Federal Circuit Transfers Case to Second Circuit for Lack of Jurisdiction to Review Decision Stemming from Arbitration

The U.S. Court of Appeals for the Federal Circuit (CAFC) on Friday, July 25, transferred an appeal over an award issued in an international arbitration and confirmed by a U.S. district court, ruling that the CAFC does not have jurisdiction over the case.

In the precedential ruling authored by Judge Taranto, the CAFC transferred the appeal to the U.S. Court of Appeals for the Second Circuit because it said Acorda Therapeutics, Inc.’s petition to modify an arbitral award of $16,554,267 was not within its jurisdiction. The case began when Acorda initiated an international arbitration against Alkermes PLC seeking a judgment that it no longer had to pay royalty payments to Alkermes after the expiration of its patent covering the active ingredient in Acorda’s multiple sclerosis drug. Acorda continued to make royalty payments through 2020 but only protested the payments as of July 2020. The arbitral tribunal ultimately awarded Acorda for the payments made under formal protest but not the payments made between 2018 and 2020. Acorda thus petitioned the U.S. District Court for the Southern District of New York to confirm the award and to modify the judgment’s denial of recoupment of the 2018–2020 payments “on the ground that the Tribunal acted in ‘manifest disregard’ of federal patent law and a non-patent-law principle of law.” The district court rejected the request for modification but affirmed the award.

On appeal, the CAFC explained that it has jurisdiction over “appeals from a final decision of a district court ‘in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents.’” In the present case, it was undisputed that there was no patent law cause of action, and that Acorda’s claim would thus have to meet the criteria of a “small, second category of cases nonetheless arising under federal patent law.” For a case to come under that category it must involve a patent law issue that was: “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.”

The CAFC’s analysis determined that the petition failed the first step of this test, which arises from Gunn v. Minton, 568 U.S. 251, 257–58 (2013). First, Acorda’s request for confirmation of all but the denial of recoupment did not “necessarily raise” a patent law issue. Parties to an arbitration seeking confirmation of an award are not required under the law “to plead and prove the correctness of the rulings in the arbitral award,” said the CAFC. “It was therefore no necessary part of Acorda’s petition for confirmation to establish, or obtain a judicial determination on, any proposition of federal patent law.”

Likewise, Acorda’s request for modification of the denial of recoupment for the 2018-2020 payments also failed to “necessarily raise” a patent law issue because the request “took as its premise the Tribunal’s own determination of unenforceability, which Acorda sought to be confirmed (as just explained) without needing to have the court evaluate its correctness.” Acorda presented two grounds for establishing “manifest error” but only  one  rested on federal patent law. The CAFC explained:

“Acorda thus presented a way for the district court to rule in its favor on the requested recoupment remedy without agreeing with Acorda’s assertion that federal patent law entitled it to that remedy. In that circumstance, as we have held, the asserted patent-law issue was not “necessarily raised.”

The opinion concluded, however, by noting that the case raises questions about how the court should assess other facts relating to the “substantial” prong of the Gunn test but that it need not address those in the current ruling.