IP Law Daily, PATENT—4th Cir.: Fourth Circuit sends Honeywell-OPTO barcode scanner dispute to Federal Circuit, (Apr 30, 2025)

By George Basharis, J.D.

The Fourth Circuit determined that patent misuse counterclaims seeking patent unenforceability must be heard by the Federal Circuit.

The U.S. Court of Appeals for the Fourth Circuit has dismissed an appeal between Honeywell International and OPTO Electronics, ruling that the Federal Circuit has exclusive jurisdiction over the case due to patent-related counterclaims. The decision clarifies when patent misuse defenses in licensing disputes trigger Federal Circuit jurisdiction. The key factor is not the overall nature of the dispute but whether any claim or counterclaim arises under patent laws. Specifically, when a party seeks a declaration of patent unenforceability due to patent misuse, the resulting counterclaim is deemed to arise under patent laws, even if the primary dispute concerns breach of contract (Honeywell International, Inc. v. Opto Electronics Co., Ltd., No. 23-1850 (4th Cir. Apr. 29, 2025)).

Background. The case emerged from a longstanding dispute between Honeywell International and OPTO Electronics, competitors in barcode-scanning technology. In 2019, Honeywell sued OPTO for patent infringement in both the International Trade Commission and the District of Delaware, alleging that OPTO’s imported barcode products infringed seven Honeywell patents. The parties settled in January 2020 through a patent-licensing agreement that granted OPTO licenses to Honeywell’s entire U.S. patent portfolio in exchange for royalty payments on OPTO’s revenues from “2D Barcode Products.”

The peace was short-lived. After conducting an audit in March 2021, Honeywell claimed OPTO had underreported its revenue by several million dollars. The dispute centered on the definition of “2D Barcode Products,” with Honeywell asserting that certain laser-scanning barcode readers OPTO had classified as “1D barcode products” were actually “2D Barcode Products” subject to royalties.

When negotiations failed, Honeywell sued OPTO for breach of contract in the Western District of North Carolina. OPTO not only defended against the breach claim but also filed counterclaims, including a declaratory judgment action asserting that Honeywell had engaged in patent misuse. Specifically, OPTO claimed Honeywell’s attempt to collect royalties on OPTO’s laser-scanning barcode readers “results in unreasonable restraint on competition by unlawfully extending the reach of [Honeywell’s] licensed patents.” OPTO sought a declaration that Honeywell’s licensed patents were unenforceable due to this misuse.

The case proceeded to trial, where a jury found that OPTO’s laser-scanning barcode readers counted as “2D barcode products” but awarded Honeywell only $859,741. The district court subsequently rejected OPTO’s patent misuse counterclaim.

Jurisdictional dispute. Both parties appealed to the Fourth Circuit. However, Honeywell later decided the Federal Circuit had exclusive jurisdiction and filed a second notice of appeal there. OPTO cross-appealed in both courts but opposed Honeywell’s motion to dismiss in the Fourth Circuit while filing a mirror-image motion to dismiss in the Federal Circuit.

The Fourth Circuit addressed the jurisdictional question first, as the Federal Circuit placed its parallel appeal in abeyance pending this resolution. The court analyzed the jurisdictional requirements that would give the Federal Circuit exclusive appellate jurisdiction. The court examined 28 U.S.C. § 1295(a)(1), which grants the Federal Circuit exclusive jurisdiction over appeals from district courts where a party “has asserted a compulsory counterclaim arising under” patent laws. The court applied a two-part test: (1) whether the counterclaim was “compulsory” and (2) whether it “arose under” federal patent laws.

Compulsory counterclaim. The court determined that OPTO’s patent misuse counterclaim was compulsory under Rule 13(a) of the Federal Rules of Civil Procedure because it arose from the same transaction or occurrence as Honeywell’s breach-of-contract claim—the 2020 licensing agreement. Both claim and counterclaim required examination of the agreement’s scope.

“Arising under” patent laws. The court then analyzed whether OPTO’s patent misuse counterclaim “arose under” federal patent laws. Noting that a claim can arise under patent laws if either (1) patent law creates the cause of action or (2) the claim involves substantial patent law issues, the court focused on the first avenue.

Critical to the court’s analysis was that OPTO’s counterclaim sought declaratory judgment. The court explained that for declaratory judgment actions, jurisdiction depends on the “hypothetical threatened action” that the declaratory judgment defendant (Honeywell) could have brought, which would cause the declaratory judgment plaintiff (OPTO) to raise its defense.

The court determined that OPTO sought “a declaration that [Honeywell's] licensed patents were unenforceable due to patent misuse.” This declaration would defend against a hypothetical patent infringement suit—an action created by 35 U.S.C. § 271. Because this hypothetical patent infringement suit would arise under federal patent laws, OPTO’s declaratory judgment counterclaim also arose under patent laws, vesting exclusive jurisdiction in the Federal Circuit.

The court rejected several counterarguments from OPTO. First, OPTO argued that because the case was fundamentally about breach of contract, the Fourth Circuit should retain jurisdiction. The court disagreed, noting that § 1295(a)(1) gives the Federal Circuit jurisdiction whenever any claim or counterclaim arises under patent laws, regardless of the overall nature of the dispute.

OPTO also claimed it had disclaimed the patent unenforceability relief in its briefs. The court held that such statements could not alter the relief requested in the counterclaim complaint, which explicitly sought patent unenforceability.

Finally, OPTO warned that sending the appeal to the Federal Circuit would create a circuit split with a recent Third Circuit decision, which also involved a declaratory judgment claim asserting patent misuse in a licensing agreement dispute. However, the court distinguished the Third Circuit decision, noting that case involved only Brulotte patent misuse (relating to post-expiration royalties), which cannot serve as a defense against patent infringement. The court concluded by dismissing the appeal, allowing the parallel appeal in the Federal Circuit to proceed.

The Case is No. 23-1850.

Judge: Richardson, J.

Attorneys: Kirk T. Bradley (Alston & Bird LLP) for Honeywell International, Inc., Hand Held Products, Incorporated, and Metrologic Instruments, Inc. Brian David Schmalzbach (McGuireWoods, LLP) for Opto Electronics Co., Ltd.

Companies: Honeywell International, Inc.; Hand Held Products, Incorporated; Metrologic Instruments, Inc.; Opto Electronics Co., Ltd.

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