August 22, 2011
LES Insights
Authored by D. Brian Kacedon, John "Jack" A Kelly, and John C. Paul
Recent decisions from the Federal Circuit have clearly established that letters threatening an infringement suit sent to an entity are sufficient to allow that entity to bring a declaratory judgment action seeking to have the patent held invalid or not infringed. It has been less clear, however, whether letters sent only to customers of an entity would also support declaratory judgment jurisdiction in an action brought by that entity. In Creative Compounds, LLC v. Starmark Laboratories, No. 2010-1445 (Fed. Cir. Jun. 24, 2011)1, the Federal Circuit sheds some light on this question.
Creative Compounds, LLC ("Creative") and Starmark Laboratories ("Starmark") are competing manufacturers of creatine products. Creatine is an amino acid derivative naturally present in muscle tissue, and is often taken as a supplement by athletes seeking a non-steroidal means for improving athletic performance. Both Creative and Starmark sought patents for an improved creatine formulation, one derived from hydro-soluble creatine salts. Starmark's application, however, claimed the genus of possible creatine salts, while Creative's was narrower and only covered dicreatine malate compounds. Starmark's application had a dependent claim directed towards Creative's species.
Being the first to receive a notice of allowance, Starmark sent a letter to its dicreatine malate products customers, advising them of the existence of Starmark's recently allowed patent. Viewing its competitor's maneuver as a threat, Creative responded by mailing its own letters, advising those same customers of Creative's recently allowed patent on those specific compounds, and, through patent counsel, claiming that Starmark's patent was invalid based on Creative's work. Creative did not, however, send one of these letters to Starmark.
Eventually, Creative sought declaratory judgment that Starmark's patent was invalid and not infringed. Starmark counterclaimed, alleging infringement of its patent and seeking a declaratory judgment that Creative's patent was invalid. Ultimately, the district court granted summary judgment on both of Starmark's claims.
In determining whether the district court properly exercised declaratory judgment jurisdiction over Starmark's claim that Creative's patent was invalid, the Federal Circuit first considered the letters that Creative sent to customers in the industry, specially, those letters from Creative's patent counsel asserting that Starmark's patent was invalid in view of the work that gave rise to Creative's patent. Contrary to the district court's assertion that the dispute regarding Creative's patent and Starmark's patent "runs with the patents," the Federal Circuit found that the requisite actual controversy did not exist. In its letters, Creative never accused Starmark of infringing Creative's patent. And any threats against Starmark's customers would, at most, only affect Starmark's economic interest in clarifying its customers' rights under Creative's patent. This could not serve as the actual controversy required by the Declaratory Judgment Act. Moreover, without the threat of an infringement suit from Creative, Starmark could also not establish that there was an underlying legal cause of action affecting adverse interests of sufficient immediacy and reality to warrant issuance of a declaratory judgment—i.e., there was not a substantial controversy.
Interestingly, Starmark contended that a legal cause of action, sufficient to support declaratory judgment jurisdiction, could be made out under 35 U.S.C. § 291 regarding whether the parties' patents claim interfering subject matter. Unfortunately for Starmark, a district court lacks jurisdiction under § 291 unless an interference is established. And in this case, neither party established existence of an interference, nor sought adjudication of common claimed subject matter. In fact, Starmark took the exact opposite position, arguing that the subject matter was not-interfering in order to hold Creative to the higher burden of proof when adjudicating the validity of Starmark's patent. Thus, the Federal Circuit reversed the district court's holding of invalidity of Creative's patent, finding lack of jurisdiction due to the absence of a substantial controversy between the parties concerning an adverse legal—as opposed to economic—interest.
(1) Letters sent to customers—even if those letters threaten an infringement suit—probably do not establish an actual controversy sufficient for declaratory judgment jurisdiction. In Creative Compounds, the Federal Circuit confronted letters sent to nearly all of Starmark's customers, which suggested that products supplied by Starmark could be infringing, and undeniably claimed that Starmark's patent was invalid. In spite of this, the Court held that only Starmark's economic—as opposed to its legal—interests were implicated; thus, declaratory judgment jurisdiction was improper. A caveat should be added considering that the Court did question whether Starmark could have "customers" in light of the fact that it only began operations after Creative's letter. That notwithstanding, Starmark's CEO was the inventor named on Starmark's patent, and Starmark (or its predecessor) had enough ties to the industry to send similar letters to its eventual customers before Creative's letter. The fact remains that only Starmark's economic interests would be undermined in either case, so the bottom line remains that economic interests are insufficient for declaratory judgment jurisdiction.
(2) For an interference under § 291 to support declaratory judgment jurisdiction, the interference must be established. Although the situation may not frequently arise, the Federal Circuit did not discount the possibility that a declaratory judgment action could be supported based on the actual controversy of an interference. Rather, in order to make such a showing, either the existence of the interference must be established, or a party must seek adjudication of common claimed subject matter. Absent either of these two showings, however, Creative Compounds demonstrates the declaratory judgment jurisdiction based on an alleged interference is improper.
Endnotes
1The Creative Compounds decision: http://www.cafc.uscourts.gov/images/stories/opinions-orders/10-1445.pdf.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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