More Delays: Appeal Dismissed under Collateral Order Doctrine

By on January 12, 2023
Posted In Patents

The US Court of Appeals for the Federal Circuit dismissed a patent holder’s interlocutory appeal for lack of jurisdiction under the collateral order doctrine. Modern Font Applications LLC v. Alaska Airlines, Inc., Case No. 21-1838 (Fed. Cir. Dec. 29, 2022) (Reyna, Cunningham, JJ.) (Newman, J., dissenting).

Modern Font Applications (MFA) is a nonpracticing entity that holds the exclusive license to a patent disclosing a method for operating systems to read and display nonstandard fonts. In 2019, MFA sued Alaska Airlines in district court for patent infringement. During the proceeding, Alaska Airlines designated portions of its source code files as confidential information for attorneys’ eyes only under the district court’s standing protective order. MFA moved to allow its in-house counsel to access the source code, and Alaska Airlines moved to keep it protected. The district court denied MFA’s motion and granted Alaska Airlines’ motion, finding that the source code amounted to a trade secret and MFA’s in-house attorney was properly excluded as a “competitive decisionmaker.” MFA sought interlocutory appeal of the order.

The Federal Circuit found that it lacked jurisdiction to review the discovery order. The Court explained that US Congress holds appellate courts to the final judgment rule, which states that decisions are only appealable if they end disputes on the merits, leaving nothing but execution of the judgment. A “practical construction” of this rule is the collateral order doctrine, which allows appellate review of a “small class” of attendant rulings. To qualify for review under this doctrine, a decision must be “conclusive”; address an important question, separate from the case’s merits; and be such that an appeal of the final judgment would not encompass a review of the decision at issue. The Federal Circuit stressed that the Supreme Court of the United States “has repeatedly emphasized the limited scope” of this doctrine.

The Federal Circuit found that MFA’s appeal failed the third prong of the collateral order doctrine. The Court noted that across appellate jurisdictions, pretrial discovery orders almost always fail this prong because review of final judgments can usually adequately address discovery issues. MFA argued that dismissing its appeal would prejudice MFA both financially and by eliminating its key litigation strategists and that the district court’s error would not be sufficient to overturn a final adverse judgment. The Court was not persuaded, noting that any financial harm was speculative, and that MFA could hire outside counsel or experts instead of relying on its in-house attorney. The Court also reiterated that to merit review under the collateral order doctrine, the issue must be “effectively unreviewable” on appeal, and the likelihood of an appellant’s success is irrelevant. The Court also found that MFA’s appeal failed the second prong because the exclusion of MFA’s attorney was too entangled with the ultimate outcome of the case to be considered an issue “separate” from the case. Because MFA failed two of three collateral order doctrine prongs, the Court did not address the first prong and dismissed the appeal for lack of jurisdiction.

In its decision, the Federal Circuit repeatedly referred to the policy concerns underpinning its decision. First, MFA’s grievance was too small to merit ignoring the final judgment rule. Second, judicial efficiency dictates postponing review of discovery orders because multiple discovery disputes typically arise during trial. Third, ruling on early discovery motions would undercut the power of the district court and “needlessly burden” appellate courts.

Judge Newman dissented, writing that the majority confused appellate jurisdiction with appellate discretion. In her view, the Federal Circuit is clearly empowered to review such orders, but must decide to do so. She also noted the other side of the policy coin: leaving discovery issues to be reviewed only after final judgment creates “inefficiency and possible injustice.” Judge Newman would have had the Court review this discovery order prior to trial, so that MFA’s counsel could access the code while he used it, if he were in fact entitled to see it.

Practical Note: In any jurisdiction, parties seeking appellate review of pretrial discovery orders should be prepared to plead and prove all three prongs of the collateral order doctrine.

Kat Lynch
Kat Lynch is a law clerk in our Chicago office with a focus on intellectual property matters.

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