An Investigation of Jurisdictional Debates Concerning Walker Process Claims

Walker Process claims are antitrust claims wherein patent holders may be in violation of the Sherman Act if they enforce a patent that was obtained through fraud, and if the other criteria needed to support an antitrust violation are met. Even though the Supreme Court decision that led to the idea of Walker Process claims was issued nearly 60 years ago, there remains ongoing debate and indecision concerning key questions around these claims. Within the last five years, two cases have given rise to contradictory assertions as to whether the jurisdiction of certain Walker Process claims lies with the U.S. Court of Appeals for the Federal Circuit or other Courts of Appeal. In Xitronix Corp. v. KLA-Tencor Corp and Chandler v. Phoenix Services, the Federal Circuit and Fifth Circuit offered conflicting opinions as to jurisdictional responsibilities. While both cases have resolved their immediate jurisdictional debates, there appears to be a deeper, unresolved divide between the two courts that remains. This article will explain Walker Process claims, as well as the Xitronix and Chandler cases that lie at the core of this disagreement.

The concept of a “Walker Process antitrust claim” originates from the United States Supreme Court’s 1965 decision in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp. The case concerned the alleged infringement of a patent relating to diffusers used in aeration equipment of sewage treatment systems. The patent in suit was assigned to the Chicago Pump Company, a division of the chemical manufacturing company Food Machinery & Chemical Corp. When Food Machinery filed a suit for patent infringement against Walker Process Equipment, a supplier of biological, anaerobic, and wastewater treatment equipment based out of Illinois, Walker filed a counterclaim alleging that not only was the patent invalid, but that Food Machinery had acted illegally, fraudulently, and in bad faith, when obtaining and enforcing its baseless patent. Specifically, Walker purported that in acquiring the patent in suit, Food Machinery made fraudulent statements to the U.S. Patent and Trademark Office (“USPTO”). According to Walker, this was done to monopolize commerce, and this conduct violated antitrust laws and deprived Walker of business it would have otherwise enjoyed. Ultimately, the Supreme Court concluded that, if the other elements necessary to support an antitrust violation are met, then “the enforcement of a patent procured by fraud on the Patent Office may be violative of §2 of the Sherman Act.” With this decision, the Supreme Court provided Walker the opportunity to further clarify its antitrust allegations against Food Machinery, and establish the remaining elements of a violation of §2 of the Sherman Act.

Since 1965, many cases have involved claims relating back to the Supreme Court’s decision in Walker Process. However, in 2018 and 2019, a unique situation arose when the U.S. Court of Appeals for the Federal Circuit and the Fifth Circuit Court of Appeals offered conflicting opinions relating to jurisdiction for reviewing Walker Process claims under appeal.

Xitronix Corp. v. KLA-Tencor Corp

The first case involved Xitronix, a company in the “semiconductor wafer optical inspection market,” that brought a Walker Process claim against the semiconductor producer and distributor KLA. Xitronix asserted that KLA fraudulently procured a patent relating to “a system which provides high resolution, non-destructive evaluation of semiconductor wafers as they pass through various semiconductor manufacturing stages,” to illegally preclude Xitronix from competing.

Xitronix and KLA have been involved in patent infringement litigation since as early as September 2008. In August 2016, the U.S. District Court for the Western District of Texas issued a summary judgment with respect to Xitronix’s Walker Process claims, concluding that Xitronix “failed to show a fact issue” existed with respect to whether KLA “made fraudulent representations and omissions” and that the facts presented by Xitronix do “not give rise to Walker Process fraud.” Xitronix appealed this decision.

In its appeal, Xitronix argued that it was the Federal Circuit who had jurisdiction over this appeal, a decision that KLA did not contest. Xitronix based this jurisdictional claim off 28 U.S.C. § 1295(a)(1), which states that the Federal Circuit has “exclusive jurisdiction of an appeal from a final decision of a district court” of a civil action that arises from an “Act of Congress relating to patents or plant variety protection.” However, when this claim reached the Federal Circuit in 2018, the court disagreed that they had such jurisdiction.

The Federal Circuit cited the Supreme Court’s decision in Christianson v. Colt Indus. Operating Corp to point out that the court’s jurisdiction only applies to cases where “federal patent law creates the cause of action” and that “just because an element that is essential to a particular theory might be governed by federal patent law does not mean that the entire monopolization claim ‘arises under’ patent law.” The Federal Circuit further said that Xitronix’s complaint had no allegations establishing that it is federal patent law creating the cause of action, and that the “underlying patent issue in this case . . . does not present a substantial issue of patent law.” The Federal Circuit reasoned that patent law was only relevant in terms of assessing whether or not KLA intentionally misled the USPTO, and that there was “nothing unique to patent law about allegations of false statements.”

The Federal Circuit also cited the Supreme Court’s decision in Gunn v. Minton, a case relating to patent infringement of a software developer for securities trading. It noted that in that case, the Supreme Court “held that a state law claim alleging legal malpractice in the handling of a patent case” which “required application of patent law” did not arise under “federal patent law for purposes of exclusive federal jurisdiction.” Instead, “something more is required to raise a substantial issue of patent law sufficient to invoke jurisdiction.”

Finally, the Federal Circuit cited Nobelpharma AB v. Implant Innovations, Inc., to note that even though the Federal Circuit recognized they would receive many Walker Process claims, it was not their opinion that all such claims must go to the Federal Circuit. Based on this analysis, the Federal Circuit transferred the case to the Fifth Circuit Court of Appeals.

However, the Fifth Circuit disagreed with the conclusion of the Federal Circuit and went so far as to assert that it was “implausible” that the Fifth Circuit was the “proper court” with jurisdiction to decide the Xitronix appeal. The court noted that the last time the Fifth Circuit decided a case relating to a Walker Process claim was in 1975, prior to the creation of the Federal Circuit. Further, the court noted that no cases involving only Walker Process claims had been identified as being decided by a circuit court other than the Federal Circuit. The Fifth Circuit contended that even since the Christianson decision, the Federal Circuit has repeatedly accepted jurisdiction over Walker Process claims, and cited one such case, In re Ciprofloxacin Hydrochloride Antitrust Litig., where the Federal Circuit noted “the determination of fraud before the USPTO necessarily involves a substantial question of patent law.”

With respect to Gunn, the Fifth Circuit argued there was no indication that the Federal Circuit’s conclusion was meant to impact Christianson or the jurisdiction of such cases between the courts, and if anything, “the centrality of the Federal Circuit to patent adjudication was a premise of Gunn’s reasoning.” They suggested that the Federal Circuit’s interpretation of Gunn may be “overreading” and that had the Supreme Court meant to alter jurisdictional boundaries of the Federal Circuit with that case, they would have been more explicit. The Fifth Circuit also noted that Xitronix differed from Gunn in that the former case involved a patent that was “valid and enforceable,” whereas the latter involved an expired patent and was therefore “backward-looking.”

The Fifth Circuit also disagreed with a number of the Federal Circuit’s interpretations of other cases, including Nobelpharma AB. It said that the Federal Circuit’s claims were implausible for a number of other reasons. First, they questioned the Federal Circuit’s claim that Xitronix did not involve a dispute about the validity of the patent at issue, as a finding of fraud on the USPTO would result in KLA’s patent being “effectively unenforceable.” It was the Fifth Circuit’s opinion that the “fraud element of Xitronix’s claim can be adjudicated only with reference to patent law.” Finally, the Fifth Circuit noted that the language of 28 U.S.C. § 1295(a)(1) has changed slightly since Christianson. For all of these reasons, the Fifth Circuit transferred the case back to the Federal Circuit.

Upon receiving the Xitronix appeal again, the Federal Circuit accepted the transfer and conceded the Fifth Circuit’s claim that the Federal Circuit had jurisdiction was not “implausible.” However, they did “not agree” and noted the order was “nonprecedential.”

Chandler v. Phoenix Services

Even though the Federal Circuit accepted jurisdiction in Xitronix, this was not an isolated incident where the two courts had divergent views. In 2021, in Chandler, the Federal Circuit ordered a transfer to the Fifth Circuit of another case involving Walker Process claims. The case related to a patent concerning water heating technology used in fracking, wherein Chandler Manufacturing, LLC and other oilfield manufacturing companies, brought allegations of sham patent litigation and antitrust violations against the patent owner and oilfield services provider, Phoenix Services, LLC. Thus, Chandler concerned another Walker Process monopolization action under §2 of the Sherman Act. Consistent with their stance from Xitronix, the Federal Circuit maintained they lacked jurisdiction. The Federal Circuit also noted an important circumstance in Chandler was that the patent in question had already been ruled “unenforceable.” Thus, the Federal Circuit argued, “simply put, this is not a patent case” and would not find it plausible to accept jurisdiction, before transferring the case to the Fifth Circuit.

When the Fifth Circuit received the transfer order, they again disagreed with the conclusion of the Federal Circuit, citing Xitronix. However, unlike in Xitronix, they accepted jurisdictional responsibility for the case because they did not “find the transfer implausible.” The Fifth Circuit suggested their decision in Xitronix did not necessitate them finding jurisdiction implausible in this case because of the material difference in the nature of the patents at the focus of the Walker Process claims in the respective cases. Thus, the Fifth Circuit concluded they could not “find the Federal Circuit’s decision implausible” though they did not go so far as to assent to the Federal Circuit’s conclusion, and rather stated “precedent dictates a different conclusion.” Yet, the Fifth Circuit was determined to avoid a “perpetual game of jurisdictional ping-pong.”

Conclusion

In short, even though both Xitronix and Chandler have seen their jurisdictional questions settled, a fundamental discrepancy in opinion lingers between the Federal Circuit and Fifth Circuit. Thus, there is uncertainty with respect to the jurisdiction of Walker Process claims. Given similar issues have been raised in two separate cases within the last five years, it seems likely there will be another appeal that will strike at the heart of these conflicting views of the Federal Circuit and Fifth Circuit.