Federal Circuit’s Exclusive Jurisdiction over Compulsory Patent-Misuse Counterclaims

Introduction

In Honeywell International, Inc. v. OPTO Electronics Co., Ltd. (4th Cir. Apr. 29, 2025), Honeywell and its sublicensees sued OPTO for breach of their 2020 patent-licensing agreement. OPTO responded not only by contesting Honeywell’s breach-of-contract allegations, but by filing a compulsory counterclaim under the Declaratory Judgment Act, seeking a declaration that Honeywell’s patents were unenforceable for patent misuse. The Fourth Circuit was asked to resolve cross-appeals on the merits of contract interpretation, royalty audits, attorney fees, and patent misuse. Instead, the court first had to decide a threshold jurisdictional question: whether the Fourth Circuit or the Federal Circuit has exclusive appellate jurisdiction over an appeal that includes a compulsory patent-misuse counterclaim “arising under” the patent laws.

Key issues:

Does 28 U.S.C. § 1295(a)(1) vest exclusive appellate jurisdiction in the Federal Circuit when a compulsory patent-misuse counterclaim is asserted?
How does the Declaratory Judgment Act intersect with the “arising under” analysis for patent-related counterclaims?
Which hypothetical threatened action anchors the cause-of-action inquiry for a declaratory patent-misuse counterclaim?

Summary of the Judgment

The Fourth Circuit held that it lacked appellate jurisdiction over Honeywell’s appeal and OPTO’s cross-appeal because the Federal Circuit has exclusive authority once a compulsory counterclaim “arising under” the patent laws is asserted. OPTO’s counterclaim (seeking a declaration that Honeywell’s patents were unenforceable for patent misuse) was both compulsory—arising from the same licensing agreement that Honeywell sued on—and “arising under” federal patent law. Under 28 U.S.C. § 1295(a)(1) and the post-2011 “Holmes Group fix,” the Federal Circuit alone may hear appeals that include such counterclaims. The Fourth Circuit therefore dismissed the appeal and directed the case to proceed in the Federal Circuit.

Analysis

1. Statutory Framework and Exclusive Jurisdiction

• 28 U.S.C. § 1338(a) grants original jurisdiction over “civil action[s] arising under any Act of Congress relating to patents.”
• 28 U.S.C. § 1295(a)(1) assigns “exclusive jurisdiction” to the Federal Circuit over appeals in “any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents.”
• Congress sensed a uniformity gap after Holmes Group v. Vornado (535 U.S. 826 (2002)), which had restricted “arising under” jurisdiction to well-pleaded complaints. The 2011 America Invents Act amended § 1295(a)(1) to cover compulsory counterclaims, thereby “fixing” Holmes Group and ensuring all patent issues are heard by one appellate court.

2. Compulsory Counterclaim under Rule 13(a)

• Federal Rule of Civil Procedure 13(a) defines a compulsory counterclaim as one that “arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim.”
• Honeywell’s claim: breach of the 2020 licensing agreement for underpayment of royalties on OPTO’s “2D Barcode Products.”
• OPTO’s counterclaim: patent misuse—alleging the agreement unlawfully extended Honeywell’s patent scope and restrained competition. Both claims hinge on the same contract and factual matrix, making the counterclaim compulsory.

3. “Arising Under” Analysis for Declaratory Judgment Counterclaims

• A claim “arises under” federal patent law either because (a) federal patent law “creates the cause of action,” or (b) the case presents a substantial, disputed federal patent question. Gunn v. Minton, 568 U.S. 251 (2013).
• Declaratory-judgment counterclaims are governed by the well-pleaded complaint rule; jurisdiction depends on the cause of action hypothetically brought by the declaratory-judgment defendant. Medtronic, Inc. v. Mirowski, 571 U.S. 191 (2014).
• OPTO sought a declaration that Honeywell’s patents were unenforceable for misuse. Enforceability of patents is only at issue in patent-infringement actions (35 U.S.C. § 271). Thus, the hypothetical threatened action is a suit for infringement under § 271.
• Because § 271 “creates the cause of action” for infringement, OPTO’s counterclaim “arises under” the patent laws, triggering exclusive Federal Circuit jurisdiction under § 1295(a)(1).

4. Precedents Cited

Kontrick v. Ryan, 540 U.S. 443 (2004) – Congress may define federal-court jurisdiction however it chooses.
Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (1998) – Courts must decide jurisdiction before reaching the merits.
Louisville & Nashville R.R. v. Mottley, 211 U.S. 149 (1908) – Federal-question jurisdiction requires a federal issue in the “well-pleaded complaint.”
Holmes Group v. Vornado, 535 U.S. 826 (2002) – Expanded Mottley to “arising under” patent jurisdiction, later abrogated for compulsory counterclaims.
Leahy-Smith America Invents Act § 19 (2011) – Amended § 1295 to cover compulsory patent counterclaims (the “Holmes Group fix”).
Medtronic, Inc. v. Mirowski, 571 U.S. 191 (2014) – Jurisdiction for declaratory-judgment actions looks to the hypothetical action by the counter-defendant.
Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942) – Patent-misuse creates a defense of patent unenforceability.
B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419 (Fed. Cir. 1997) – Patent misuse is an affirmative defense barring enforcement.
Princo Corp. v. ITC, 616 F.3d 1318 (Fed. Cir. 2010) – Misuse can void both infringement suits and contract suits.

5. Legal Reasoning and Principle Applied

Jurisdictional Sovereignty: Federalism and separation of powers demand that a statutory grant of exclusive jurisdiction be honored.
Statutory Text Controls: § 1295(a)(1) unambiguously vests the Federal Circuit with exclusive appellate jurisdiction when any party asserts a compulsory patent counterclaim.
Declaratory-Judgment Mechanics: The Court applied the “hypothetical threatened action” test from Medtronic to identify a § 271 infringement suit as the anchor for the patent-misuse counterclaim.
Well-Pleaded Complaint Rule: Jurisdiction is determined by the cause of action in the complaint itself, not by subsequent briefs or disclaimers.

6. Potential Impact

Reaffirms and clarifies the Federal Circuit’s exclusive jurisdiction over appeals involving compulsory patent counterclaims, including declaratory-judgment defenses of patent misuse.
Ensures uniform patent law by preventing regional circuits from splitting on patent-misuse and jurisdictional issues.
Guides litigants in licensing disputes: any preemptive patent-misuse counterclaim will carry the appeal to the Federal Circuit, regardless of contract-heavy facts.
Discourages forum shopping and procedural maneuvering on jurisdiction in patent-related contract litigation.

Complex Concepts Simplified

Exclusive Appellate Jurisdiction: Congress can decide which federal appeals court hears which kinds of cases. Here, it chose that the Federal Circuit alone handle patent-related appeals.
Compulsory Counterclaim: A legal claim a defendant must bring in the same lawsuit because it arises from the very same transaction or agreement as the plaintiff’s claim.
“Arising Under” Federal Law: A case “arises under” a federal statute if that statute creates the right of action, or if a federal question is necessarily raised and important to uniformity.
Declaratory Judgment Act: Allows a party to obtain a court declaration of rights (e.g., that a patent is unenforceable), based on a “case or controversy,” before being sued.
Hypothetical Threatened Action: In declaratory-judgment jurisdiction, courts ask “What lawsuit might the defendant bring?” and trace jurisdiction to the law creating that lawsuit.
Patent Misuse: An equitable defense that bars enforcement of a patent when the patentee has extended its monopoly beyond lawful boundaries—either by time (post-expiration royalties) or scope (tying unpatented products).

Conclusion

Honeywell v. OPTO clarifies that once a defendant raises a compulsory patent-misuse counterclaim seeking patent unenforceability, the Federal Circuit must hear the appeal. The decision enforces Congress’s 2011 amendment to 28 U.S.C. § 1295(a)(1), closes the jurisdictional gap left by Holmes Group, and promotes consistency in patent jurisprudence. Litigants in licensing and breach-of-contract disputes involving patents will now know with certainty which appellate court will decide their case whenever patent-misuse defenses are invoked.