In University of Pittsburgh v. Varian Medical Systems, Inc., the United States Court of Appeals for the Federal Circuit (CAFC) overruled the District Court for the Western District of Pennsylvania and allowed the University of Pittsburgh (Pitt) to re-file its infringement suit. Pitt had sued Varian Medical Systems, Inc. (Varian) for infringement of Pitt’s patent Ser. Nos. 5,727,554(the ‘554 patent) and 5,784,431 (the ‘431 patent). However, the District Court had dismissed the suit with prejudice due to Pitt’s failure to join Carnegie Mellon University (Carnegie Mellon) as a party. Researchers at Pitt and Carnegie Mellon had collaborated in the development of a device for administering radiation therapy to lung cancer patients. Under procedures and guidelines developed by the two institutions, Pitt commercialized the inventions, filed the related patent applications, and is the assignee of the patents.

In April of 2007, Pitt sued Varian claiming infringement of the ‘554 and ‘431 patents. Varian moved for summary judgment, claiming Carnegie Mellon was a co-owner of the patents and, therefore, should have been joined as a plaintiff. Without Carnegie Mellon’s presence in the suit, Varian argued that Pitt lacked standing to sue for infringement. The District Court referred Varian’s motion to a special Master. Shortly thereafter, Pitt moved to join Carnegie Mellon as a plaintiff, but the District Court denied the motion with no explanation. The Master decided that Carnegie Mellon was a co-owner of the patents and therefore was a necessary party to the suit. He recommended that the District Court either grant Varian’s motion for summary judgment without prejudice to Pitt, thus allowing Pitt to file an amended complaint with Carnegie Mellon added as a plaintiff, or vacate the Court’s previous ruling denying Pitt’s request to join Carnegie Mellon. Varian argued that the District Court should instead dismiss the action with prejudice, saying that joining Carnegie Mellon at that point would be unfair to Varian. The District Court agreed with Varian, and dismissed the action with prejudice. Pitt appealed the court’s decision to the CAFC.

On appeal, Pitt argued that Carnegie Mellon was not a co-owner of the patents, and therefore not a necessary party to the suit, and that the District Court was wrong when it dismissed “with prejudice.” The CAFC agreed with Pitt, finding that, regardless of whether Carnegie Mellon was a necessary party, the dismissal should have been without prejudice. The CAFC applied the law of the Third Circuit, which reviews a District Court’s decision to dismiss “with prejudice” for abuse of discretion.

The CAFC considered the dismissal to be a dismissal for failure to join a necessary party under Fed. R. Civ. Pro. Rule 19(b), as allowed under Fed. R. Civ. Pro. Rule12 (b)(7),noting that, under Isr. Bio-Eng’s Project v.Amgen Inc., 475 F.3d 1256, 1264–65 (Fed. Cir. 2007), patent owners suing for infringement must join co-owners or the case can be dismissed for lack of standing. However, according to the CAFC, a dismissal under these circumstances is not an adjudication on the merits, and therefore should generally be without prejudice. The CAFC went on to point out that, in a case where the defect is curable, the dismissal should be without prejudice, going so far as to say, “there is a strong presumption” that a dismissal with prejudice under these circumstances is improper.

The CAFC noted that courts can dismiss with prejudice as a sanction, and that would be justified if Pitt’s attempt to join Carnegie Mellon was really “untimely and unfair” to Varian. The CAFC cited four factors the Third Circuit court drew from Donnelly v. Johns-Manville Sales Corp., 677 F. 2d 339, 342 (3d Cir. 1982) which should help a court to determine whether dismissal with prejudice is appropriate: (1) whether the plaintiff was responsible for the delay; (2) whether prejudice resulted to the defendant from the delay; (3) the plaintiff’s history of proceeding in a dilatory manner; and (4) whether sanctions other than dismissal would be effective. The CAFC noted that, in this case, the District Court did not explain how any of the factors applied, nor did the District Court explain why dismissal with prejudice was appropriate. The CAFC went on to point out that the law makes it clear that dismissal with prejudice should be used as a sanction only rarely. According to the CAFC, even if Varian’s claim that Pitt didn’t join Carnegie Mellon for tactical purposes was true, that was not enough to support a sanction as severe as that imposed.

The CAFC also questioned whether Pitt knew Carnegie Mellon had to be joined, and noted that it would have been reasonable for Pitt to think the joinder was unnecessary. After pointing out that the evidence fell short of the Donnelly factors, the CAFC ruled that dismissing with prejudice as a sanction was an abuse of discretion no matter what rationale the court used. It vacated the dismissal and remanded with instructions to designate the dismissal as without prejudice, thus allowing Pitt to refile the suit either with Carnegie Mellon joined as a party or have Carnegie Mellon assign what rights it had.