Declaratory judgment actions, covenants not to sue, and bad patents: a call to allow the judiciary to weed out bad patents while adhering to the "case or controversy" requirement.

AuthorTiedeman, Jason Scott
PositionIntroduction through I. Background B. Ex Parte Reexamination, Post-Grant Review, and Inter Partes Review Before the United States Patent and Trademark Office 3. Using Ex Parte Reexamination, Post-Grant Review, or Inter Partes Review in the Context of Litigation b. Discovery, p. 1-45

Introduction I. BACKGROUND A. Declaratory Judgments 1. A Brief History of the Declaratory Judgment Act 2. The Use of the Declaratory Judgment Act in Patent Litigation 3. The New Justiciability Test and its Impact on Subject Matter Jurisdiction a. Immediacy and Reality b. MedImmune and the New Justiciability Test. c. Common Misapplications of Cardinal Chemical B. Ex Parte Reexamination, Post-Grant Review, and Inter Partes Review Before the United States Patent and Trademark Office 1. A Brief History of Reexamination and Post-Grant Review 2. Procedural Aspects of Ex Parte Reexamination, Post-Grant Review, and Inter Partes Review as They Relate to Declaratory Judgment Actions 3. Using Ex Parte Reexamination, Post-Grant Review, or Inter Partes Review in the Context of Litigation a. Legal Standards b. Discovery c. Staying Litigation d. Estoppel Issues II. ANALYSIS A. Judicial Means of Retaining Jurisdiction 1. Jurisdiction Over Invalidity and Unenforceability Via 35 U.S.C. [section] 285 Claims of Exceptionality 2. Jurisdiction Over Unenforceability Claims Concerning Interrelated Patents 3. Jurisdiction Based on the Sherman Act 4. Potential Issues with Judicial and Administrative Remedies B. Administrative Proceedings and Claims of Invalidity In Ex Parte Reexamination, Post-Grant Review, and Inter Partes Review Proceedings Before United States Patent and Trademark Office 1. Post-Grant Review Proceedings 2. Inter Partes Review Proceedings 3. Ex Parte Reexamination Proceedings III. PROPOSED SOLUTION A. The Extension of Currently-Accepted Judicial Means B. Utilizing Administrative Remedies C. Public Policy Rationale CONCLUSION Cite as 13 J. High. Tech. L. 1 (2012)

Introduction

Suits based on the Declaratory Judgment Act (1) are well-known tools in the world of patent litigation. (2) Such suits allow alleged infringers to obtain a judicial determination of their rights without waiting for a patent owner alleging infringement to sue. (3) A typical patent-related situation involving a declaratory judgment action arises where a patent owner threatens a competitor with infringement of its patent, thus forcing the competitor to either stop producing a product or continue its potentially infringing activity. (4) An even worse situation occurs where the patentee threatens infringement, but never actually brings suit in order to stifle competition. (5)

Absent the declaratory judgment mechanism, this would act as a powerful deterrent to competition. (6) An accused infringer that continues its allegedly infringing actions opens itself up to treble damages because it is on notice and the alleged infringement may now be willful; if it stops, it loses sales. (7) The Declaratory Judgment Act empowers alleged infringers to bring a declaratory judgment action and have a court determine their rights. (8)

For an accused infringer to survive a dismissal of its declaratory judgment action, the court must have subject matter jurisdiction to hear the case. (9) This is established by showing that the patent owner's assertions of infringement are "definite and concrete" and touch on "the legal relations of parties having adverse legal interests." (10) The Court of Appeals for the Federal Circuit ("CAFC") has developed doctrine by which courts may determine whether the level of assertions and actions by the patent owner rise to this level. (11) This typically is proved by showing that the patentee has created "a reasonable apprehension of an infringement suit" in the accused infringer. (12)

Once the court obtains subject matter jurisdiction, the patent owner still has the ability to have the suit dismissed. A patent owner may decide to cut its losses and file a Covenant Not to Sue ("CNS") thereby alleviating the court of subject matter jurisdiction. (13) Without subject matter jurisdiction, a court has no authority to render a decision on the matter--the "case or controversy" (14) requirement of Article III, Section 2 of the U.S. Constitution is removed. (15) Assuming that the patent is valid and enforceable, there is no problem; the patent owner is happy because it does not have to defend its patent against invalidity claims, and the formerly-accused infringer is happy because it is no longer under threat of suit for the products covered by the CNS.

However, what about the situation where the accused infringer has discovered evidence that the patent in question is invalid? The patent owner may avoid having the patents invalidated by filing a CNS, thus removing subject matter jurisdiction from the court. (16) The court then has no jurisdiction to even hear any evidence regarding the propriety of the patent. (17) Even worse, the evidence uncovered by the accused infringer would, most likely, be under a protective order and would be unavailable to parties outside the suit. (18) The patent owner is free to assert a patent or patents that may actually be invalid against others. (19)

This paper investigates whether courts currently have the mechanisms in place to retain subject matter jurisdiction in such a situation. In the absence of such mechanisms, this paper argues that a doctrine should be developed on public policy grounds to avoid assertion of patent rights based on possibly invalid patents. This paper thereafter discusses whether courts should be able to act as third-party interests and invoke any of the administrative review proceedings available at the United States Patent and Trademark Office.

Section I of this paper discusses the history of and reasons for the enactment of the Declaratory Judgment Act. (20) Section I also presents various scenarios in which this topic may present itself in litigation, especially in light of the holding of Medlmmune, Inc. v. Genentech, Inc., which enunciated a new justiciability test for subject matter jurisdiction. (21)

Section II reviews current means by which a court may retain jurisdiction in the face of a CNS. Further, Section II discusses administrative remedies available to accused infringers and, possibly, the court in the event potentially invalidating evidence presents itself.

Section III proposes that various notable exceptions to the general rule that a CNS obviates claims of invalidity have effectively laid the groundwork for judicially mandated retention of subject matter jurisdiction sufficient to satisfy Article III. Section III additionally argues that mechanisms in place based on ex parte reexamination should be extended to the courts allowing them to institute a proceeding should a question of validity be uncovered. I. BACKGROUND

  1. Declaratory Judgment Actions

    1. A Brief History of the Declaratory Judgment Act

      The Declaratory Judgment Act was first introduced before Congress in 1919. (22) This legislation was a means by which a party could have its legal rights adjudicated without having to wait for its opponent to strike first. (23) Prior to the Act, no mechanism existed by which a party accused of a wrong could bring its case before the court on its own volition. (24) Only a party asserting a cognizable claim had the power to bring the issue before the court. (25) The Declaratory Judgment Act itself does not confer jurisdiction, (26) it is merely a procedural tool to provide additional remedies to federal litigants. (27)

      This inability to bring a declaratory judgment suit on the part of a purported infringer led to cases in which a patent holder asserted its right to bring a suit without any intention of actually doing so. (28) An example of this occurs when a patent owner asserts that the users of a competing product infringe its patent. (29) The patent owner, however, has no intention of filing suit and uses this ploy to effectively stifle competition. (30) Current and potential users of the purportedly infringing products no longer purchase them for fear of a lawsuit, thus pushing any future sales to the patent owner and driving its competitors out of business. (31) This acts to extend the patent owner's rights farther than the limited monopoly intended by the Patent and Copyright Clause of the Constitution. (32)

      Even before its eventual enactment, the Declaratory Judgment Act ran into a major obstacle; the Supreme Court was unsure whether such an act was constitutional. (33) In a series of Supreme Court cases looking at the constitutionality of two state...

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