A123 Systems, Inc. v. Hydro-Quebec: Federal Appeals Court Affirms the Denial of A123’s Motion to Reopen

A123 Systems, Inc. v. Hydro-Quebec, No. 2010-1059 (Fed. Cir. Nov. 10,  2010)

Slip Opinion

The U.S. Court of Appeals for the Federal Circuit affirmed the judgment of the U.S. District Court for the District of Massachusetts, which had denied A123’s motion to reopen and dismissed the court’s declaratory judgment against Hydro-Quebec (“HQ”).

The Federal Circuit addressed three major issues in its decision. First, it held that “because HQ had acquired less than all substantial rights in the patents in suit, [the University of Texas ("UT")] is a necessary party to A123’s declaratory judgment action.” Second, the court upheld UT’s sovereign immunity rights, despite the fact that UT had waived those rights in a related litigation in Texas. Finally, the court found that UT was both a necessary and an indispensable party to the action under Fed. R. Civ. P. 19, and that the district court properly dismissed the action due to UT’s absence in the litigation.

The Green Patent Blog provides an overview of the case. Patent Prospector also discusses the case, with some commentary below.

In April of 2006, A123 filed suit in the District of Massachusetts against HQ. A123 sought a declaratory judgment of noninfringement and invalidity with respect to two patents pertaining to battery technology. UT owns both patents and had licensed them (with some restrictions) to HQ. In September of 2006, HQ and UT jointly sued A123 for infringement in the Northern District of Texas. The Massachusetts action was dismissed without prejudice. A123 then filed a motion to reopen the case in June of 2008. The district court denied A123’s motion to reopen, finding that the action would have to be dismissed anyway due to UT’s noninvolvement in the litigation. It is this judgment that A123 appealed to the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit, in holding as it did, relied on BPMC’s holding that a public university’s participation in one suit does not waive its government immunity in a separate suit, “even one involving the same patents.” Biomedical Patent Management Corp. v. California, Department of Health Services, 505 F.3d 1328 (Fed. Cir. 2007). Thus, UT was rightfully exempt from the litigation in Massachusetts. The case then turned on whether UT was a “necessary” and “indispensable” part of the litigation, as defined by Fed. R. Civ. P. 19. Because HQ had only limited rights, rather than a complete set of rights, the court found UT to be a necessary party. The Federal Circuit then weighed the four factors outlined in Rule 19(b) as part of the “indispensable” party analysis. The court seemed particularly concerned with the fact that HQ and UT’s interest in the patents were merely overlapping, and not identical. Therefore, by not joining UT as a party in this litigation “creat[es] the risk of multiple lawsuits and of inconsistent relief.” This, combined with the fact that A123 had the opportunity to “assert counterclaims for a declaration of noninfringement and invalidity” in Texas, where UT has waived its sovereign immunity, led the Federal Circuit to affirm the lower court’s dismissal.

This decision establishes that the forum for this long-running legal dispute will have to be in the Northern District of Texas. Although the case does not significantly alter any legal precedent, it does maintain the protective attitude that courts have toward patent holders who are not involved or interested in litigating their patent rights in a particular suit.

Stuart K. Tubis is a 3L at the Harvard Law School.