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CAFC Issues Opinion on Declaratory Judgment Actions

Posted Wednesday, April 11, 2012 by Mike Gibbons

The Court of Appeals for the Federal Circuit (CAFC – read more about the CAFC here) last month issued a ruling having to do with declaratory judgment actions in patent cases. The suit being heard on appeal was 3M Company v. Avery Dennison Corp., in which Avery Dennison (“Avery”) held a patent it believed 3M may have infringed.

Avery, the patentee, was not the plaintiff in the case. In a patent infringement case, often the suit is brought by the holder of the patent, who files a complaint naming another party as a defendant and claiming the other party infringed the patent. However, that is not the only manner in which patent litigation may be started.

Say, for example, that a party is selling a product. Another party holds a patent (we may call this party the patentee) which the patentee believes is being infringed by the product sold by the first party. Rather than file a patent infringement lawsuit, the patentee might instead get in touch with the seller of the purportedly-infringing product (we can call this party the purported-infringer) regarding the patent.

In such instances, the purported-infringer, believing they do not actually infringe the patent, might initiate a lawsuit of their own seeking a legally-binding ruling that they have not infringed the patent. Such a suit is called a declaratory judgment action.

Declaratory judgment actions (“DJ actions”) are not unique to patent law, but in general, in a DJ action a party who would be a defendant if sued actually brings suit first seeking a declaration that they are not liable to the other party. A primary benefit to the party that initiates a DJ action is that the party can get the lawsuit going in the venue of their choosing. Considering that the parties might be geographically located on opposite sides of the country, one can see that it would be more convenient to be in court locally. Starting the lawsuit in your own district courthouse rather than being named a defendant in a suit across the country can be beneficial for a variety of reasons. DJ suits are permitted by Federal law under the Declaratory Judgment Act, 28 U.S.C. §2201(a), which permits such actions “in a case of actual controversy.”

The term “actual controversy” stems from Article III of the U.S. Constitution, which grants judicial power in various “cases and controversies,” including “all cases … arising under … the laws of the United States,” of which U.S. patent law is included. However, what constitutes an “actual controversy,” under which circumstances litigation may be launched, can be a tricky question.

If a patentee sends a certified letter to a purported-infringer including a copy of a patent, a page from the purported-infringer’s catalog with a picture of a product for sale, and a cover letter unequivocally stating, “your product infringes our patent, and you must stop selling it or we will sue,” commentators would likely agree that presents a set of facts under which a declaratory judgment action could be brought. The US Supreme Court concurs, stating if “a party has actually been charged with infringement of the patent, there is, necessarily, a case or controversy adequate to support [declaratory judgment] jurisdiction.” Cardinal Chem. Co. v. Morton Int’l, 508 U.S. 83, 96 (1993).

But what if the patentee merely calls the purported infringer, and meekly says, “it is possible something you sell might infringe a patent we hold?” Would that justify the recipient of the phone call in immediately going to court and filing suit against the caller seeking a legal opinion that they don’t infringe? What does a patentee need to have done to have established a controversy sufficient for the other party to initiate a declaratory judgment suit?

That question is the crux of the 3M v. Avery Dennison appeal. Avery had a patent which they believed 3M might be infringing. Avery, located in Washington, had contacted 3M, of Minnesota, regarding 3M’s product and the patent held by Avery. The result of the contact was that 3M felt it in their best interest to initiate a DJ action, seeking a judgment that 3M was not actually infringing the Avery patent, among other things. 3M filed suit in the United States District Court for the District of Minnesota, which would be much preferable to 3M rather than to have Avery file a suit in the Western District of Washington or some other venue.

The District Court dismissed the case upon a motion to dismiss by Avery. Among the reasons for the dismissal was that the matter had not yet become “a case of actual controversy” for which a lawsuit could be heard. In other words, the matter was non-justiciable. It didn’t present a set of facts capable of being ruled upon by a court of law. (In a motion to dismiss, the court assumes all the facts alleged by the non-moving party are true. If, even given all those facts assumed true, there is not enough of an injury for a ruling in favor of the non-moving party to be possible, the case will be dismissed.)

What were the alleged facts that led 3M to seek the DJ action, and which the District Court felt created insufficient grounds to permit a suit to proceed? Here, the Chief Intellectual Property Counsel of Avery was alleged to have phoned the Chief Intellectual Property Counsel of 3M. Avery’s counsel allegedly said the 3M product “may infringe” the Avery patent and that “licenses are available.” The allegations in the complaint continued that two days later, 3M’s counsel called Avery’s counsel back, refused to take the license that had been offered, and asked if there was any new information Avery could provide that might cause 3M to revisit its decision. Avery said it had claim charts analyzing the purportedly-infringing product vs. the patent claims, and said it would send them to 3M. Avery never actually sent the charts. A little more than a year later, 3M started the DJ action.

While the District Court felt that the content of the phone calls and the offer to send claim charts, even if true, still didn’t justify 3M in filing the suit, the CAFC didn’t necessarily agree. Writing for the 3-judge panel, Judge Lourie wrote that, if the alleged facts were true, “Avery effectively charged 3M with infringement.” It wasn’t enough for Avery to go light, telling 3M the patents “may infringe” instead of “do infringe” to prevent 3M from filing the DJ action. Rather, the words “may infringe” in conjunction with the offer to license and the statement that claim charts would be forthcoming would be sufficient for an “actual controversy” to exist.

For that reason, the CAFC vacated the order dismissing the case, and remanded the case to the District Court for a determination of whether the facts alleged by 3M were true, in order to make a proper trial court judgment of whether the case should be dismissed or permitted to go forward.

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