U.S. Court of Appeals for the Ninth Circuit, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655

Quantum Meruit

Quasi-Contract

Equity

Unjust Enrichment

 

 

(…) See In re De Laurentiis Ent. Grp., Inc., 963 F.2d 1269, 1272 (9th Cir. 1992) (“Quantum meruit (or quasi-contract) is an equitable remedy implied by the law under which a plaintiff who has rendered services benefiting the defendant may recover the reasonable value of those services when necessary to prevent unjust enrichment of the defendant.”). Valero paid cost and freight charges to Koch when it purchased the jet fuel under CFR terms. Because Valero was not unjustly enriched, Milos cannot recover from Valero under a quasi-contract.

 

(U.S. Court of Appeals for the Ninth Circuit, Sept. 18, 2024, Milos Product Tanker Corp. v. Valero, Docket No. 23-55655, for Publication)

U.S. Court of Appeals for the Ninth Circuit, Brown v. Commissioner of Internal Revenue, Docket No. 22-70001

 

Tax Law

 

Notices of Federal Tax Lien

 

Collection Due Process (“CDP”) Hearing  

 

Offer in Compromise (“OIC”)

 

The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), Pub. L. 109–222, Requires a Taxpayer Who Makes an OIC to Submit a Payment of Twenty Percent of the Value of the OIC

 

TIPRA Payments Are Not Refundable Deposits

 

Notice of Determination (“NOD”) Which Allows to Appeal to the Tax Court to Contest the Liens and the Return of an OIC

 

Tax Court Jurisdiction

 

Equity

 

 

 

 

Appeal from a Decision of the United States Tax Court

 

 

Michael D. Brown owes approximately $50,000,000 in unpaid federal taxes for various years between 2001 and 2011. In 2016, after the Internal Revenue Service (“IRS”) placed two tax liens on his property, Brown submitted an offer in compromise (“OIC”) to the Commissioner of Internal Revenue. An OIC allows a taxpayer to settle his outstanding tax liabilities for less than their total value if the IRS determines there are doubts as to collectability or that full payment would be inequitable or cause unusual economic hardship. IRM 33.3.2 (Aug. 6, 2019) (Offers in Compromise); IRS Form 656 (Offer in Compromise) at 3. Brown’s OIC offered to settle his $50,000,000 outstanding tax liability for a payment of $400,000, claiming that there were doubts as to collectability. The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), Pub. L. 109–222, requires a taxpayer who makes an OIC to submit a payment of twenty percent of the value of the OIC, in Brown’s case $80,000. See 26 U.S.C. § 7122(c)(1)(A)(i). As part of the OIC process, the taxpayer must acknowledge that he understands that the TIPRA payment will not be refunded if the OIC is not accepted. Brown acknowledged the following on his signed OIC submission form: “I voluntarily submit the payments made on this offer and understand that they will not be returned even if I withdraw the offer or the IRS rejects or returns the Offer.” IRS Form 656 (Offer in Compromise) at 5. The Commissioner returned Brown’s OIC after concluding that it was inappropriate to compromise his tax liability at that time because the existence of ongoing audits of Brown’s businesses made the overall amount of his tax liability uncertain. The IRS, in accordance with the terms of the OIC, did not return Brown’s $80,000 TIPRA payment. This litigation is Brown’s attempt to retrieve that money. In a previous appeal, we held that the IRS’s decision to return Brown’s OIC was proper but remanded to allow the Tax Court to determine if it had jurisdiction to refund Brown’s $80,000 TIPRA payment. Brown v. Comm’r, 826 F. App’x 673, 674 (9th Cir. 2020). On remand, the Tax Court held that it did not have jurisdiction to refund the payment because the power to do so had not been specifically granted to it by any statute. Brown v. Comm’r, 122 T.C.M. (CCH) 199, at *7 (2021). We agree and therefore we affirm.

 

 

This litigation began in 2015 when the IRS filed the first of two notices of federal tax lien (“NFTLs”) against Brown’s property as a consequence of Brown’s unpaid taxes. In response to the NFTLs, Brown requested a Collection Due Process (“CDP”) hearing and indicated that he intended to make an OIC. At that time, there were multiple ongoing audits of Brown’s businesses. In November 2016, Brown submitted his OIC. As noted, his OIC offered to settle his $50,000,000 tax liability for $400,000 and included the required twenty percent ($80,000) TIPRA payment. The law is clear that TIPRA payments are not refundable deposits but rather are non-refundable payments of tax. See Isley v. Comm’r, 141 T.C. 349, 372 (2013) (“The TIPRA payment constitutes a nonrefundable, partial payment of the taxpayer’s liability . . .”) (citing H.R. Conf. Rept. No. 109–455, at 234 (2006)); see also 26 U.S.C. § 7122(c)(2)(A)–(C) (establishing that any TIPRA payment goes to the taxpayer’s liabilities). The IRS accepted Brown’s OIC for processing but decided that it should be returned because of the ongoing audits. After the OIC was returned, Brown received a Notice of Determination (“NOD”) which permitted him to appeal to the Tax Court to contest the liens and the return of his OIC. See 26 U.S.C. § 6330(d)(1).

 

 

(…)

 

 

As the Tax Court correctly noted, it is a court of limited jurisdiction and possesses no general equitable powers. See Comm’r v. McCoy, 484 U.S. 3, 7 (1987). In other words, it has only the jurisdiction specifically granted by statute and lacks the authority to expand upon that statutory grant. Id.; see 26 U.S.C. § 7442. We have been clear that “the Tax Court’s jurisdiction is defined and limited by Title 26 and it may not use general equitable powers to expand its jurisdictional grant beyond this limited Congressional authorization. It may exercise its authority only within its statutorily defined sphere.” Est. of Branson v. Comm’r, 264 F.3d 904, 908 (9th Cir. 2001).

 

 

Brown argues that 26 U.S.C. §§ 6320 and 6330 give the Tax Court jurisdiction to refund his TIPRA payment. This is not so. Section 6320 merely requires that taxpayers be given notice and an opportunity for a hearing when a tax lien is filed. And section 6330 deals with procedures governing levies on property and administrative reviews of both liens and levies. See 26 U.S.C. § 6320(c) (explaining that provisions of § 6330 shall apply to the review of tax-lien hearings). Nothing in either section grants the Tax Court the power to refund TIPRA payments.1

 

 

1Cf. 26 U.S.C. § 6512(b)(1) (giving the Tax Court, in its deficiency jurisdiction, the power to determine an overpayment and refund such overpayment to the taxpayer).

 

 

Thus, the Tax Court lacks jurisdiction to refund TIPRA payments because there is no specific statutory grant conferring jurisdiction to do so. We have considered Brown’s remaining arguments and find them to be without merit.

 

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, Brown v. Commissioner of Internal Revenue, Jan. 24, 2023, Docket No. 22-70001, for Publication)

 

U.S. Court of Appeals for the Fifth Circuit, Franlink Inc. v. Bace Services, Inc., Docket No. 21-20316

 

Franchise Agreement

 

Choice of Forum Clause (Forum Selection)

 

Non-Signatories Bound?

 

Closely-Related Doctrine

 

Equity

 

Personal Jurisdiction

 

Direct-Benefits Estoppel (Fn. 9)

 

Agency, Third-Party Beneficiary Law, and Equitable Estoppel

 

Circuit Split

 

 

 

Appeal from the United States District Court for the Southern District of Texas USDC No. 4:19-CV-4593

 

 

This case presents one primary question: whether non-signatories to a franchise agreement may be bound to the contract’s choice of forum provision under the equitable doctrine that binds non-signatories who are “closely related” to the contract. We conclude such non-signatories may be bound to a forum selection clause (…).

 

 

The forum selection clause stated, in bolded, all capital letters, that: Franchisee and its owners agree that Link may institute any action against Franchisee or its owners in any state or federal court of general jurisdiction in (a) the State of Texas, or (b) in the state where Franchisee has its principal place of business, or (c) within such state and in the judicial district in which Link has its principal place of business at the time the action is commenced, and Franchisee (and each owner) irrevocably submits to the jurisdiction of such courts and waives any objection Franchisee (or such owner) may have to either jurisdiction or venue in such courts. Nonetheless, Franchisee and its owners agree that Link may enforce this agreement in the courts of the State of Texas. Following these lines, the clause returned to standard typeface and stated that “FRANCHISEE acknowledges and agrees that this Section shall survive the termination or expiration of this Agreement.”

 

 

The district court held that, under the closely-related doctrine, the non-signatories were “inextricably intertwined and closely related such that it is foreseeable they would be bound to the terms of the forum-selection clause.” This “closely-related” doctrine has “permitted non–signatories to an agreement to be bound by, and to enforce, forum selection clauses where, under the circumstances, the non–signatories enjoyed a sufficiently close nexus to the dispute or to another signatory such that it was foreseeable that they would be bound.” Fasano v. Li, No. 20-3131, 2022 WL 3692850, at *11 (2d Cir. Aug. 26, 2022); see also Stellar Restoration Servs. v. Courtney, 533 F. Supp. 3d 394, 424 (E.D. Tex. 2021) (stating that the closely-related doctrine may also be established if the non-signatory’s conduct is “‘closely related’ to the contractual relationship”).

 

 

Our court has never recognized the closely-related doctrine. All other circuit courts to have considered the doctrine, however, have recognized it in one way or another. See In re McGraw-Hill Glob. Educ. Holdings LLC, 909 F.3d 48, 63 (3d Cir. 2018); Magi XXI, Inc. v. Stato della Citta del Vaticano, 714 F.3d 714, 723 (2d Cir. 2013); Marano, 254 F.3d at 757–58 (8th Cir.); Lipcon v. Underwriters at Lloyd’s, London, 148 F.3d 1285, 1299 (11th Cir. 1998); Baker v. LeBoeuf, Lamb, Leiby & Macrae, 105 F.3d 1102, 1106 (6th Cir. 1997); Hugel v. Corp. of Lloyd’s, 999 F.2d 206, 209–10 (7th Cir. 1993); Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 n.5 (9th Cir. 1988). Link asks us to join these circuits.

 

 

Although most circuits have adopted the closely-related doctrine, they have usually done so without in-depth explanation of the theory. See, e.g., Marano, 254 F.3d at 757–58 (finding a plaintiff closely related when he was “a shareholder, officer, and director” of a signatory); Hugel, 999 F.2d at 209–10 (concluding that two plaintiffs were closely related because a signatory was “President and Chairman of the Board” of the plaintiffs and owned almost all of the plaintiffs’ stock); Manetti-Farrow, 858 F.2d at 514 n. 5 (writing, in three-sentence footnote, that multiple defendants were closely related). The Seventh and the Third Circuits, however, have made an effort to more fully explain the doctrine and to indicate its proper employment. The Seventh Circuit addressed the closely-related theory in Adams v. Raintree Vacation Exch., LLC, 702 F.3d 436 (7th Cir. 2012) (Posner, J.). The court gave three reasons why allowing closely-related non-signatories to invoke a forum selection clause is an appropriate equitable theory. First, without such a principle, forum selection clauses could “easily be evaded.” Id. at 441; see also Fitness Together Franchise, LLC v. EM Fitness, LLC, No. 1: 20-cv-02757-DDD-STV, 2020 WL 6119470, at *4 (D. Colo. Oct. 16, 2020) (describing a benefit of the theory as preventing “parties to contracts from using evasive, formalistic means lacking economic substance to escape contractual obligations” (citations and quotations omitted)). Second, forbidding non-signatories to invoke, or to be bound, to these clauses would “undermine the contribution that forum selection clauses have been praised for”—providing “certainty in commercial transactions.” Adams, 702 F.3d at 441. Finally, judicial efficiency counsels to recognize the theory as litigating the same case in one court is preferable to litigating the same case in two different courts. Id. at 443. The Seventh Circuit, after noting these equitable justifications for the closely-related doctrine, moved on to give some shape to the doctrine. The Seventh Circuit, in its words, “decomposed” the closely-related doctrine’s admittedly “vague standard” “into two reasonably precise principles”—affiliation and mutuality. Id. at 439. The court defined affiliation as “common ownership.” Id. It noted, however, that common ownership alone is insufficient for “a nonparty to a contract to be able to invoke, or be bound by, a clause in the contract.” Id. at 440. In defining the principal of mutuality, the court relied on the agency concept of “secret principals.” Id. at 442. The Third Circuit, on the other hand, basically adopts the Delaware Chancery Court’s factors for determining whether a non-signatory is so “closely related” as to be bound to a contract’s forum selection clause McGraw-Hill, 909 F.3d at 62–63. These factors include: “The non-signatory’s ownership of the signatory, its involvement in the negotiations, the relationship between the two parties and whether the non-signatory received a direct benefit from the agreement.” Id. at 63 (determining that without control or involvement in the contract’s origin or benefits there is “precious little basis for applying the closely related parties doctrine”). Additionally, the Third Circuit concluded that “a foreseeability finding in the context of forum selection clauses must have some evidentiary basis, other than pure speculation, that the party sought to be bound had an awareness of the clause, its contents, and that it might be defensively invoked.” Id. at 65 (emphasis added). In sum, the Seventh and Third Circuits, in giving some structure to the closely-related doctrine’s “vague standard,” have considered: common ownership, involvement in the agreement’s negotiations, signatory status of the party opposing the forum selection clause, the type of claims and allegations at issue, control by secret principals, the posture of the case, direct benefits received, and awareness of the agreement and its relevant terms. Other circuits in their brief assessments have considered similar factors. See, e.g., Magi, 714 F.3d at 723 (holding that a party was closely related on account of approval rights over the contractual content, awareness of the designated forum, and involvement in breach of contract); Marano, 254 F.3d at 757–58 (finding a plaintiff to be closely related because (1) he was “a shareholder, officer, and director” of a signatory, and (2) he brought suit under the agreements in question alongside other signatories); Hugel, 999 F.2d at 210 (emphasizing a signatory’s control over two plaintiffs both financially, through stock ownership, and by being “President and Chairman of the Board” when assessing if the two plaintiffs were closely related). It does appear that the various factors relevant in these respective cases have been considered holistically with no particular test emerging as definitive.

 

 

Notwithstanding its recognition by federal courts, however, the closely-related theory is not without its critics. Unlike the Seventh and Third Circuits, most courts have, as we have said, applied the theory with little discussion or analysis. Such treatment has led some lower courts to criticize the theory as “so vague as to be unworkable.” Fitness Together Franchise, 2020 WL 6119470, at *5 (quoting Dos Santos v. Bell Helicopter Textron, Inc., 651 F. Supp. 2d 550, 556 (N.D. Tex. 2009)); see also Dos Santos, 651 F. Supp. 2d at 557 (commenting that the doctrine resides in “an area of the law dominated by generalized statements that provide little guidance”). Such vagueness, moreover, has been particularly troubling given its “tension with the Supreme Court’s approach in the related minimum-contacts context.” Fitness Together Franchise, 2020 WL 6119470, at *5. Legal academics have also raised concerns with the “closely-related” doctrine. The absence of the non-signatory’s consent presents a due process problem by forcing a party to litigate in a forum that would otherwise lack personal jurisdiction. John F. Coyle & Robin J. Effron, Forum Selection Clauses, Non-Signatories, and Personal Jurisdiction, 97 NOTRE DAME L.REV. 187, 213 (2021) (“The closely-related-and-foreseeable test to assert personal jurisdiction over non-signatory defendants is impossible to reconcile with recent Supreme Court precedents relating to personal jurisdiction with respect to out-of-state-defendants.”). As an alternative to the closely-related doctrine, these professors suggest that “where the ‘close relationship’ is one in which the non-signatory is working functions more or less as a unit with the signatory, the relationship should be expressed and analyzed using the more familiar tools of agency, third-party beneficiary law, and equitable estoppel.” Id. at 224.

 

 

Although there is good reason to be dubious of the doctrine, the fact that it has been recognized by all other circuits to have considered it, invokes a strong reason for us to apply it in this circuit. We, as a court, “are always chary to create a circuit split.” Gahagan v. United States Citizenship & Immigr. Servs., 911 F.3d 298, 304 (5th Cir. 2018) (quoting United States v. Graves, 908 F.3d 137, 142 (5th Cir. 2018)); see also United States v. Thomas, 939 F.3d 1121, 1130 (10th Cir. 2019) (“We should not create a circuit split merely because we think the contrary arguments are marginally better.”). Further, we must acknowledge that the doctrine can serve a purpose in producing equitable results, as earlier noted. Thus, prudence and judicial modesty caution against singularly swimming against this tide of authority. Accordingly, we turn first to give articulation of the doctrine as applicable here; and then to apply it to each of the non-signatories, Morton, JTL, and PayDay.

 

 

We repeat once again that for the doctrine to bind a non-signatory to a forum selection clause, first, “the party must be ‘closely related’ to the dispute such that it becomes ‘foreseeable’ that it will be bound.” Hugel, 999 F.2d at 209 (citing Manetti–Farrow, 858 F.2d at 514 n.5). What remains, however, is filling in the blanks. Borrowing from the precedents, including the Third and Seventh Circuits, we extract a few fundamental factors applicable here that we will consider in determining whether these non-signatories are closely related: (1) common ownership between the signatory and the non-signatory, (2) direct benefits obtained from the contract at issue, (3) knowledge of the agreement generally and (4) awareness of the forum selection clause particularly. See Adams, 702 F.3d at 439–42; McGraw-Hill, 909 F.3d at 63. Of course, the closely-related doctrine is context specific and is determined only after weighing the significance of the facts relevant to the particular case at hand. Thus, in line with our general understanding of equitable doctrines, we do not set out a rigid test for applying the closely-related doctrine. Instead, we merely attempt to give it definition in the context of this case.

 

 

(This court has indicated that non-signatories should only have contractual provisions enforced against them in “rare circumstances.” Bridas S.A.P.I.C. v. Gov’t of Turkm., 345 F.3d 347, 358 (5th Cir. 2003). Moreover, given the persuasive concerns about the closely-related doctrine and that there are other avenues or forums to address Link’s grievances against the non-signatories, a narrow application of the doctrine is both appropriate and necessary. (Fn. 8)).

 

 

(…) We hold that the closely-related doctrine does not bind Morton to the forum selection clause of the franchise agreement. It follows that the district court lacked personal jurisdiction over Morton, and the entire judgment is reversed and vacated as to him.

 

 

(Direct-benefits estoppel applies when “non-signatories who, during the life of the contract, have embraced the contract despite their non-signatory status but then, during litigation, attempt to repudiate the arbitration clause in the contract.” Hellenic Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d 514, 517–18 (5th Cir. 2006). This court, however, has limited direct-benefits estoppel to when “the nonsignatory has brought suit against a signatory premised in part upon the agreement.” Bridas, 345 F.3d at 362. Here Link, a signatory, initiated suit against the non-signatories, so direct-benefit estoppel is inapplicable to establish personal jurisdiction. Furthermore, we have noted that, in the context of the closely-related doctrine, Morton and JTL received no direct benefit from the Link/BACE contract. Fn. 9)).

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, Sept. 28, 2022, Franlink Inc. v. Bace Services, Inc., Docket No. 21-20316)

 

U.S. Court of Appeals for the Federal Circuit, In Re McDonald, Docket No. 2021-1697

Patent

 

Reissue Statute

 

Recapture Rule

 

Equity

 

 

 

 

Appeal from the United States Patent and Trademark Office, Patent Trial and Appeal Board in No. 14/658,050

 

 

A.

The Reissue Statute and the Recapture Rule

 

 

Over a century ago, the Supreme Court recognized that a patentee may seek reissue of a patent if she erroneously claimed less than she had a right to claim in the original patent. See, e.g., Leggett v. Avery, 101 U.S. 256 (1879). Subsequently, the reissue statute was codified to delineate the circumstances where a patent may be reissued: when it “is, through error without any deceptive intention, deemed wholly or partly inoperative or invalid.” 35 U.S.C. § 251. Stemming from the reissue statute, the recapture rule provides that a reissue will not be granted to “recapture” claimed subject matter that was surrendered during prosecution to obtain the original claims. In the context of pre-AIA2 § 251, we have explained what errors can be appropriately corrected through reissue and what limitations are imposed by the recapture rule. See Greenliant Sys., Inc. v. Xicor LLC, 692 F.3d 1261, 1267 (Fed. Cir. 2012) (“A patentee may surrender a patent and seek reissue enlarging the scope of the original patent’s claims if through error without any deceptive intent he claimed less than he had a right to claim in the original patent and he applies for reissue within two years from the grant of the original patent.” (cleaned up)); Ball Corp. v. United States, 729 F.2d 1429, 1436 (Fed. Cir. 1984) (“The recapture rule bars the patentee from acquiring, through reissue, claims that are of the same or of broader scope than those claims that were canceled from the original application. On the other hand, the patentee is free to acquire, through reissue, claims that are narrower in scope than the canceled claims.” (emphasis in original)). We have further expounded upon the limits and the equitable underpinnings. The reissue statute is “based on fundamental principles of equity and fairness.” In re Weiler, 790 F.2d 1576, 1579 (Fed. Cir. 1986). Nonetheless, “the reissue statute was not enacted as a panacea for all patent prosecution problems, nor as a grant to the patentee of a second opportunity to prosecute de novo his original application.” Id. at 1582. Congress struck a balance between “the competing interest of providing a patentee with an opportunity to correct errors of inadequate claim scope with the public interest in finality and certainty of patent rights, and legislated in favor of allowing the patentee to correct its errors through broadening, if necessary.” In re Youman, 679 F.3d 1335, 1342 (Fed. Cir. 2012).

 

 

 

2 “AIA” refers to the Leahy-Smith America Invents Act, Pub. L. No. 112–29, 125 Stat. 284 (2011).

 

 

In addressing pre-AIA § 251, we have explained that the statute provides the public with two safeguards against such broadening. First, “the public is on notice for two years following the issuance of a patent that the patent can be broadened to recapture matter ‘dedicated to the public’ through error.” Id. Analogously, “‘the recapture rule’ prevents a patentee from regaining through reissue subject matter surrendered during prosecution, thus ensuring the ability of the public to rely on a patent’s public record.”  Vectra Fitness, Inc. v. TNWK Corp., 162 F.3d 1379, 1384 (Fed. Cir. 1998). Second, reissue is limited to “instances where the patentee could demonstrate an ‘error without any deceptive intention.’” In  re Youman, 679 F.3d at 1342; see also MBO Lab’ys, Inc. v. Becton, Dickinson & Co., 602 F.3d 1306, 1314 (Fed. Cir. 2010) (“Without a rule against recapture, an unscrupulous attorney could feign error and re-draft claims in a reissue patent to cover a competing product, thereafter filing an infringement suit.”); Mentor Corp. v. Coloplast, Inc., 998 F.2d 992, 996 (Fed. Cir. 1993) (“Error under the reissue statute does not include a deliberate decision to surrender specific subject matter in order to overcome prior art, a decision which in light of subsequent developments in the marketplace might be regretted.”). The AIA amended § 251 to delete the phrase “without any deceptive intention” after “error” from the revised statute. See § 20(b)(1)(B), 125 Stat. at 333–34 (effective Sept. 16, 2012). Neither party argues that this change to the statute is material to our decision today.

 

 

The revised reissue statute provides: Whenever any patent is, through error, deemed wholly or partly inoperative or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall, on the surrender of such patent and the payment of the fee required by law, reissue the patent for the invention disclosed in the original patent, and in accordance with a new and amended application, for the unexpired part of the term of the original patent. No new matter shall be introduced into the application for the reissue. 35 U.S.C. § 251(a).

 

 

Under the three-step recapture rule analysis, we consider: (1) whether and in what aspect the reissue claims are broader than the patent claims; (2) if broader, whether those broader aspects of the reissue claim relate to the surrendered subject matter; and (3) if so, whether the surrendered subject matter has crept into the reissue claim. In re Youman, 679 F.3d at 1343–45 (citing In re Mostafazadeh, 643 F.3d at 1360 (“The recapture rule is triggered only where the reissue claims are broader than the patented claims because the surrendered subject matter has been reclaimed in whole or substantial part (i.e., an added limitation has been eliminated or revised).”)).

 

 

 

(…) Accordingly, we affirm. The Board properly applied the recapture rule to bar Mr. McDonald’s attempt to reclaim claim scope already surrendered during prosecution. Because Mr. McDonald deliberately—not erroneously or inadvertently—added the “processor” limitations during prosecution of the original claims to overcome the § 101 rejection, the recapture rule does not permit him to now remove those limitations to broaden his claim.

 

 

The Board did not err in rejecting reissue claims 1– 7, 10, 12–14, and 29–38 of the ’111 patent as violating the recapture rule and all the reissue claims as being premised on a defective inventor reissue declaration.

 

 

 

 

 

(U.S. Court of Appeals for the Federal Circuit, In Re McDonald, August 10, 2022, Docket No. 2021-1697)

 

U.S. Court of Appeals for the Federal Circuit, In Re: John Bradley McDonald, Docket 21-1697

 

Patents (U.S.)

 

Procedure

 

 

Application for Reissue of an U.S. Patent

 

Reissue Application

 

Reissue Declaration

 

Recapture Rule

 

Continuation Application

 

Equity

 

 

 

 

Appeal from the United States Patent and Trademark Office, Patent Trial and Appeal Board in No. 14/658,050.

 

 

 

(…) While the application leading to the ’901 patent was pending, Mr. McDonald filed a continuation application, which ultimately issued as the ’111 patent. J.A. 44–72. The claims in the continuation application included “processor” limitations like those added to the parent application to overcome the § 101 patent eligibility rejection. J.A. 1636–43.

 

 

In 2015, Mr. McDonald filed a reissue application seeking to broaden the claims of the ’111 patent. J.A. 114, 128–29. Specifically, Mr. McDonald amended claim 1 of the ’111 patent as follows (…)

 

 

(…) Notably, the reissue application included amendments to remove the “processor” limitations that Mr. McDonald had previously added. J.A. 131–39, 331–39, 428–38.

 

 

(…) Mr. McDonald contends that the Board erred in rejecting reissue claims 1–7, 10, 12–14, and 29–38 under 35 U.S.C. § 251 as being an improper recapture of surrendered subject matter. Appellant’s Br. 15. He also contends that the Board erred by rejecting all the reissue claims as being based on an Inventor Reissue Declaration that was defective for failing to identify an error that is correctable through reissue. Id.

 

 

A.

The Reissue Statute and the Recapture Rule

 

Over a century ago, the Supreme Court recognized that a patentee may seek reissue of a patent if she erroneously claimed less than she had a right to claim in the original patent. See, e.g., Leggett v. Avery, 101 U.S. 256 (1879). Subsequently, the reissue statute was codified to delineate the circumstances where a patent may be reissued: when it “is, through error without any deceptive intention, deemed wholly or partly inoperative or invalid.” 35 U.S.C. § 251. Stemming from the reissue statute, the recapture rule provides that a reissue will not be granted to “recapture” claimed subject matter that was surrendered during prosecution to obtain the original claims. In the context of pre-AIA2 § 251, we have explained what errors can be appropriately corrected through reissue and what limitations are imposed by the recapture rule. See Greenliant Sys., Inc. v. Xicor LLC, 692 F.3d 1261, 1267 (Fed. Cir. 2012) (“A patentee may surrender a patent and seek reissue enlarging the scope of the original patent’s claims if through error without any deceptive intent he claimed less than he had a right to claim in the original patent and he applies for reissue within two years from the grant of the original patent.” (cleaned up)); Ball Corp. v. United States, 729 F.2d 1429, 1436 (Fed. Cir. 1984) (“The recapture rule bars the patentee from acquiring, through reissue, claims that are of the same or of broader scope than those claims that were canceled from the original application. On the other hand, the patentee is free to acquire, through reissue, claims that are narrower in scope than the canceled claims.” (emphasis in original)).

 

 

We have further expounded upon the limits and the equitable underpinnings. The reissue statute is “based on fundamental principles of equity and fairness.” In re Weiler, 790 F.2d 1576, 1579 (Fed. Cir. 1986). Nonetheless, “the reissue statute was not enacted as a panacea for all patent prosecution problems, nor as a grant to the patentee of a second opportunity to prosecute de novo his original application.” Id. at 1582. Congress struck a balance between “the competing interest of providing a patentee with an opportunity to correct errors of inadequate claim scope with the public interest in finality and certainty of patent rights, and legislated in favor of allowing the patentee to correct its errors through broadening, if necessary.” In re Youman, 679 F.3d 1335, 1342 (Fed. Cir. 2012).

 

 

In addressing pre-AIA § 251, we have explained that the statute provides the public with two safeguards against such broadening. First, “the public is on notice for two years following the issuance of a patent that the patent can be broadened to recapture matter ‘dedicated to the public’ through error.” Id. Analogously, “‘the recapture rule’ prevents a patentee from regaining through reissue subject matter surrendered during prosecution, thus ensuring the ability of the public to rely on a patent’s public record.” Vectra Fitness, Inc. v. TNWK Corp., 162 F.3d 1379, 1384 (Fed. Cir. 1998). Second, reissue is limited to “instances where the patentee could demonstrate an ‘error without any deceptive intention.’” In re Youman, 679 F.3d at 1342; see also MBO Lab’ys, Inc. v. Becton, Dickinson & Co., 602 F.3d 1306, 1314 (Fed. Cir. 2010) (“Without a rule against recapture, an unscrupulous attorney could feign error and re-draft claims in a reissue patent to cover a competing product, thereafter filing an infringement suit.”); Mentor Corp. v. Coloplast, Inc., 998 F.2d 992, 996 (Fed. Cir. 1993) (“Error under the reissue statute does not include a deliberate decision to surrender specific subject matter in order to overcome prior art, a decision which in light of subsequent developments in the marketplace might be regretted.”).

 

 

(…) See, e.g., Medtronic, Inc. v. Guidant Corp., 465 F.3d 1360, 1372–73 (Fed. Cir. 2006) (“The deliberate surrender of a claim to certain subject matter during the original prosecution of the application for a patent made in an effort to overcome a prior art rejection is not such ‘error’ as will allow the patentee to recapture that subject matter in a reissue.”

 

 

(…) MBO Lab’ys, 602 F.3d at 1316 (“The public’s reliance interest provides a justification for the recapture rule that is independent of the likelihood that the surrendered territory was already covered by prior art or otherwise unpatentable.”

 

 

(…) Accordingly, we affirm. The Board properly applied the recapture rule to bar Mr. McDonald’s attempt to reclaim claim scope already surrendered during prosecution. Because Mr. McDonald deliberately—not erroneously or inadvertently—added the “processor” limitations during prosecution of the original claims to overcome the § 101 rejection, the recapture rule does not permit him to now remove those limitations to broaden his claim.

 

 

B.

The Defective Inventor Reissue Declaration

 

Mr. McDonald also contends that the Board erred by rejecting the reissue claims as based on a defective inventor reissue declaration. A reissue declaration must “specifically identify at least one error pursuant to 35 U.S.C. § 251 being relied upon as the basis for reissue.” 37 C.F.R. § 1.175(a). The Board found that “the statement of error in the Reissue Declaration relates to an error that is uncorrectable by reissue.” McDonald, 2020 WL 2990970, at *12. We agree with the Board. The error pinpointed in the Inventor Reissue Declaration—the existence of the allegedly unnecessary “processor” limitations—is uncorrectable by reissue because doing so would violate the recapture rule. Mr. McDonald’s argument on the defectiveness of the declaration rises and falls with his argument on the violation of the recapture rule.

 

 

 

(U.S. Court of Appeals for the Federal Circuit, Aug. 10, 2022, In Re: John Bradley McDonald, Docket 21-1697)

U.S. Supreme Court, Minerva Surgical, Inc. v. Hologic, Inc., Docket No. 20–440

 

Patent

Assignor Estoppel

Equity

Fair Dealing

Estoppel by Deed

Continuation Application

 

 

 

In Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., 266 U. S. 342, 349 (1924), this Court approved the “well settled” patent-law doctrine of “assignor estoppel.” That doctrine, rooted in an idea of fair dealing, limits an inventor’s ability to assign a patent to another for value and later contend in litigation that the patent is invalid. The question presented here is whether to discard this century-old form of estoppel. Continuing to see value in the doctrine, we decline to do so. But in upholding assignor estoppel, we clarify that it reaches only so far as the equitable principle long understood to lie at its core. The doctrine applies
when, but only when, the assignor’s claim of invalidity contradicts explicit or implicit representations he made in assigning the patent.

 

 

(…) A continuation application enables an inventor to add to or modify
the claims set out in his original application. See 35 U. S. C. §120; Manual of Patent Examining Procedure §201.07 (9th ed., June 2020). But the continuation application may not materially change the written description of the invention. See Manual of Patent Examining Procedure
§211.05. So the new or altered claims must align with the original description. Ibid.; see 35 U. S. C. §112.

 

 

Assignor estoppel got its start in late 18th-century England and crossed the Atlantic about a hundred years later. In the first recorded case, Lord Kenyon found that a patent assignor “was by his own oath and deed estopped” in an infringement suit from “attempting to deny his having had any title to convey.” Oldham v. Langmead (1789), as described in J. Davies, Collection of the Most Important Cases Respecting Patents of Invention and the Rights of Patentees 442 (1816); see Hayne v. Maltby, 3 T. R. 439, 441, 100 Eng. Rep. 665, 666 (K. B. 1789) (recognizing the Oldham holding). That rule took inspiration from an earlier doctrine—estoppel by deed—applied in real property law to prevent a conveyor of land from later asserting that he had lacked good title at the time of sale. See 2 E. Coke, The First Part of the Institutes of Laws of England 352a (Hargrave & Butler eds., 19th ed. 1832) (1628). Lord Kenyon’s new patent formulation of the doctrine grew in favor throughout the 1800s as an aspect of fair dealing: When “the Defendant sold and assigned the patent to the Plaintiffs as a valid one,” it “does not lie in his mouth to say that the patent is not good.” Chambers v. Crichley, 33 Beav. 374, 376, 55 Eng. Rep. 412 (1864); see Walton v. Lavater, 8 C. B. N. S. 162, 187, 141 Eng. Rep. 1127, 1137 (C. P. 1860) (“The defendant, who has received a large sum for the sale of this patent, ought not to be allowed to raise any question as to its validity”). The earliest American decision applying the doctrine dates from 1880. See Faulks v. Kamp, 3 F. 898 (CC SDNY). Within a decade or two, the doctrine was “so well
established and generally accepted that citation of authority is useless.” Griffith v. Shaw, 89 F. 313, 315 (CC SD Iowa 1893); see 2 W. Robinson, Law of Patents for Useful Inventions §787 (1890) (collecting cases).
This Court first considered—and unanimously approved—assignor estoppel in 1924, in Westinghouse v. Formica.

 

 

(…) “Of course,” the Court said, the assignor cannot use prior art in an infringement suit “to destroy the patent,” because he “is estopped to do this.” Id., at 351. But he can use prior art to support a narrow claim construction—to “construe and narrow the claims of the patent, conceding their validity.” Id., at 350–351. “Otherwise,” the Court explained, a judge “would be denied” the “most satisfactory means” of “reaching a just conclusion” about the patent’s scope—a conclusion needed to resolve the infringement charge. Id., at 350–351. “The distinction” thus established, the Court thought, “may be a nice one, but
seems to be workable.” Id., at 351.

 

 

Still, our endorsement of assignor estoppel comes with limits—true to the doctrine’s reason for being. Just as we guarded the doctrine’s boundaries in the past, see supra, at 7–8, 11–13, so too we do so today. Assignor estoppel should apply only when its underlying principle of fair dealing comes into play. That principle, as explained above, demands consistency in representations about a patent’s validity: What creates the unfairness is contradiction. When an assignor warrants that a patent is valid, his later denial of validity breaches norms of equitable dealing. And the original warranty need not be express; as we have explained, the assignment of specific patent claims carries with it an implied assurance. See supra, at 13. But when the assignor has made neither explicit nor implicit representations in conflict with an invalidity defense, then there is no unfairness in its assertion. And so there is no ground for applying assignor estoppel.
One example of non-contradiction is when the assignment occurs before an inventor can possibly make a warranty of validity as to specific patent claims. Consider a common employment arrangement. An employee assigns to his employer patent rights in any future inventions he develops during his employment; the employer then decides which, if any, of those inventions to patent. In that scenario, the assignment contains no representation that a patent is valid. How could it? The invention itself has not come into being. See Lemley, Rethinking Assignor Estoppel, 54 Houston L. Rev. 513, 525–527 (2016). And so the employee’s transfer of rights cannot estop him from alleging a patent’s invalidity in later litigation.
A second example is when a later legal development renders irrelevant the warranty given at the time of assignment. Suppose an inventor conveys a patent for value, with the warranty of validity that act implies. But the governing law then changes, so that previously valid patents become invalid. The inventor may claim that the patent is invalid in light of that change in law without contradicting his earlier representation. What was valid before is invalid today, and no principle of consistency prevents the assignor from saying so.

 

 

Most relevant here, another post-assignment development—a change in patent claims—can remove the rationale for applying assignor estoppel. Westinghouse itself anticipated this point, which arises most often when an inventor assigns a patent application, rather than an issued patent. As Westinghouse noted, “the scope of the right conveyed in such an assignment” is “inchoate”—“less certainly defined than that of a granted patent.” 266 U. S., at 352–353; see supra, at 9. That is because the assignee, once he is the owner of the application, may return to the PTO to “enlarge” the patent’s claims. 266 U. S., at 353; see 35 U. S. C. §120; 37 CFR §1.53(b). And the new claims resulting from that process may go beyond what “the assignor intended” to claim as patentable. 266 U. S., at 353. Westinghouse did not need to resolve the effects of such a change, but its liberally dropped hints—and the equitable basis for assignor estoppel—point all in one direction. Assuming that the new claims are materially broader than the old claims, the assignor did not warrant to the new claims’ validity. And if he made no such representation, then he can challenge the new claims in litigation: Because there is no inconsistency in his positions, there is no estoppel. The limits of the assignor’s estoppel go only so far as, and not beyond, what he represented in assigning the patent application.

 

 

The Federal Circuit, in both its opinion below and prior decisions, has failed to recognize those boundaries. Minerva (recall, Truckai’s alter-ego) argued to the court that estoppel should not apply because it was challenging a claim that was materially broader than the ones Truckai had assigned. But the court declined to consider that alleged disparity. Citing circuit precedent, the court held it “irrelevant” whether Hologic had expanded the assigned claims: Even if so, Minerva could not contest the new claim’s validity. 957 F. 3d, at 1268 (quoting Diamond Scientific, 848 F. 2d, at 1226); see supra, at 4. For the reasons given above, that conclusion is wrong. If Hologic’s new claim is materially broader than the ones Truckai assigned, then Truckai could not have warranted its validity in making the assignment. And without such a prior inconsistent representation, there is no basis for estoppel.

 

We remand this case to the Federal Circuit to now address what it thought irrelevant: whether Hologic’s new claim is materially broader than the ones Truckai assigned.

 

 

This Court recognized assignor estoppel a century ago, and we reaffirm that judgment today. But as the Court recognized from the beginning, the doctrine is not limitless. Its boundaries reflect its equitable basis: to prevent an assignor from warranting one thing and later alleging another. Assignor estoppel applies when an invalidity defense in an infringement suit conflicts with an explicit or implicit representation made in assigning patent rights. But absent that kind of inconsistency, an invalidity defense raises no concern of fair dealing—so assignor estoppel has no place.

 

For these reasons, we vacate the judgment of the Federal Circuit and remand the case for further proceedings consistent with this opinion.

 

 

 

Secondary sources:  H. Herman, The Law of Estoppel §3 (1871) (“An estoppel is an obstruction or bar to one’s alleging or denying a fact contrary to his own previous action, allegation or denial”); Lemley, Rethinking Assignor Estoppel, 54 Houston L. Rev. 513, 525–527 (2016) ; Manual of Patent Examining Procedure (9th ed., June 2020)

 

 

 

 

(U.S. Supreme Court, June 29, 2021, Minerva Surgical, Inc. v. Hologic, Inc., Docket No. 20–440, J. Kagan, Roberts, C. J., and Breyer, Sotomayor, and Kavanaugh, JJ., joined)