Patent Law

Fairchild Semiconductor v. Third Dimension (3D) (D.Maine 2008)

The dispute between Fairchild and 3D turns -- in-part -- on whether Fairchild's devices that it manufactures abroad are covered by 3D's Chinese patents. In a well written opinion, a Maine district court (J. Hornby) rejected 3D's motion to dismiss ? finding that it has power to adjudge the conflict even though the analysis will almost certainly require determination of the scope of the Chinese patents.

Fairchild and 3D have an ongoing "worldwide" license agreement that allows Fairchild to use 3D's patented technology. The license specifically includes both the Chinese and US patents. For consideration, 3D receives a royalty payment for any Fairchild products "covered by" on or more claims of 3D's licensed patents. After analyzing 3D's patents, Fairchild stopped paying the royalty and also sued for a declaratory judgment that it owes no royalties and that its products are not covered by 3D's patents. The agreement also had a choice of forum (Maine or Texas courts) and choice of law (Maine or Texas law) that applied to the entire agreement. The case is in Federal Court based on diversity jurisdiction.

Courts normally enforce choice of forum & choice of law contractual provisions ? especially when negotiated by two sophisticated parties. The catch for cases involving foreign patent rights is the Federal Circuit's strong aversion to allowing US courts to adjudge foreign patent rights. In the 2007 Voda case, for instance, the appellate court would almost always abuse its discretion by using its supplemental jurisdiction power to adjudge claims of foreign infringement.

Here, the district court distinguished Voda on a few grounds: First, this case reaches the court based on diversity jurisdiction rather than supplemental jurisdiction. Although diversity cases can be booted on convenience factors, diversity jurisdiction is not otherwise discretionary. Here, convenience factors favor Maine as a jurisdiction over China ? in particular, both parties are in the US, one has its HQ in Maine, and both previously agreed to litigate in Maine. Second, this case is not a patent infringement case. Rather, it is a contract dispute that ? as part of the dispute ? questions the scope of a Chinese patent. Third, problems of international relations and comity are lessened because the Chinese patent issue only involves the scope of the Chinese patent and not its validity.

It is unclear whether the Federal Circuit will have jurisdiction over any subsequent appeal since the justification for federal jurisdiction is the diversity of parties rather than patent "arising under" jurisdiction.