Federal Circuit Finds No Subject Matter Jurisdiction for Declaratory Judgment Where No Evidence of Threat and Only Evidence of Notice is a Patent Marking

In Prasco v. Medicis Pharmaceutical Corp. et al., 87 USPQ2d 1675 (Fed. Cir. Aug. 15, 2008), Medicis manufactures a benzoyl peroxide cleanser under the name TRIAZ®.  The cleanser is marked as being covered by four patents: U.S. Patent Nos. 5,648,389, 5,254,334, 5,409,706, and 5,632,996. The four patents are owned by Medicis and Imaginative Research Associates.  Prasco makes a competing generic benzoyl peroxide cleanser: OSCION™.  On learning of the four patents,  Prasco filed a declaratory judgment action under 28 U.S.C. § 2201 in order to declare that OSCION™ does not infringe U.S. Patent Nos. 5,648,389, 5,254,334, 5,409,706, and 5,632,996.

There was no dispute that Medicis was unaware of OSCION™ prior to the filing of the declaratory judgment.  Instead, Prasco alleged that the declaratory judgment action was proper for three reasons.  First, Medicis’ marking of TRIAZ® products in compliance with 35 U.S.C. § 287 exposed Prasco to damages, thereby bringing the possibility of immediate harm.  Moreover, due to a prior infringement suit brought by Medicis against Prasco in relation to another product, there was evidence that Medicis was likely to sue Prasco over generic versions of cleanser. Lastly, while Prasco sent a sample of OSCION™ and an ingredient list to Medicis and requested a covenant not to sue under the four patents, Medicis did not sign the covenant not to sue and responded with a single sentence letter advising that they “do not plan to withdraw [their] motion to dismiss the complaint.”

The District Court dismissed the declaratory judgment action for lack of subject matter jurisdiction as there was no case or controversy.  Specifically, the District Court found that there was no reasonable apprehension of suit and that there was also “no definite and concrete dispute that touches the legal relations of these parties.” As such, the District Court found that there was insufficient evidence of a case or controversy for there to be maintained a declaratory judgment action even in view of the Supreme Court’s decision in MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007).

On appeal, the Federal Circuit first noted that the declaratory judgment act does not provide a separate ground for subject matter jurisdiction.  Citing its recent decision in Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482 F.3d 1330 (Fed. Cir. 2007), the Federal Circuit held that “as long as the suit meets the case or controversy requirement of Article III, a District Court may have jurisdiction over a declaratory judgment action.”  However, as no bright line rule exists as to when this requirement is met, the Federal Circuit acknowledged that the cases must be decided on the particular facts to determine whether the declaratory judgment was supported by “‘a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.’” Quoting MedImmune, 127 S. Ct. at 771.  In so doing, the Federal Circuit also held that the reasonable apprehension of suit test, while not an exclusive test, is useful in determining whether this threshold has been met.

In reviewing the facts of the case, the Federal Circuit first noted that the “mere existence of a potentially adverse patent does not cause an injury nor create an imminent risk of an injury; absent action by the patentee, ‘a potential competitor . . . is legally free to market its product in the face of an adversely-held patent.'” quoting Novartis, 482 F.3d at 1345. As such, there must be more than the bare existence of a patent in order to create a case or controversy.

In the instant case, while Prasco indicated that the immediate injury to Prasco was due to the “paralyzing uncertainty” that Medicis would sue for infringement, the Federal Circuit noted that Prasco had begun substantial marketing efforts for the OSCION™ cleanser.  Moreover, as there was no actual action by Medicis, there was no real and immediate threat being posed by actions of Medicis, leaving the only threat to be a subjective one in the mind of Prasco.

Also, the Federal Circuit noted that, while there was a past infringement action between Prasco and Medicis for an unrelated cleanser, this past action did not amount to a real and immediate threat on this new OSCION™ product.  Thus, the past actions provided little evidence of conduct in relation to the four patents for another product.

Further, while Medicis did mark its product in conformance with 35 U.S.C. § 251, its marking was prior “to any knowledge of Prasco’s OSCION™ product,” and is “irrelevant to the question of whether Medicis’ believes OSCION™ infringes the applicable patents or will attempt to interfere with Prasco’s business on the basis of an allegation of infringement” since marking “provides little, if any, evidence that [Medicis] will ever enforces its patents.”  Thus, while marking is an action caused by Medicis, the mere marking of a product provides little evidence of a real and immediate harm being threatened by Medicis against Prasco.

Lastly, while Prasco argued that Medicis’ failure to sign a covenant not to sue was a sign of impending suit, the Federal Circuit noted that the “patentee has no obligation to spend the time and money to test a competitors’ product nor to make a definitive determination, at the time and place of the competitors’ choosing, that it will never bring an infringement suit.”  As such, the Federal Circuit held that Prasco’s sending of samples and the covenant did not create a duty for Medicis to analyze the sample and execute the covenant such that Medicis’ failure to respond to the covenant was insufficient to create a case or controversy for purposes of a declaratory judgment action.  Therefore, the Federal Circuit affirmed the District Court’s decision to dismiss the declaratory judgment action for lack of subject matter jurisdiction.

Significance to Patent Owners

Prasco provides a reminder that, even after the Supreme Court’s decision in MedImmune Inc. v. Genentech Inc., 549 US 118 (2007), the Federal Circuit is still going to require more than speculative harm before allowing a declaratory judgment to continue.  As such, mere marking of a patented product will not suffice as a sufficiently threatening to meet the declaratory judgment threshold according to the test outlined by the Supreme Court.  A decision otherwise would have forced patent owners into a difficult decision in regards to marking patented products: either forgo profits otherwise accrued under 35 U.S.C. § 287 by not marking the patented products in order to reduce the risk of a declaratory judgment, or mark products as allowed under 35 U.S.C. § 287 to obtain pre-litigation damages and risk the declaratory judgment action.  By confirming that mere marking of patented product does not provide grounds for a declaratory judgment action, the Federal Circuit confirmed that mere compliance  with 35 U.S.C. § 251 does not represent a serious enough threat to all competitors to warrant a declaratory judgment.  As such, merely advertising the existence of a patent, whether by marking or by describing the patent in a press release, does not represent grounds for a competitor to obtain a declaratory judgment.


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