13(a)"). 2 This discussion of rule 13 is not dicta because the classification of the counterclaim as permissive was necessary to reach the judgment allowing the counterclaim to proceed.

10 Ninth Circuit, however, recently cited Mercoid in a case quite

similar to the one before us today. Hydranautics v. Filmtec Corp.,

70 F.3d 533, 536 (9th Cir.1995). There, the court first noted that

the "identity of issues" between the patent infringement claim and

the antitrust counterclaim suggested classifying the antitrust

claim as compulsory. Id. at 537. It went on the state, however,

that Mercoid "leaves open the possibility of raising antitrust

claims as permissive counterclaims in an infringement action, or in

a separate and subsequent action."3 Id. at 536. We agree with the

Ninth Circuit. We are not persuaded by those courts that have

attempted to avoid the Mercoid holding by limiting the holding of

the case specifically to cases involving the identical facts

presented in Mercoid.4

We therefore hold, for the reasons stated above, that Mercoid

creates a limited exception to rule 13(a) for antitrust claims in

which the gravamen is the patent infringement lawsuit initiated by

3 Other courts have also cited Mercoid with approval, although not in cases as similar to this case as Hydranautics. See, e.g., Agrashell, Inc. v. Hammons Prods. Co., 479 F.2d 269, 287 (8th Cir.), cert. denied, 414 U.S. 1022, 94 S.Ct. 445, 38 L.Ed.2d 313 (1973) (concluding that plaintiff's argument that antitrust claim should be barred because of failure to raise in first infringement action between parties was precluded by Mercoid ); Switzer Bros., Inc. v. Locklin, 207 F.2d 483, 487 (7th Cir.1953), cert. denied, 347 U.S. 912, 74 S.Ct. 477, 98 L.Ed. 1069 (1954) (concluding that intervenor's antitrust claim was permissive counterclaim under Mercoid ). 4 See Burlington Indus. Inc. v. Milliken & Co., 690 F.2d 380, 389 (4th Cir.1982), cert. denied, 461 U.S. 914, 103 S.Ct. 1893, 77 L.Ed.2d 283 (1983); United States v. Eastport Steamship, 255 F.2d 795, 805 (2nd Cir.1958).

11 the counterclaim defendant.5

III

In conclusion, we hold that this court has jurisdiction

because the district court vacated its consolidation order and, as

a result, Insultherm's infringement action and TII's antitrust

action reverted to their original status as independent cases.

Jurisdiction over the case presently on appeal is not premised on

28 U.S.C. § 1338 and, thus, the Federal Circuit does not have

exclusive jurisdiction.

Furthermore, Federal Rule of Civil Procedure 13(a) requires

that certain claims be asserted as counterclaims in order to

promote judicial economy and fairness. Absent an applicable

exception, the present claim should have been raised as a

counterclaim under rule 13(a). The Supreme Court in Mercoid,

however, created an exception to rule 13(a) that saves TII's claim.

Under Mercoid, claims of this type are only permissive

counterclaims, falling under rule 13(b), and therefore, are not

barred if a party chooses to bring the claim after the conclusion

of the initial action.

We thus hold that TII's claim is not barred by rule 13(a).

The judgment of the district court is REVERSED and the case is

REMANDED for further proceedings not inconsistent with this

opinion.

5 Because of the fit of the facts between Mercoid's counterclaim and TII's counterclaim, it is unnecessary for us to decide today whether the Mercoid exception applies to every antitrust counterclaim arising in the patent infringement context.

12 REVERSED and REMANDED.