Chapter §13.06 Patent Declaratory Judgment Actions

• Jurisdiction: United States

§13.06 Patent Declaratory Judgment Actions

[A] Introduction

Declaratory judgment (DJ) actions are encountered frequently in patent litigation. Although typically asserted as defenses to a patentee's infringement lawsuit, defensive theories including noninfringement, absence of liability for infringement, invalidity, and unenforceability may instead be raised as affirmative allegations of a party (such as an accused infringer) who files an affirmative action (or counterclaim) under the Declaratory Judgment Act.⁵⁵⁷

The plaintiff in a patent DJ action (or a DJ counterclaimant) affirmatively seeks a judicial declaration that it is not liable for infringement and/or that the patent in question is invalid and/or unenforceable. The Federal Circuit has observed that "[t]he Declaratory Judgment Act can prevent patent owners from 'brandishing a Damoclean threat with a sheathed sword.' "⁵⁵⁸ Before the Act was passed,

competitors victimized by that tactic were rendered helpless and immobile so long as the patent owner refused to grasp the nettle and sue. After the Act, those competitors were no longer restricted to an in terrorem choice between the incurrence of a growing potential liability for patent infringement and abandonment of their enterprises; they could clear the air by suing for a judgment that would settle the conflict of interests. ⁵⁵⁹

A patent DJ action can be thought of as the mirror image of a garden-variety patent infringement suit, because a potential or accused infringer is the typical DJ plaintiff and a patentee is the DJ defendant. In certain circumstances discussed below, the party filing the DJ action may not be a formally "accused" infringer but rather a licensee that has not been explicitly threatened with an infringement action because it is currently paying royalties to the patentee. Nevertheless, the licensee believes that its product is not covered by the licensed patent and/or that the patent is invalid and/or unenforceable.⁵⁶⁰

Because Article III of the U.S. Constitution mandates that federal courts adjudicate only "[c]ases" and "[c]ontroversies,"⁵⁶¹ the Declaratory Judgment Act requires that a "case of actual controversy" exist.⁵⁶² The Supreme Court has upheld the constitutionality of the Declaratory Judgment Act and explained that the act's use of the phrase "case of actual controversy" refers to the types of "Cases" and "Controversies" that are justiciable under Article III.⁵⁶³ Satisfying the "actual controversy" requirement is thus a jurisdictional prerequisite for filing a declaratory judgment action. The Declaratory Judgment Act itself is not an independent basis for subject matter jurisdiction; such jurisdiction must arise from some other source; e.g., the patent law.⁵⁶⁴

The Federal Circuit's standard for determining the existence of a justiciable actual controversy in a patent DJ action changed in 2007 when the U.S. Supreme Court decided MedImmune, Inc. v. Genentech, Inc., reversing the Circuit.⁵⁶⁵ The MedImmune decision undoubtedly expanded the circumstances under which issued patents may be challenged.⁵⁶⁶ Commentators have concluded that "[b]y liberalizing the availability of declaratory judgment relief concerning patent validity and scope, MedImmune tilts the patent landscape away from the interests of patent owners and toward those of licensees and other who may be threatened, rightly or wrongly, with the enforcement of patents."⁵⁶⁷

The following subsections trace the development of patent DJ jurisdictional law before and after the Supreme Court's 2007 MedImmune decision.

[B] Pre-MedImmune "Reasonable Apprehension" Test

Prior to the Supreme Court's 2007 decision in MedImmune, the Federal Circuit viewed a sufficient actual controversy as existing only if a declaratory plaintiff had a "reasonable apprehension" of being sued for patent infringement. More particularly, the court applied the following two-part inquiry for determining the existence of declaratory judgment jurisdiction:

(1) an explicit threat or other action by the patentee which creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit; and

(2) present activity by the declaratory judgment plaintiff which could constitute infringement, or concrete steps taken with the intent to conduct such activity. ⁵⁶⁸

Prong (1) of this inquiry focused on acts by the patentee; prong (2) examined acts by the DJ plaintiff.⁵⁶⁹

The Federal Circuit clarified in Teva Pharms. USA, Inc. v. Pfizer, Inc.⁵⁷⁰ that prong (1) required the DJ plaintiff to demonstrate "that it has a reasonable apprehension of imminent suit."⁵⁷¹ The requirement of imminence meant that the injury had to be concrete, in other words, "actual or imminent, not conjectural or hypothetical."⁵⁷² In many cases, the prong (1) "reasonable apprehension of imminent suit" arose when the DJ plaintiff received a "cease and desist" letter or other express threat of suit for infringement from a patentee.

However, an express threat was not mandated to create declaratory judgment jurisdiction. For example, the Federal Circuit observed in its 2002 decision, Vanguard Research, Inc. v. PEAT, Inc.,⁵⁷³ that

[a]lthough the best evidence of a reasonable apprehension of suit comes in the form of an express threat of litigation, an express threat is not required. Shell Oil, 970 F.2d at 888, 23 USPQ2d at 1630 (citing Goodyear Tire & Rubber Co. v. Releasomers Inc., 824 F.2d 953, 956, 3 USPQ2d 1310, 1312 (Fed. Cir. 1987)). To invoke the court's declaratory judgment jurisdiction, a plaintiff must show "more than the nervous state of mind of a possible infringer," but does not have to show that the patentee is "poised on the courthouse steps." Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051, 1053–54, 35 USPQ2d 1222, 1224 (Fed. Cir. 1995). ⁵⁷⁴

As described infra, no such express threat was involved in MedImmune.

[C] MedImmune v. Genentech (U.S. 2007)

The DJ plaintiff in MedImmune, Inc. v. Genentech, Inc.⁵⁷⁵ was not the typical accused infringer that had received a cease-and-desist letter or otherwise been expressly threatened with an infringement suit. Rather, MedImmune manufactured the drug Synagis, for treatment of respiratory disease, under a license agreement with patent owner Genentech. Notably, Synagis accounted for 80 percent of MedImmune's sales revenues. When signed in 1997, the license agreement covered an existing Genentech patent plus a then-pending application. When the application issued as the "Cabilly II" patent, Genentech sent MedImmune a letter asserting that Synagis was covered by Cabilly II and that MedImmune would owe Genentech royalties thereunder. MedImmune disagreed, believing the Cabilly II patent to be invalid and unenforceable, and in any event not infringed by Synagis.

MedImmune was unwilling to risk refusing to pay the royalties demanded, however. MedImmune anticipated that if it refused to pay royalties under the Cabilly II patent, Genentech would terminate the license and sue MedImmune for infringement. Knowing that an infringement lawsuit could potentially result in an injunction against further sales of its primary product, as well as the possibility of liability for enhanced damages and attorney fees, MedImmune paid Genentech the demanded royalties under protest.⁵⁷⁶

Thereafter MedImmune filed a DJ action against Genentech. A federal district court dismissed the action for lack of subject matter jurisdiction,⁵⁷⁷ and the Federal Circuit affirmed.⁵⁷⁸ Dismissal was based on the Circuit's precedent that a patent licensee in good standing could not establish the requisite Article III case or controversy, because the license, "unless materially breached, obliterate[s] any reasonable apprehension" that the licensee would be sued for infringement.⁵⁷⁹

The Supreme Court granted review in MedImmune. By an 8-1 vote, it reversed the Federal Circuit in an opinion authored by Justice Scalia.⁵⁸⁰ The Supreme Court agreed that as long as MedImmune continued to make the royalty payments, there was no risk that Genentech would seek to enjoin its sales of Synagis. Thus, the issue for decision was "whether this cause[d] the dispute no longer to be a case or controversy within the meaning of Article III."⁵⁸¹

The Supreme Court's earlier decisions required that a justiciable dispute be " 'definite and concrete, touching the legal relations of parties having adverse legal interests'; and that it be 'real and substantial' and 'admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.' "⁵⁸² As summarized by the Court, " 'the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.' "⁵⁸³

After reviewing this and other DJ precedent, which admittedly did "not draw the brightest of lines" between DJ actions that satisfied the case or controversy requirement and those that did not,⁵⁸⁴ the Supreme Court concluded that the case at bar involved a sufficiently live dispute to establish the district court's jurisdiction over MedImmune's DJ action. MedImmune's continued payment of royalties was coerced by the threat of an infringement suit (and the potential negative consequences thereof) if it stopped payment. This coercion was sufficient to create DJ jurisdiction.⁵⁸⁵ "The rule that a plaintiff must. . . . bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III."⁵⁸⁶

The MedImmune Court rejected patentee Genentech's argument that the license agreement operated as an insurance policy or settlement that precluded MedImmune's challenge; "[p]romising to pay royalties on...