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Seeking a Declaratory Judgment? Walk, Don't Run, to the Courthouse

James Juo, Esq.

(originally published in the Los Angeles Daily Journal on July 8, 2009)

After the Supreme Court's recent decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), a "reasonable apprehension of suit" is no longer required for an accused infringer to initiate a declaratory judgment action involving a patent. Although MedImmune articulated a more lenient legal standard for the availability of declaratory relief in patent cases, there must still be a "case or controversy" where the circumstances show that there is a substantial controversy of sufficient immediacy and reality between parties having adverse legal interests to warrant the issuance of a declaratory judgment.

An actual and concrete controversy based on the actions of the respective parties is necessary to support subject matter jurisdiction for declaratory judgment. Subject matter jurisdiction for declaratory judgment generally will not arise merely on the basis that a party learns of the existence of a patent or even perceives that a patent poses a risk of infringement since there is no actual controversy. But if the patentee asserts that the declaratory plaintiff has no right to continue selling an accused product, then there would be an actual controversy based on the adverse positions taken by the parties.

In Prasco LLC v. Medicis Pharmaceutical Corporation, 537 F.3d 1329 (Fed. Cir. 2008), the Federal Circuit noted that jurisdiction for declaratory judgment generally will not arise without some affirmative act by the patentee relating to the accused product. Here, the patentee Medicis was unaware of Prasco's product when Prasco filed for declaratory judgment. Because there was no actual controversy between the parties, Prasco's declaratory lawsuit was dismissed for lack of subject matter jurisdiction.

A party seeking declaratory judgment must establish that an actual controversy existed at the time its lawsuit was filed, and post-filing events cannot cure the jurisdictional defect of an unripe lawsuit. The declaratory plaintiff must establish that the pre-filing acts of the patentee created a definite, pre-existing patent dispute between the parties.

A claim for declaratory judgment also may be dismissed for lack of subject matter jurisdiction if the alleged patent controversy is the result of acts that were not authorized by the patentee. Courts consistently have held that unless an agent has actual or apparent authority to assert claims of patent infringement or to initiate suit on the patentee's behalf, statements or other acts by the agent are insufficient to create an actual controversy. To have apparent authority, the appearance of authority must be created by the principal, not the agent.

An example of conduct by a person with actual authority that gives rise to declaratory judgment can be found in Capo, Inc. v. Dioptics Medical Products, Inc., 387 F.3d 1352 (Fed. Cir. 2004). Here, jurisdiction for declaratory judgment was based on statements from Dioptic's president cautioning Capo about "racing forward to infringement" and "charging down a path here that's going to end up into a multi-million dollar lawsuit." There was no dispute that the company's president had the authority to assert claims of patent infringement and initiate suit against a competitor.

On the other hand, in Boler Company v. Raydan Manufacturing, Inc., 415 F. Supp. 2d 896 (N.D. Ill. 2006), a charge of patent infringement made by a lower-ranking employee was insufficient to support jurisdiction for declaratory judgment. Here, a marketing manager for Raydan allegedly approached the Boler booth at the trade show, pointed to one of Boler's products and said, "That's where you are violating our patent." The marketing manager, however, had no responsibility for determining whether a competitor's product infringed Raydan's patents, nor did he have any authority to make claims of patent infringement or to initiate suit on Raydan's behalf, and it was not objectively reasonable to conclude otherwise. Instead of contacting Raydan's management to discuss any potential patent conflict between the parties, Boler filed a complaint for declaratory judgment. The court, however, dismissed the declaratory lawsuit because Raydan's marketing manager did not have actual or apparent authority to create an actual patent controversy between the parties.

Where a sales manager, or someone else who is unlikely to have the authority to assert patent infringement, accuses a competing company of infringing a patent, it may be premature for that company to rush out and file a declaratory judgment action without first establishing whether these statements were actually authorized by the patentee. Otherwise, proceeding on little more than speculation, the declaratory plaintiff risks dismissal for lack of a concrete case or controversy. This would also apply to where a company receives a hearsay report from one of its customers about infringement claims made by an unidentified salesperson of a competitor. Such uncorroborated and anonymous statements generally should not provide a basis for dragging a patentee into court for declaratory judgment.

If the company nonetheless files a declaratory judgment action, it could be subject to dismissal under Rule 12(b)(1) for lack of subject matter jurisdiction. And even if a district court finds that there is subject matter jurisdiction, according to the Supreme Court in Wilton v. Seven Falls Co., 515 U.S. 277 (1995), the court still has the discretion to decline jurisdiction for declaratory judgment subject to considerations of practicality and wise judicial administration. As noted by the 7th Circuit in Tempco Electric Heater Corp. v. Omega Engineering, Inc., 819 F.2d 746 (7th Cir. 1987), the wholesome purpose of declaratory acts would be aborted by its use as an instrument of procedural fencing either to secure delay or to choose a forum in a race to the courthouse. The 9th Circuit in Government Employees Insurance Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998), noted that in addition to whether the declaratory action is being sought merely for the purposes of procedural fencing, other pertinent considerations include the convenience of the parties, and the availability of other remedies.

This is not to say that a competing company would have not have options for resolving the situation. For example, as suggested by the Boler court, the company could engage in a direct dialogue with the patentee regarding the possible controversy between the parties. If there was a misunderstanding, or if it was an unauthorized statement, steps could be taken by the patentee to avoid a reoccurrence. In this instance, there would be no actual controversy for purposes of declaratory judgment. Should similar threatening statements continue to be made to the company's customers afterward, however, an inference could be made that, in the totality of the circumstances, these are in fact authorized statements creating an actual controversy to support jurisdiction for declaratory judgment.

When confronted with allegations of patent infringement from sources of questionable authority, one should refrain from racing to the courthouse for declaratory relief. Instead, the facts should be investigated, which may include opening a dialogue directly with the patentee regarding the patent and any perceived controversy. A determination then can be made as to whether there is a proper jurisdictional foundation under the totality of the circumstances for declaratory relief.