Federal Circuit to Address Jurisdictional Boundaries in Micron v. Netlist Patent Dispute

The United States Court of Appeals for the Federal Circuit is set to hear oral arguments on June 5 in Micron Technology, Inc. v. Netlist, Inc., a case that brings into focus the complex jurisdictional issues surrounding patent-related claims that do not directly allege infringement. At issue is whether state courts or federal courts have authority over claims invoking state anti-troll statutes that address bad-faith assertions of patent rights.

Federal district courts possess exclusive jurisdiction over cases that “arise under” federal patent law. This exclusivity bars state courts from hearing such cases, and appeals from federal patent cases proceed to the Federal Circuit rather than regional circuit courts. While jurisdiction is straightforward when a patent owner sues for infringement, it becomes more complicated when a plaintiff asserts a state-law claim that involves patents but does not allege infringement.

The Supreme Court’s 2013 decision in Gunn v. Minton clarified that not all patent-related state-law claims arise under patent law. In Gunn, the Court held that a state-law legal malpractice claim against patent attorneys did not confer federal jurisdiction, even though resolving the claim required applying patent law principles. The Court emphasized that a patent issue embedded in a state-law claim creates federal jurisdiction only if the issue is substantial to the federal system as a whole, which was not the case in Gunn’s fact-specific, backward-looking inquiry.

Despite Gunn, the Federal Circuit has issued conflicting rulings on jurisdiction in patent-related state-law claims. Some decisions have interpreted Gunn narrowly, upholding federal jurisdiction when the patent at issue remains valid and enforceable, while others have denied jurisdiction in similar circumstances.

The Micron v. Netlist dispute exemplifies why this jurisdictional question is increasingly significant. Over 30 states have enacted statutes prohibiting bad-faith patent assertions, commonly referred to as “anti-troll” laws. These statutes have gained traction in recent years, with notable enforcement actions such as Valve Corporation’s jury victory under Washington’s statute against patent assertion entity Leigh Rothschild. (Disclosure: The author served as an expert witness for Valve in that case.)

Micron has actively utilized Idaho’s anti-troll statute, filing multiple suits under it. In one instance, the Federal Circuit upheld a district court’s order requiring a patent owner to post an $8 million bond before proceeding with an infringement suit. As these statutes become more frequently invoked, courts face increasing pressure to delineate jurisdictional boundaries between state and federal forums.

The facts in Micron v. Netlist are intricate but the jurisdictional issue is clear. Netlist initially sued Micron for patent infringement in federal court in Texas. Subsequently, Micron filed suit in Idaho state court alleging that Netlist violated Idaho’s statute by asserting patents in bad faith—specifically, patents Netlist knew or should have known were invalid. Netlist removed the Idaho case to federal court, asserting that the claim arises under patent law. The District of Idaho remanded the case back to state court, prompting Netlist to appeal the remand order to the Federal Circuit.

Netlist’s primary argument for federal jurisdiction is that Micron’s claim under Idaho’s statute requires proving that Netlist’s patent assertions were objectively baseless—that is, no reasonable litigant could have expected success. Netlist contends that this inquiry necessarily involves patent-law questions about the plausibility of validity and infringement, thus triggering federal jurisdiction.

Micron counters with two main points. First, it argues that the objective baselessness standard arises only because Netlist raised it as part of a federal preemption defense. Under the well-pleaded complaint rule, a defense cannot confer federal jurisdiction. Second, Micron asserts that the patent issues implicated are not “substantial” in the Gunn sense. Instead, they are case-specific questions about plausible validity, infringement, and litigation conduct that do not significantly impact the federal patent system as a whole.

The first argument is complex because the Federal Circuit has indicated that the plaintiff bears the burden of proving objective baselessness. However, the court may avoid deciding this issue if it concludes that any patent question in the case is not substantial enough to support federal jurisdiction under Gunn.

Applying Gunn, a state court’s determination of whether Netlist acted in bad faith would require applying patent law to assess Netlist’s infringement allegations. Yet, the Supreme Court held in Gunn that a similar fact-bound, backward-looking inquiry—whether a patent owner would have prevailed in an earlier infringement suit absent attorney negligence—does not create federal jurisdiction. Likewise, Micron’s claim centers on Netlist’s past enforcement conduct rather than on interpreting federal patent law itself.

Netlist’s strongest contention is the potential for inconsistent rulings, as some federal patent proceedings between the parties remain ongoing. A state court ruling on bad faith could conflict with federal decisions on patent validity, infringement, fees, or sanctions.

Nonetheless, adopting a jurisdictional rule based on the risk of inconsistent outcomes would be difficult to administer. In Micron, certain patent claims have been held unpatentable, though appeals in some proceedings are pending. Allowing jurisdiction to hinge on litigation timing could encourage procedural gamesmanship, which courts generally seek to avoid.

The Federal Circuit’s forthcoming decision in Micron v. Netlist will likely provide important guidance on the boundaries of federal patent jurisdiction in cases involving state-law claims with embedded patent issues. This ruling will have significant implications for the enforcement of state anti-troll statutes and the broader landscape of patent litigation jurisdiction.