Federal Circuit Finds Cease and Desist Letters Do Not Establish Personal Jurisdiction Over a Patentee

In Radio Systems Corporation v. Accession, Inc., 98 U.S.P.Q.2d 1485 (Fed. Cir. 2011), Accession, Inc. is the owner of U.S. Patent No. 7,207,141 (“the ‘141 patent). The ‘141 patent is directed to a portable pet access door (the “Widget”) that can be inserted into sliding glass doors. The company is a New Jersey corporation with its principal place of business in Hamilton, New Jersey. Accession’s sole employee is its president and inventor of the Widget, Thomas Sullivan. Continue reading Federal Circuit Finds Cease and Desist Letters Do Not Establish Personal Jurisdiction Over a Patentee

Federal Circuit Finds Declaratory Judgment Not Available Against Field of Use Licensee Where Patent Owner Could Not Be Joined

In A123 Systems, Inc. v. Hydro-Quebec, 626 F.3d 1213 (Fed. Cir. 2010), Hydro-Quebec (HQ) is a licensee of U.S. Patent Nos. 5,910,382 and 6,514,640, which are owned by the Board of Regents for the University of Texas System (UT).  The license gives HQ an exclusive license within a specified field of use.  HQ had threatened suit against A123 for infringement of these patents, whereby A123 filed a Declaratory Judgment against HQ in the District of Massachusetts claiming non-infringement on August 14, 2006.  HQ moved to dismiss alleging that UT was a necessary party and could not be joined due to Eleventh Amendment immunity, and filed its own suit with UT in the Northern District of Texas.  A123 further filed a reexamination request for the patents, which resulted in the Texas action being stayed and the Massachusetts was dismissed without prejudice while the reexamination continued.  On conclusion of the reexamination, A123 motioned to reopen the Massachusetts action, which HQ opposed on the grounds that the Massachusetts action would be dismissed for failure to join UT as a necessary party.  The District Court denied’ A123’s motion, agreeing with HQ that the Massachusetts action would be dismissed and yielded jurisdiction to the later-filed action in the Northern District of Texas.

On appeal, A123 argued that the license conferred sufficient rights to HQ as to not require the joinder of UT, and further, that Rule 19 of the Federal Rules of Civil Procedure would allow the suit to continue even without UT.  On the issue of the license, A123 noted that HQ had held itself as an exclusive licensee having the right to enforce the patents, and had even brought suit against another party, Valence Technology, Inc. as this exclusive licensee.  In response, HQ argues that the suit against Valence Technology was within its exclusive field of use, and even assuming arguendo that HQ had made incorrect assertions about its rights, such assertions do not affect UT’s actual rights under the license.  The Federal Circuit agreed with HQ, noting testimony confirming that the license allowed UT the right to license in other fields of use, and that HQ’s statements in the other suit were consistent with this interpretation.  As such, since HQ did not receive all substantive rights in relation to the technology at issue with A123, A123 could not bring a Declaratory Judgment action against HQ without the participation of UT.

Having decided that UT was a necessary party, the Federal Circuit noted that UT could not be forced to join the Massachusetts action due to the sovereign immunity conferred by the Eleventh Amendment in light of College Savings Bank v. Florida Prepaid Postsecondary Education, 537 U.S. 666 (1999).  While A123 had relied upon a market participation theory, the Federal Circuit confirmed that this theory was rejected by the Supreme Court and by Federal Circuit precedent even where the same subject matter was brought by the state in another forum.  As such, despite being a necessary party, UT could not be joined in Massachusetts without its consent.

A123 next argued that Rule 19 allows a suit to be maintained despite the non-joinder of a necessary party except where party is indispensible, and that the District Court had not specifically found UT to be indispensible.  In reviewing this argument, the Federal Circuit noted that the court is required to review with to allow a suit to proceed without a necessary, but not indispensible, party.  Dainippon Screen Mfg. Co., Ltd. v. CFMT, Inc., 142 F.3d 1266, 1272 (Fed. Cir. 1998); Vaupel Textilmaschi-nen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 876 n.1 (Fed. Cir. 1991).  The factors as to whether a party is indispensible are set forth in Rule 19(b) as follows:

[T]he court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed. The factors for the court to consider include:

(1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties;

(2) the extent to which any prejudice could be lessened or avoided . . . ;

(3) whether a judgment rendered in the person’s absence would be adequate; and

(4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.

 

Citing to In re Olympic Mills Corp., 477 F.3d 1, 8-9 (1st Cir. 2007), A123 largely contended that only the first factor was relevant, and in weighing the first factor in favor of A123 was warranted as both UT and HQ share a common goal in defending the patents, and therefore there would be no prejudice to UT should it not be joined.  In rejecting this argument, the Federal Circuit first noted that the District Court did address the first factor, and noted that both parties did not have identical interests since HQ’s interest was in ensuring a claim construction that was consistent with its field of use, whereas UT’s interest was for the entire patent.  Thus, there was a risk to UT which was not ameliorated by the similar, but not identical, interests of HQ versus UT.

The Federal Circuit also reviewed the record and noted that the plaintiff, A123, does have an adequate remedy based upon the Texas action as all defenses available in Massachusetts would also be available in the Texas action to which UT had waived its sovereign immunity.  Thus, on balance, the Federal Circuit found that the Rule 19(b) weighed in favor of UT being labeled an indispensible party, and affirmed the dismissal on those grounds.

Significance for Technology Companies

While the Supreme Court’s decision in MedImmune, Inc. v. Genentech Inc., 549 U.S. ___; 81 USPQ2d 1225 (2007) did broaden the standard for bring declaratory judgments, it is apparent that this standard remains confused where a sovereign entity is involved.  While some courts have allowed suits to be maintained where the Federal Government refused to be joined under Rule 19 as in Sourceone Global Partners LLC. V. KGK Synergize, Inc., Civ. Case No. 08 C 7403 (N.D. Il. May 13, 2009), A123 Systems shows that Rule 19 does not always allow such suits to be maintained where the non-joining sovereign is amendable to suit in another jurisdiction.  Thus, prior to bringing such a declaratory judgment action involving a sovereign actor, plaintiffs need to account for the uncertainties involved in Rule 19 in case the sovereign entity refuses to be joined.

 

Federal Circuit finds Covenant Not to Sue Divests Court of Jurisdiction Where Basis of Declaratory Judgment Was Invalidity

In Dow Jones & Company, Inc. and Dow Jones Reuters Business Interactive, LLC v. Ablaise LTD. and General Inventions Institute A, Inc., Docket No. 09-1524 (Fed. Cir. May 28, 2010), Ablaise LTD. (Ablaise) owns U.S. Patent No. 6,961,737 (the ‘737 patent) and No. 6,295,530 (the ‘530 patent).  Both patents claim methods for a Web server to send individualized content and formatting instructions in the form of Web pages that are generated on the fly in response to user preference information encoded in the user’s HTTP request for the specific Web page.

In 2006, Ablaise accused Dow Jones & Company,  Inc. (Dow) of infringing its ‘737 and ‘530 patents and simultaneously offering Dow a licensing agreement.  Dow refused, and sued saying both patents were invalid and not infringed.  Abliase counterclaimed for infringement on both patents.  The district court rejected Abliase’s motion to dismiss Dow Jones’ invalidity claim against the ‘530 patent and found the ‘737 patent as invalid due to obviousness in view of U.S. Patent No. 5,675,507 (“Bobo”) and the general knowledge in the field.

On appeal, the Federal Circuit first addressed whether a supposed covenant offered by Abliase, in which Abliase agreed not to sue Dow for infringement of the ‘530 patent, was sufficient to divest the district of subject matter jurisdiction over the declaratory judgment of invalidity.  The District Court noted that since Super Sack Manufacturing Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1060 *(Fed. Cir. 1995), a covenant not to sue for patent infringement divests the trial court of subject matter jurisdiction over claims that the patent is invalid, because the covenant eliminates any case or controversy between the parties. Intellectual Prop. Dev., Inc. v. TCI Cablevision of Calif., Inc., 248 F.3d 1333, 1342.

The District Court found the rule in Super Sack Manufacturing Corp. to be inapplicable for “sound prudential reasons,” and for “reasons of the efficient utilization of the litigation resources of both bench and bar.” Dow Jones & Co., Inc. v. Ablaise Ltd., 583 F. Supp. 2d 41, 44 (D.D.C. 2008).  The district court held that the two patents were close enough to be part of the same “case or controversy” under 28 U.S.C. 1367.  However, the Court of Appeals held that the district courts holding was contrary to jurisprudence, which remained valid after MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).  Thus, the covenant therefore extinguished any current or future case or controversy between the parties, and divested the district court of subject matter jurisdiction. Thus, the summary judgment for invalidity as to the ‘530 patent was reversed.

The second issue was whether the district court correctly granted Dow’s motion for summary judgment of invalidity on the ‘737 patent on the grounds that the asserted claims were obvious under 35 U.S.C 103.

In finding that ‘737 patent was obvious, the District Court rejected two of Abliase’s main arguments: that the combination of the HTML align image tag and the Bobo reference did not provide the same content in different formats; and that the there was a level of market skepticism with regards to the incorporation of the Bobo and HTML tags.

The District Court found that the ‘737 patent, which involved a modification incorporating location changing HTML tags into the Bobo prior art reference would have been straightforward and obvious to anyone of ordinary skill.  Any person of ordinary skill would have been aware that HTML tags affect content location on a Web page.  The Federal Circuit affirmed.  Specifically, the Federal Circuit noted that Ablaise admitted that “an artisan of ordinary skill would have been aware that HTML tags affect content location on a Web page” and that the incorporation of such into the Bobo reference  would have been straightforward.  Further, there was evidence of market need to include personalization features such that there was evidence of a reason to make the combination.

With regards to the second argument, the Federal Circuit also affirmed the District Court as none of the evidence that Ablaise provided addressed actual skepticism by outside parties concerning the invention of dynamically generated personalized web pages.  Thus, the secondary indicia of nonobviousness relied upon by Ablaise did not overcome the evidence of obviousness relied upon by the District Court in finding the ‘737 patent obvious.

Northern District of Illinois Finds That Declaratory Judgment Action Available Against Private Sector Owner of Patent Owned in Common with Government

In Sourceone Global Partners LLC. V. KGK Synergize, Inc., Civ. Case No. 08 C 7403 (N.D. Il. May 13, 2009), KGK Synergize (“KGK) is an assignee of U.S. Patent No. 6,987,125 (the ‘125 patent), which generally relates to a nutritional supplement for lowering cholesterol.  The ‘125 patent was invented by Najla Guthrie, Elzbieta Kurowska, John Manthey, and Robert Horowitz pursuant to a partnership between the Department of Agriculture and KGK.  Pursuant to the partnership agreement, Mr. Mathaney and Mr. Horowtiz assigned their rights to the Federal Government, and Ms. Guthrie and Ms. Kurowska assigned their rights to the KGK.  KGK later exclusively licensed their interest in the ‘125 patent to Sourceone Global Partners (Sourceone) for the purpose of making and selling Sytrinol.  The Government is not a signatory to this license.

Subsequently, Sourceone developed on its own Cholesstrinol, which Sourceone believed did not infringe the ‘125 patent and therefore was not subject to the royalty provisions of the license.  KGK sent threatening letters to Sourceone’s partners, suppliers, and customers indicating that Cholesstrinol infringed a number of patents, including the ‘125 patent.  In response, Sourceone filed a Declaratory Judgment Action alleging, among other issues related to tortuous interference with contracts, that Cholesstrinol does not infringe the ‘125 patent and that the ‘125 patent was invalid.

KGK moved for dismissal of the Declaratory Judgment Action as to those claims related to the ‘125 patent since the ‘125 patent is co-owned by the Federal Government.  As any judgment resulting from the Declaratory Judgment Action affecting the validity of the ‘125 patent will affect a property owned by the Federal Government, the Declaratory Judgment Action violates the Federal Government’s sovereign immunity to Declaratory Judgment Actions. In essence, KGK’s position was that any patent commonly owned by a private party and the Federal Government could not be the subject of a Declaratory Judgment Action to the same extent that a Declaratory Judgment Action cannot lie against a patent wholly owned by the Federal Government since Rule 19 requires joinder of the Federal Government in such situations.

In disagreeing with KGK, Magistrate Judge Schenkier found that the court retained subject matter jurisdiction over the Declaratory Judgment Action since the mere fact that one owner enjoys sovereign immunity does not affect the liability of the remaining owners. In reaching this decision, the court first acknowledged that Rule 19 does not require joinder since KGK is a co-owner of the patent.   In this manner, the court distinguished the situation from the situation in Enzo APA & Son, Inv. V. Geapag A.G., 134 F.3d 1090 (Fed. Cir. 1998) where the failure of a join the patent owner prevented a Declaratory Judgment Action since the non-exclusive licensee who was actually sued lacked standing to bring suit.  Since KGK was a co-owner, KGK was not in the same situation as a non-exclusive licensee and therefore could be the subject of a Declaratory Judgment Action without the remaining co-owners.

The Court further noted that the failure to join a party is not a matter of subject matter jurisdiction, but instead falls within the joinder requirements of Rule 19.  While Rule 19 requires joinder of indispensible parties and the parties agreed that the Government is an indispensible party, Rule 19(b) provides an exception where the court determines, according to a set of four factors, whether “in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Quoting Rule 19(b).

In applying the exception, the court noted that it needed to balance the harm against the missing party should the action proceed as compared to the harm against the party opposing dismissal.  According to this balance, the court found that there was greater harm in dismissing the action to Sourceone than there was harm to the Federal Government in forcing dismissal under Rule 19 for failure to join an indispensible party. 

In applying the first factor, the Court cited to the Federal Circuit’s decision in Dainippon Screen Mfg. Co. v. CFMT, Inc. 142 F.2d 1266 (Fed. Cir. 1998) for the proposition that, in the case of a licensee who is sued under a Declaratory Judgment Action, Rule 19(b) should allow the suit to proceed where the interest of the licensee is aligned with the interest of the patent owner.  In Dainippon, CFMT was the licensee of a patent, and patent was owned by the parent of CFMT.  In the same way, while the Government had argued that its interest in the ‘125 patent would be prejudiced should the Declaratory Judgment Action proceed and the ‘125 patent be found invalid, the Court found that there was no action of adverse interests between the coowners of the ‘125 patent.  As such, this alignment of interest indicated that the first factor weighed heavily in favor of maintaining the suit.

After finding the second and third factors were also in favor of Sourceone, the court applied the fourth factor, which considers whether Sourceone would have an adequate remedy outside of the Declaratory Judgment Action.  The court found that there was no alternative remedy available should the action be dismissed.  Specifically, while KGK noted that the Government can be sued under 28 U.S.C. §1498 for patent infringement, there was no allegation of Government infringement.  Moreover, since the Court of Federal Claims can only grant money damages under 28 U.S.C. §1498, there would be no available remedy for Sourceone should a Declaratory Judgment Action be filed under 28 U.S.C. §1498. Therefore, 28 U.S.C. §1498 failed to provide a remedy.  Thus, the court held that, while KGK and the Government “see no unfairness in requiring Sourceone to wait until they together decide to sue Sourceone before Sourceone can raise its invalidity and noninfringement defenses” as KGK continues threatening infringement against Sourceone and its partners, when viewed from the perspective of equity, the court “failed to see how the public interest is advanced by allowing a private patentee such as KGK that kind of unreviewable sway in exercising its patent rights.”   Thus, the fourth factor also weighed heavily in favor of maintaining the suit.

Therefore, the court found that merely because the Federal Government could not be joined under Rule 19, Rule 19(b) provided an exception which allowed the Declaratory Judgment Action to continue.

Significance for Government Licensed Patents

Sourceone demonstrates that co-ownership of a patent does not always require joinder of all owners for purposes of declaratory judgment actions, and that even where joinder is others necessary, an exception is available.  Thus, merely because one owner enjoys sovereign immunity does not mean that the remaining owners enjoy the same immunity.  However, the situation in Sourceone is relatively unique.  Unanswered is the question of what would have happened if the patent is not commonly owned with the Government.  In the more typical situation, the Government will license the patent and it is the licensee who, with authority to bring suit in its own name, sends such letters which can result in a declaratory judgment action.  In this situation, the result may well not be the same.  For instance, unless the license is fully paid up, the interests of a licensee is not exactly the same as that of the patent owner since the licensee may want to reduce royalties is owes. An example of this situation was recently demonstrated in MedImmune, Inc. v. Genentech Inc., 549 U.S. 118 (2007).  Further, since all licenses for Government patents, even exclusive ones, allow the Government to re-license the patent to others under limited circumstances as set forth in 37 CFR 404.5, the Government may be in a position to terminate a suit by negotiating a deal directly with the accused infringer in limited circumstances.  Therefore, unlike the situation in  Sourceone, the parties’ interests are not wholly aligned and the Government may well be required for maintaining a declaratory judgment action in order to ensure that public assets are adequately protected.  Therefore, while declaratory judgment actions appear more viable against private parties who own patents commonly with the Government, the same may not be possible for exclusive licensees of Government owned patents.

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.

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.

Federal Circuit Finds Declaratory Judgment Possible During Licensing Negotiations

In SanDisk Corp. v. STMicroelectronics Inc., 82 USPQ2d 1173 (Fed. Cir. 2007), STMicroelectronics sent a letter to SanDisk regarding possible cross-licensing.  The letter explicitly discussed a license and did not make an explicit reference to contemplated litigation.  The letter instead listed twelve patents that “may be of interest.”  SanDisk responded that both STMicroelectronics and SanDisk would continue “friendly discussions” relating to the technology, and SanDisk and STMicroelectronics met multiple times to discuss the licensing offer and issues.  During an August 27, 2004 meeting, the STMicroelectronics indicated that the meeting was characterized as settlement discussions under Federal Rules of Evidence 108 such that any discussions therein would not be considered evidence.  Significantly, no confidentiality clause was included in the discussions.

In the August 27, 2004 meeting, STMicroelectronics gave a package to SanDisk detailing the products covered by STMicroelectronics’ patents, with detailed claims analysis.  STMicroelectronics’ counsel acknowledged that the package was sufficiently detailed as to be sufficient to start a Declaratory Judgment.  While delivering the package, STMicroelectronics’ counsel stated that no suit was contemplated.  In response, SanDisk responded that no suit was going to be filed “on Monday,” and that further meetings “might be appropriate.”

STMicroelectronics followed up with a confidential copy of the potential cross license.  SanDisk did not reply to the letters substantively, but instead requested non-confidential versions be provided.  STMicroelectronics followed up with another confidential copy of the potential cross license.  While business representatives were trying to arrange additional meetings, SanDisk filed a Declaratory Judgment in the Northern District of California.  No formal termination of the licensing meetings was ever given.

The District Court dismissed for lack of subject matter jurisdiction since SanDisk could not have had an objective reasonable apprehension of suit.  On appeal, the Federal Circuit reversed, citing the Supreme Court’s recent decision in MedImmune, Inc. v. Genentech Inc., 549 U.S. ___; 81 USPQ2d 1225 (2007).  The Federal Circuit set forth a new rule:

In the context of conduct prior to the existence of a license, declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee. But Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do. (82 USPQ2d 1173, 1179-1180)

Under facts, STMicroelectronics requested a royalty for patents, mapped potential infringing products to the patent claims, and delivered materials that were acknowledged to form the basis of a declaratory judgment.  Further, the Federal Circuit found that the parties had clear positions on a concrete issue: SanDisk’s believed its right to use products without royalty; and STMicroelectronics believed it had a right to royalties for those products.  As such, consistent with the Supreme Court’s decision in MedImmune, SanDisk did not need to “bet the farm” by formally terminating licensing negotiations prior to bringing Declaratory Judgment.

While the Federal Circuit noted that there were multiple statements that STMicroelectronics was not going to bring suit, STMicroelectronics’ actions plainly indicated preparations were made for some form of enforcement.  As such, based upon the totality of the circumstances, STMicroelectronics’ actions and the existence of clear and contrary positions of the parties were sufficient to satisfy both the case and controversy requirement of Article III of the constitution and the requirements of the Declaratory Judgment Act, 28 U.S.C. § 2201(a).  As such, the Federal Circuit reversed the District Court’s decision.