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Xitronix Corp. v. KLA-Tencor Corp.

United States Court of Appeals, Fifth Circuit

February 15, 2019

XITRONIX CORPORATION, Plaintiff - Appellant
KLA-TENCOR CORPORATION, doing business as KLA-Tencor, Incorporated, a Delaware Corporation, Defendant-Appellee

          Appeal from the United States District Court for the Western District of Texas

          Before JOLLY, DENNIS, and HIGGINSON, Circuit Judges.

          Stephen A. Higginson, Circuit Judge.

         The substantive issue in this appeal is whether a jury should hear Xitronix Corporation's claim that KLA-Tencor Corporation violated the Sherman Act's prohibition of monopolies by obtaining a patent through a fraud on the U.S. Patent and Trademark Office ("PTO"). What must first be decided, however, is whether we can reach that issue despite the Federal Circuit's exclusive jurisdiction over cases arising under federal patent law. That court transferred this case to us, but we find it implausible that we are the proper court to decide this appeal. With respect, therefore, we transfer it to the U.S. Court of Appeals for the Federal Circuit.


         This is the third round of litigation between Plaintiff-Appellant Xitronix Corporation and Defendant-Appellee KLA-Tencor Corporation ("KLA"), competitors in the "semiconductor wafer optical inspection market." Optical inspection technology is used for quality control in the production of semiconductor wafers, which are essential components of circuits in computers and other electronic devices. We understand from the parties that an optical inspection device employs two lasers, a "pump" beam and a "probe" beam, in tandem. The pump beam heats the surface of a semiconductor sample. The probe beam, in turn, detects changes in the semiconductor surface. The device converts the changes detected by the probe beam into an electrical signal, which it then measures. The device can thereby precisely observe the composition of the semiconductor sample, helping manufacturers ensure that their processes are working as intended.


         Litigation began in 2008 with Xitronix seeking a declaratory judgment against KLA. According to Xitronix, KLA was and is the dominant player in the semiconductor optical inspection market, with approximately eighty-percent market share. KLA had examined the technology that Xitronix was then bringing to market and amended a pending patent application to cover Xitronix's technology. This application resulted in the issuance of U.S. Patent 7, 362, 441 ("the '441 patent"). In this first lawsuit, Xitronix sought a declaration of non-infringement and of the '441 patent's invalidity.

         In November 2010, a jury entered a verdict in Xitronix's favor. When the district court entered final judgment in January 2011, it explained that the central issue at trial was the wavelength of the probe beam used by Xitronix. The claims of the '441 patent at issue in the case specified a wavelength between 335 and 410 nanometers (nm) and said that such wavelength "is selected to substantially maximize the strength of the output signals corresponding to the modulated optical reflectivity response."[1] The probe beam in Xitronix's device was fixed at a wavelength of 373 nm, putting it and KLA's patent squarely in conflict. The jury found that Xitronix's technology infringed one claim of KLA's '441 patent but that this claim was anticipated by prior art: the "Therma-Probe" device and an earlier patent, the '611 or "Alpern" patent. The jury also found three other claims of KLA's '441 patent invalid due to obviousness. The district court ruled that ample evidence supported the jury's findings. It identified two additional pieces of prior art, Batista and Mansanares: "[E]ach and every element of the asserted claims were present in the combination of prior art Therma-Probe, Batista, Mansanares, and the '611 [Alpern] patent." The district court also ruled one of the claims invalid as indefinite. KLA did not appeal the judgment in the '441 litigation.

         In March 2011, Xitronix commenced the second suit, bringing business tort claims against KLA for publicly accusing Xitronix of patent infringement. The district court, which remanded the case to Texas state court, later explained that the state district court ruled in favor of KLA "for unspecified reasons." Neither party advises that this second litigation has any bearing on the present appeal.


         The present case began in December 2014. Xitronix alleged a single Walker Process claim: monopolization through use of a patent obtained by fraud on the PTO.[2] The patent purportedly resulting from KLA's fraud on the PTO is U.S. Patent No. 8, 817, 260 ("the '260 patent"). It is a continuation of an earlier patent, the '486 patent, which was itself a continuation of the '441 patent at issue in the parties' first litigation. KLA filed the application that yielded the '260 patent in November 2009, U.S. Application No. 12/616, 710, [3] a year before the jury entered its verdict invalidating the '441 patent. The litigation of '441 and the prosecution of '260 unfolded in tandem. It is KLA's representations to the PTO concerning the '441 litigation while conducting the '260 prosecution that are at issue here.

         In February 2010, KLA submitted an Informational Disclosure Statement ("IDS") with sixty works potentially containing relevant prior art. This IDS included the key sources on which the jury would invalidate the '441 patent later that year as well as summary judgment briefing from the litigation. In August 2010, the PTO examiner, Layla Lauchman, initialed and signed the IDS, thereby acknowledging these sources. On November 5, 2010, the jury returned its verdict invalidating the '441 patent. On November 18, Michael Stallman, KLA's patent prosecution attorney, submitted the jury's verdict in the '441 litigation to the PTO and sought to explain its meaning. He acknowledged an Office Action of August 18 that rejected the claims in the '260 application on the grounds of "non-statutory obviousness-type double patenting" in view of the '441 patent.[4] This means that, as of 2010, the PTO saw claims in the '260 application as obvious in light of claims later invalidated in the '441 litigation. Stallman responded to this rejection by agreeing to a "terminal disclaimer" of the claims in the pending '260 application.[5]

         The district court entered final judgment in the '441 litigation on January 31, 2011. On February 2, Lauchman issued a Notice of Allowability as to the '260 patent application predicated on the terminal disclaimer to which KLA had agreed. On February 10, Stallman filed another IDS, bringing the final judgment in the '441 litigation and the district court's accompanying order to the PTO's attention. He submitted a Request for Continued Examination as well.

         The PTO did not act on the application again for two years, by which time a new examiner, Willie Merrell, was handling it. His initials, dated July 12, 2013, appear on the IDS from February 2011 containing the final judgment and related documents, suggesting he had seen and considered the references. In an Office Action dated July 25, 2013, Merrell rejected much of the '260 application. He did so without reference to the final judgment in the '441 litigation, to the PTO's prior non-statutory double patenting rejection, or to the materials on which the judgment in the '441 litigation was based. Instead, he conducted a novel analysis based on other prior art further afield.

         Despite this rejection, the '260 patent did eventually issue. Xitronix's claims concern the actions by KLA making that possible. Stallman filed a response to Merrell in October 2013. The remarks in that filing are one basis for the fraud element of Xitronix's Walker Process claim. Merrell responded in January 2014, standing by his previous rejection. Stallman responded in March 2014 with more remarks--another filing central to Xitronix's Walker Process claim. A Notice of Allowability soon issued, in which Merrell briefly explained that KLA's arguments "have been fully considered and are persuasive." The '260 patent issued in August 2014, and Xitronix's Walker Process suit followed that December.

         Xitronix alleged that KLA's procurement of the '260 patent impeded its ability to finance its entrance into the market for optical inspection technology. At summary judgment, the litigation focused on whether Xitronix had created issues of material fact as to two elements of fraud on the PTO: whether KLA had made material misrepresentations or omissions to the PTO, and whether those were a but-for cause of the '260 patent's issuance. The district court found that Stallman's remarks in his October 2013 and March 2014 filings were confined to those pieces of prior art specifically addressed by Merrell in previous Office Actions and contained no broader misrepresentations. To the extent Stallman mischaracterized the prior art, the district court reasoned, this was permissible attorney argument, not fraud. Stallman was free to make such argument, and the examiner was free to reject it, because Stallman had submitted all relevant materials from the '441 litigation already.

         The district court also found no but-for causation. Notably, it was not because the court viewed the '441 and '260 patents as dissimilar, such that the former would not control the latter. Indeed, the court saw them as similar. Rather, it saw the PTO as making a fully conscious and informed choice. Granting summary judgment to KLA, the district court wrote:

Although Xitronix has repeatedly argued that the examiner was unaware of the jury verdict and final judgment invalidating the claims at issue, the Court suspects the examiner was in fact aware of the Court's holding but chose to ignore it. It would not be the first time the PTO, an administrative agency, overrode a final judgment of an Article III court, and it will likely not be the last.

         That is, according to the district court, it could not be said that the PTO relied upon, and was thus defrauded by, KLA's alleged misrepresentations; rather, the PTO had a mind of its own. The district court's grant of summary judgment to KLA brought the case to a close, precipitating this appeal.


         Xitronix's appeal went originally to the Federal Circuit. Before oral argument in the case, the panel of that court ordered briefing on transferring the case to our court for lack of jurisdiction. Xitronix Corp. v. KLA-Tencor Corp., 882 F.3d 1075, 1076 (Fed. Cir. 2018). The parties, who agreed that the case belonged in the Federal Circuit, spent the bulk of oral argument on the subject and briefed the issue further afterwards.[6] Despite the parties' consensus, the panel was not persuaded, ruling based on Gunn v. Minton, 568 U.S. 251 (2013), that it lacked jurisdiction. Following the transfer order, KLA petitioned for en banc rehearing, [7] which the Federal Circuit rejected by a vote of ten to two. Xitronix Corp. v. KLA-Tencor Corp., 892 F.3d 1194 (Fed. Cir. 2018). Judge Pauline Newman dissented from that ruling, taking the panel to task for initiating "a vast jurisdictional change for the regional circuits as well as the Federal Circuit." Id. at 1196.


         "Federal courts are courts of limited jurisdiction," possessing "only that power authorized by Constitution and statute." Kokonnen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). "The requirement that jurisdiction be established as a threshold matter 'spring[s] from the nature and limits of the judicial power of the United States' and is 'inflexible and without exception.'" Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) (quoting Mansfield, C. & L. M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884)). Consequently, "[w]e must always be sure of our appellate jurisdiction and, ...

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