Point Conversions, LLC (“Appellant”) is a software development company that appealed a trial court’s (Palm Beach County Circuit Court) final order dismissing PC’s Complaint against WPB Hotel Partners, LLC (“Appellee”), and independently owned franchise of a hotel chain, for lack of subject matter jurisdiction. The Fourth DCA reversed on the basis that the case was controlled by precedent established by the United States Supreme Court in Gunn v. Minton, 568 U.S. 251 (2013).
Appellant entered into an agreement with a third-party patent owner allowing it to acquire an exclusive license to its patents which Appellant then used to create software called Point Boundaries. The agreement between Appellant and the patent owner provided that Appellant acquired an exclusive, non-transferrable right to develop and use the software within the scope of of the existing patents. Appellant was denied the right to sue for infringement of the existing patents, but retained all right, title and interest, including intellectual property rights in and to its own Point Boundaries software.
Appellant’s Point Boundaries software facilitates the exchange of loyalty or reward points between separate business entities or cross-channels. While Appellee offers its customers loyalty reward points for staying at its hotel, it directs its customers to use software other than Point Boundaries to transfer those earned points.
Appellant filed a Complaint against Appellee in the Palm Beach Circuit Court alleging the following common allegations: its rights under its exclusive license with the patent owner, its development of the Point Boundaries software, Appellee’s knowledge of Appellant’s rights to the Point Boundaries software, Appellee’s violation of those rights, and finally, the benefits Appellee was receiving due to the alleged violations.
The Compliant asserted four state court causes of action: (1) unjust enrichment for benefiting from its patrons’ use of software that violates appellant’s exclusive license; (2) temporary and or permanent injunctive relief to enjoin appellee’s violations of its exclusive rights; (3) conversion by way of receiving illicit compensation for the unauthorized use of its software; and (4) violations of Florida’s Deceptive and Unfair Trade Practices Act (“FDUTPA”).
Appellee did not file an Answer, but instead filed a Motion to Dismiss alleging a lack of subject matter jurisdiction, asserting although Appellant’s Complaint alleged state law claims, the Complaint lacked subject matter jurisdiction because the claims were in essence patent infringement claims disguised as state law claims, and founded on a breach of right created by the patent laws.
The Palm Beach Circuit Court granted Appellee’s Motion to Dismiss, opining that it did not have subject matter jurisdiction because the claims necessarily required a determination of the scope, validity or infringement of a patent. The Palm Beach Circuit Court relied on Solar Dynamics, Inc. v. Buchanan Ingersoll & Rooney, P.C., 211 So. 2d 294 (Fla. 2d DCA 2017). This appeal followed.
The Fourth DCA reversed the Palm Beach Circuit Court, declining to follow the Second DCA’s Solar Dynamics, and instead applied the United States Supreme Court’s precedent in Gunn. The Fourth DCA found the Palm Beach Circuit Court had subject matter jurisdiction over the case, reversing the dismissal order and remanding for further proceedings.
Congress grants federal district courts original jurisdiction over any civil action arising under any Act of Congress relating to patents and copyrights. The original jurisdiction for issues related to patents and copyrights functions as exclusive jurisdiction. The key to determining whether a case involving a patent or copyright falls within the federal district court’s exclusive jurisdiction is to determine whether the case arises under any Act of Congress relating to patents or copyrights.
A case can arise under federal law in two ways: (1) when federal law creates the cause of action asserted; or (2) when a state law claim meets the four Gunn factors. These four factors ask whether the federal issues within that state law claim are: (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.
In the instant case none of Appellant’s claims are created by federal law. Indeed, the Complaint is entirely devoted to state law causes of action. Therefore, for a federal court to have exclusive jurisdiction over Appellant’s state law claims, those claims must meet ALL four Gunn factors.
(1) Whether Appellant’s State Law Claims Necessarily Raise an Issue of Federal Law
Gunn‘s first factor asks whether a federal issue is “necessarily raised” in the claim. A patent law issue will be necessarily raised only if it is a necessary element of one of the well-pleaded claims. All four of Appellant’s claims are state law claims, so each must be evaluated to see whether jurisdiction lies in federal court.
All Appellant’s state law claims concerned Appellee’s use of third-party software to transfer reward points that was not licensed to use the subject patents. The Fourth DCA essentially found that to evaluate the merits of each of Appellant’s state law claims, the trial court would have to construe the patents, determine their validity, and interpret their scope. If the trial court found no patent infringement it would defeat each of the state law claims. Therefore, Appellant’s state law claims do necessarily raise an issue of federal law.
(2) Whether an Issue of Federal Law is Actually Disputed
Gunn‘s second factor to be analyzed is whether an issue of federal law, in this case patent or copyright law, is “actually disputed.” At their core, Appellant’s causes of action are more akin to claims of interference with a contract, or more precisely, a claimed infringement upon an exclusive licensing agreement with the patent owner. The causes of action do not dispute the validity of the subject patents, nor will the outcome affect their scope. Nonetheless, the Fourth DCA was unable to determine whether an issue of either patent or copyright law is “actually disputed” because no answer has been filed to the Complaint. Without an answer or other responsive pleading being filed, Appellee has yet to dispute or even address appellant’s claims.
(3) Whether the Federal Issues Involved in the Case are Substantial
Gunn‘s third factor asks whether the federal issue within the state law claim was “substantial.” The substantiality inquiry “looks … to the importance of the issue to the federal system as a whole.”
A substantial federal issue is more likely to be present when the following three elements are met: (1) a pure issue of federal law is dispositive of the case,’ (2) the court’s resolution of the issue will control numerous other cases,’ and (3) the Government has a direct interest in the availability of a federal forum to vindicate its own administrative action.
First, as to whether a pure issue of federal law is dispositive, the Fourth DCA could not say that one is in this case. Even though patent law issues may necessarily be raised by Appellant’s four state law claims, that does not end the inquiry. After the trial court construes the various patents, Appellant would still have to prove each element of its four separate claims—all which involve questions of both fact and Florida law—to prevail. Therefore, deciding a pure issue of federal law will not be dispositive of any of Appellant’s four causes of action.
Second, the trial court’s resolution of this issue will not control “numerous other cases.” Assuming this case is adjudicated to its end in state court, a subsequent federal court would not be controlled by the Fifteenth Circuit court’s determinations.
Third, the Fourth DCA could not find that the government has a direct interest in this dispute between these parties because, as previously stated, the resolution of this case will not control “numerous other cases.” Appellant seeks to establish not only that the subject patents are valid, but also that the owner conveyed exclusive rights to them through its licensing agreement. This analysis is fact-specific and will not result in resolving a general question of patent law likely to affect future cases. Thus, it is evident that the federal issues within Appellant’s state law causes of action are not “substantial in the relevant sense.”
(4) Whether the State Law Claims are Capable of Resolution in Federal Court Without Disrupting the Federal-State Balance Approved by Congress
Gunn‘s fourth factor asks whether exercising federal jurisdiction over state law claims would “disrupt[ ] Congress’s intended division of labor between state and federal courts.” Because the Fourth DCA held that the issues of federal law within the four counts were not “substantial,” it also found that bringing these claims in federal court would indeed disrupt Congress’s intended division of labor between state and federal courts.
Reversed and Remanded. See the Fourth DCA’s Opinion below: