CAFC Finds No Jurisdiction Over T-Mobile Contract Dispute, Transfers Appeal to Fifth Circuit

The U.S. Court of Appeals for the Federal Circuit (CAFC) issued a precedential decision Friday that it lacks jurisdiction to hear an appeal filed by T-Mobile US, Inc. and T-Mobile USA, Inc. against KAIFI LLC arising from a dispute over a patent settlement agreement, transferring the case to the U.S. Court of Appeals for the Fifth Circuit. In T-Mobile US, Inc. v. KAIFI LLC, Circuit Judge Chen authored the opinion for a panel that included Circuit Judges Taranto and Schall, concluding that the underlying disagreement over settlement contract language did not necessarily raise a substantial question of patent law.

The dispute originates from August 28, 2020, when KAIFI filed a patent infringement lawsuit against T-Mobile in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. Patent No. 6,922,728. T-Mobile subsequently requested an ex parte reexamination (EPR) of the ‘728 patent, and the U.S. Patent and Trademark Office (USPTO) ordered the reexamination in August 2021. The parties reached a settlement days before trial and before the EPR outcome was known.

Under the Settlement and Patent License Agreement executed in January 2022, T-Mobile received a license to the ‘728 patent and agreed to an initial upfront payment, as well as an additional contingent payment referred to as the “EPR Payment,” owed “if any Asserted Claim survives the EPR.” The agreement defined the Asserted Claims as claims 1, 2, 3, 5, 7, 10, 11, and 20 of the ‘728 patent, the same claims KAIFI had alleged T-Mobile infringed in the district court litigation. T-Mobile also agreed not to challenge the validity or enforceability of the licensed patent, though the agreement specified that its earlier EPR request did not itself breach that covenant.

After the settlement was finalized, the USPTO concluded the reexamination and issued a certificate confirming the patentability of claims 1, 2, 3, 5, 10, 11, and 20 without amendment, while claim 7 was confirmed as amended.

T-Mobile did not make the EPR Payment, instead relying on diversity jurisdiction to seek a declaratory judgment in district court that none of the asserted claims survived the EPR. T-Mobile advanced several theories, including that KAIFI had impermissibly altered the claim scope by taking materially different claim construction positions before the USPTO than it had in the litigation, and that KAIFI engaged in inequitable conduct during the EPR by not disclosing its earlier claim construction positions to the USPTO, rendering the claims unenforceable. T-Mobile also alleged frustration of purpose and lack of mutual assent. KAIFI counterclaimed for breach of contract, seeking the EPR Payment.

The district court, presided over by Judge J. Rodney Gilstrap, granted summary judgment in KAIFI’s favor, holding that “the Settlement Agreement [is] clear and unambiguous that a claim ‘survives the EPR’ if it is confirmed as patentable in the Patent Office’s Reexamination Certificate.” The district court found that T-Mobile’s inequitable conduct allegations had no bearing on whether the claims survived the EPR and ordered T-Mobile to pay KAIFI the EPR Payment. T-Mobile appealed.

Although T-Mobile and KAIFI contended that the CAFC had appellate jurisdiction over the dispute, the Federal Circuit disagreed, noting that it must independently confirm its own jurisdiction regardless of the parties’ positions. The Federal Circuit’s jurisdiction under Section 1295(a)(1) extends to cases in which patent law creates the cause of action or in which the right to relief necessarily depends on resolution of a substantial patent law question. The court therefore applied the four-part test from Gunn v. Minton, asking whether a federal issue is necessarily raised, disputed, substantial, and capable of resolution in federal court without disrupting the federal-state balance.

The CAFC determined that resolving KAIFI’s breach of contract counterclaim did not necessarily require deciding a patent law issue. At least one theory of relief, namely comparing the Asserted Claims against the reexamination certificate, did not depend on patent law. A reexamination certificate simply confirms or cancels claims, and “that straightforward, ordinary understanding of ‘survives’ applied by the district court does not implicate a patent law question.” T-Mobile’s alternative theories, involving claim scope alteration and inequitable conduct, likewise did not establish a necessary patent law issue because they functioned more as defenses than as elements of KAIFI’s claim.

As the CAFC explained, “it is less than clear to us that the contractual term ‘survives’ demands such in-depth patent-law inquiries.” T-Mobile’s inequitable conduct theory also appeared to conflict with its own covenant not to challenge the patent’s enforceability. KAIFI’s separate argument that “survives” carries a special patent law meaning also failed because the CAFC had used the term in an ordinary sense rather than as a term of art.

The CAFC also found the federal issue insubstantial under the third Gunn factor, applying three considerations from NeuroRepair, Inc. v. Nath Law Group. The court found “no pure issue of federal law was dispositive,” since the contract could be resolved independently of patent law. It also found that resolution would not control other cases, describing the interpretation of “survives” as “fact-bound” and “situation-specific,” The CAFC also noted that the ‘728 patent had expired in January 2024, distinguishing the case from Xitronix Corp. v. KLA-Tencor Corp., where the patent remained valid and enforceable. The court found no direct government interest in the private contract dispute.

Ultimately, the CAFC transferred the appeal to the Fifth Circuit, which has jurisdiction over cases from the Eastern District of Texas, and ordered that the parties bear their own costs.

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Author: Devon
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