Federal Circuit Precedential

Holding:  To establish jurisdiction at the Federal Circuit, a question of federal patent law is not “necessarily raised” as a right to relief when an alternative basis for entitlement not related to patent law is also raised.   

Acorda developed the drug Ampyra® to treat patients with multiple sclerosis.  However, Alkermes owned US Patent No. 5,540,938, which claimed a sustained-release formulation for dalfampridine, the active ingredient in Ampyra®.  Alkermes licensed the ‘938 Patent to Acorda and supplied the active ingredient for an ongoing royalty of 18% of the net sales price of the drug sold.  This agreement was structured as a 10% royalty for licensing the ‘938 Patent and an 8% royalty for the supply agreement.

The ’938 Patent expired on July 30, 2018.  In December 2019, Acorda reached out to Alkermes to request an adjustment of its 18% royalty rate due to the expiration of the ‘938 Patent, but Alkermes refused to renegotiate.  Acorda continued to make royalty payments to Alkermes and made no formal protests to the payments.  In July 2020, Acorda began to include a protest with each payment made under the license.

In addition to the formal protests, Acorda filed a Demand for Arbitration with Alkermes with the American Arbitration Association’s International Centre for Dispute Resolution.  Acorda sought a declaration that the licensing royalty was unenforceable after the expiration of the ‘938 Patent and a return of the royalties that Acorda had paid after expiration.  New York law governed the arbitration. 

The arbitration tribunal agreed with Acorda that the licensing royalty was unenforceable after expiration of the ‘938 Patent under the Supreme Court’s decision in Brulotte,¹ and that the royalty for the supply agreement was also unenforceable, since the licensing and supply agreements were effectively one agreement.  However, the arbitration tribunal also found that the payments that Acorda made without lodging a formal protest were not refundable, while those made under formal protest were to be repaid to Acorda.  This decision was based on the New York Voluntary Pay Doctrine (NYVPD), which states that payments made with full knowledge of the facts, even under mistake of law, are not recoverable. 

In response to the decision made in arbitration, Acorda filed this lawsuit seeking modification of the tribunal’s decision regarding the nonrefundable payments made after expiration of the ‘938 Patent but without formal protest.  Acorda made two separate arguments to support its position.  The first argument was that the tribunal followed state law in the form of the NYPVD over federal patent law as laid out in Brulotte.  Acorda’s second argument was that by allowing Alkermes to keep the royalty payments not made under protest, the tribunal violated established contract law stating that “no court will lend its assistance in any way towards carrying out the terms of an illegal contract.”²  The district court denied Acorda’s request to modify the damages award, finding that the manifest disregard of the law standard had not been met. 

With regard to the patent law argument based on Brulotte, the district court determined that although Brulotte addressed the enforceability of an agreement based on an expired patent, Brulotte did not address the issue of whether already-paid royalties should be repaid.  Therefore, the tribunal appropriately relied upon the NYPVD to determine that a refund for those already-paid royalties was not necessary.

Upon appeal of the district court’s decision, Acorda and Alkermes disagreed on whether the appeal should be heard at the Federal Circuit or the Second Circuit.  The Federal Circuit decided that it does not have jurisdiction to hear this appeal.  The Federal Circuit has jurisdiction over appeals in which the original action is related to patents, or when a party has asserted a compulsory counterclaim relating to patents.  There is no patent related counterclaim, so the Federal Circuit looked to the original complaint.

An action can arise under federal patent law if: (1) a well-pleaded complaint established that federal patent law creates the cause of action; or (2) if the plaintiff’s right to relief depends on resolution of a substantial question of federal patent law.  However, the second category depending on the right to relief is extremely rare.  The Federal Circuit found that patent law did not create the cause of action in this case, since Acorda brought this action solely under the provisions of the Federal Arbitration Act.  Therefore, for Acorda’s action to arise under federal patent law, it would need to fall under the second category.

To arise under the second category, Acorda’s claim had to involve a federal patent law issue that was necessarily raised, actually disputed, substantial, and capable of resolution in federal court without disrupting the federal-state balance.  Upon review, the Federal Circuit held that a federal patent law issue was not “necessarily raised” by its petition to initiate the federal case.  Acorda’s request for reconsideration of the arbitration tribunal’s decision against recoupment of the paid royalties did not necessarily raise a federal patent law issue.  Acorda presented two separate grounds for modifying the arbitration award, only one of which was based on patent law.  Therefore, the patent law issue was not “necessarily raised,” and the Federal Circuit lacks jurisdiction.

Full Opinion (PDF)

1. Brulotte v. Thys Co., 379 U.S. 29, 30–34 (1964).   ↩︎
2. Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77 (1982) (quoting McMullen v. Hoffman, 174 U.S. 639, 654 (1899)). ↩︎