Federal Circuit Finds Lack of Jurisdiction for Declaratory Judgment Act

In Benitec Australia, LTD. v. Nucleonics, Inc., 83 U.S.P.Q.2d 1449 (Fed. Circ. 2007), the United States Court of Federal Appeals for the Federal Circuit affirmed the Delaware District Court’s decision dismissing Nucleonics’ declaratory judgment counterclaims against Benitec Australia regarding invalidity of U.S. Patent No. 6,573,099 (“ ‘099 patent”), which related to RNA-based disease therapy, for lack of subject matter jurisdiction. 

Benitec and Nucleonics are both biotechnology companies that are engaged in gene silencing, where a cell is exposed to foreign DNA specifically engineered to contain portions of the target gene to be silenced.  The foreign DNA then produces molecules that shut down the expression of the target gene.  This technology is called RNA interference (RNAi) gene silencing.  Benitic owns the ‘099 patent which relates to RNA-based disease therapy, and sued Nucleonics for infringement.  Nucleonics moved to dismiss Benitec’s complaint for failure to state a claim and lack of jurisdiction.  Nucleonics also argued that it would not be ready to file a New Drug Application until 2010-2012, if ever; consequently Benitec’s claim is premature for a Court at this time. 

On October 4, 2004 and May 18, 2006, Nucleonics filed a request to the USPTO for reexamination of the ‘099 patent; both requests were granted and merged into one proceeding.  Benitec then canceled claims 1, 2, and 8 during reexamination, but in April of 2006, the examiner rejected all other claims of the patent.  On June 2006, Benitec attempted to overcome the rejection, but as of December 2006, the examiner has not substantively responded.

Benitec encountered other obstacles.  First, Nucleonics received evidence that the inventor of patent ‘099 may have misappropriated the idea from other inventors who were not named in the patent.  Consequently, in February of 2005, Nucleonics sought to amend its answer to add declaratory relief counterclaims of invalidity and unenforceability based on alleged inventorship fraud.  On June 2006, Nucleonics obtained testimony from two Australian scientists indicating that they had contributed to the subject matter of patent ‘099, but neither was named as inventor in the patent.  Second, the Supreme Court decided Merk KGaA v. Integra Lifesiences I, Ltd., 545 U.S. 193 (2005), which expansively read exception §271(e)(1) concluding that the use, sale, or import of a patent that is primarily manufactured using RNA, amongst others, is non-infringing. 

On August of 2005, Benitec moved to dismiss its complaint without prejudice only because of the Merk decision, which indicated Benitec had no viable infringement claim against Nucleonics.

The district court granted Nucleonics’ motion to amends its answer, but two weeks later the court granted Benitec’s motion to dismiss its complaint without prejudice for lack of jurisdiction under the Declaratory Judgment Act, 28 U.S.C. §§2201-02.  Between Nucleonics motion to amend and the court’s dismissal, Nucleonics allegedly began discussing an expansion of its efforts to animal husbandry and veterinary products.  Next, Nucleonics appealed the dismissal of its declaratory jdugement counterclaims because Benitec’s covenants and promises not to sue Nucleonics for patent infringement were entered in this action.  As such, the issue on appeal was whether the court at this time has declaratory judgment jurisdiction over Nucleonics’ counterclaims seeking declaration of invalidity and unenforceability of Benitec’s ‘099 patent 

As noted by the Federal Circuit, the Supreme Court in MedImmune Inc. v. Genentech, 127 S. Ct. 764 (2007) rejected the “reasonable apprehension of imminent suit” test, and held that the standard for determining Declaratory Relief jurisdiction is “whether the facts alleged, under all circumstances, show that there is substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment” Id. at 771.  Moreover, in Sandisk Corp v. STMicroelectronics NV, 480 F.3d 1372 (Fed. Cir. 2007), the Federal Circuit explained that Article III jurisdiction may be satisfied “where a patentee asserts rights under a patent based on certain ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without a license”; however, that party need not risk an infringement suit by engaging in the identified activity prior to seeking declaratory judgment.   Also, there must be an underlying legal cause of action that the declaratory defendant could have brought or threatened to bring suit, but for the fact that the declaratory plaintiff has preempted it.

Regarding the burden, the party claiming declaratory judgment jurisdiction must establish that such jurisdiction existed at the time the claim was filed, and that it has continued since.  The party challenging the jurisdiction may have the burden of bringing forth further information, but the actual burden of proof remains with the party seeking declaratory judgment jurisdiction. 

The Federal Circuit determined that declaratory judgment jurisdiction was present at the time Nucleonics filed its counterclaims for declarations of invalidity and unenforceability because Nucleonics had been charged with infringing Benitec’s patent.  This is supported by Cardinal Chem. Co. v. Morton Int’l Inc., 508 U.S. 83 (1993), which held that an actual charge of infringement of a patent is necessarily a case or controversy adequate to support jurisdiction.  However, the Federal Circuit determined there was no declaratory judgment jurisdiction at the present time. 

Specifically, the Federal Circuit pointed to SuperSack Mfg. Corp. v. Chase Packing Corp., 57 F.3d. 1054 (Fed. Cir. 1995) and Amana Refrigeration Inc. v. Quadlux, Inc., 172 F.3d. 852 (Fed. Cir. 1999) on this issue.  In Super Sack, an unconditional agreement “not to sue Chase for infringement as to any claim of the patent-in-suit based on the products currently manufactured and sold by Chase” was sufficient to divest the court of jurisdiction over Chase’s counterclaims of invalidity and unenforceability.   Chase was engaged in no “present activity” placing it at risk for infringement, and the residual possibility of a lawsuit was too speculative to serve as basis for jurisdiction.  In Amana Refrigeration, Amana sued Quadlux for declaratory judgment of patent invalidity and noninfringement, and Quadlux responded with a promise not to sue Amana for infringement based on the patent-in-suit.  The Federal Circuit held such promise diverted the district court’s jurisdiction.  Although both Super Sack and Amana applied the “reasonable apprehension of imminent suit” test rejected in MedImmune, the Federal Circuit stressed that it based its analysis of whether jurisdiction is currently present over Nucleonics under the framework of MedImmune.

Under §271(e)(1) of Title 35 of theUnited StatesCode:

It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention (other than a new animal drug or veterinary biological product (as those terms are used in the Federal Food, Drug, and Cosmetic Act and the Act of March 4, 1913) which is primarily manufactured using recombinant DNA, recombinant RNA, hybridoma technology, or other processes involving site specific genetic manipulation techniques) solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.

Both parties agree that under Merk and §271(e)(1), Nucleonics’ activities related to human medical application of RNAi are not infringing and cannot become infringing until Nucleonics files a new drug application.  However, Nucleonics does not expect to file a new drug application until 2010-2012 if ever; consequently, Nucleonics’ activities of developing a human application of RNAi and submitting information to the FDA do not present a case and controversy of sufficient immediacy and reality to warrant a declaratory judgment jurisdiction over the enforceability of the ‘099 patent.

Nucleonics argued that Fort James Corp. v. Solo Cup Co., 412 F.3d  1340 (Fed. Cir. 2005) supports its position of jurisdiction. FortJames sued Solo Cup for infringement of three patents, and Solo Cup counterclaimed seeking declaration that the patents were invalid, unenforceable, and not infringed. The district court bifurcated the trial, which meant all issues were to be resolved by the jury first, except for Solo Cup’s unenforceability counterclaim.  The jury determined that one of the patents-in-suit was neither invalid nor infringed.FortJames then promised not to sue Solo Cup or attempt to overturn the jury’s verdict.  Nonetheless, the Federal Circuit held that there was still declaratory judgment jurisdiction over Solo Cup counterclaim.  However, in that case the controversy had already been resolved, as opposed to in the present case where no trial of infringement has taken place.

The Federal Circuit also pointed to SanDisk, where the court did hold that STMicroelectornics’s (ST) statement that it “ha[d] absolutely no plan whatsoever to sue SanDisk” did not eliminate the justiciable controversy.  However, ST’s course of conduct showed that it was willing to enforce its patent rights regardless of the statement made.   480 F.3d at 1382. Here, Benitec sought dismissal of the infringement claim after it concluded that the Merk decision would preclude such claim.  Consequently, there is no controversy between the parties regarding infringement by Nucleonics and its human applications of RNAi technology. 

Regarding animal application of RNAi, Nucleonics argues that such products would not be protected from infringement under §271(e)(1) because they fall within “new animal drug or veterinary biological product” exception.  The Federal Circuit held that for Nucleonics to be liable for infringement, it has to have the authority to make, use, offer to sell, or sell a product that infringes the ‘099 patent. However, there is no evidence of such infringing product.  The Federal Circuit also indicated that the declaration by Nucleonics’ president to an unnamed supplier regarding its desire to expand its efforts into animal markets does not amount to an offer to sell.  In addition, Nucleonics has not shown use of such a product.  Nucleonics has failed to meet its burden of showing that it has engaged in an activity that could subject to it to an infringement claim by Benitec; consequently, Nucleonics has not satisfied MedImmune’s real and immediacy requirement.

The Federal Circuit also concluded that Nucleonics failed to show that its future plans meet the MedImmune standard for three main reasons. First, discussions and execution of an undisclosed confidentiality agreement with an unnamed potential customer indicate mere expectations to begin work “shortly”.  Second, there is not sufficient evidence to indicate that Nucleonics future activities would fall within §271(e)(1)’s parenthetical exception for animal drugs.  Third, Benitec has not challenged the use of the technology for animal use, and claims another company owns a right to do so. 

The Federal Circuit concluded that there is no substantial controversy between Benitec and Nucleonics of sufficient immediacy and reality to warrant declaratory judgment under the MedImmune standard.  Consequently, the Federal Circuit affirmed the district court’s dismissal for lack of subject matter jurisdiction.

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