August 27, 2012
LES Insights
By John C. Paul; D. Brian Kacedon; Michelle Pacholec, Ph.D.
Declaratory-judgment actions allow companies facing allegations of patent infringement to proactively defend against the charges by challenging infringement, validity, and enforceability. The reach of a court's jurisdiction to hear these cases is limited, however, by Article III of the U.S. Constitution to actual "cases or controversies." Although the 2007 Supreme Court's decision in MedImmune, Inc. v. Genentech, Inc. expanded declaratory-judgment jurisdiction, a recent decision by a federal district court in New Mexico demonstrates that it is not unlimited. In General Protecht Group, Inc. v. Leviton Mfg. Co., although there had been an extensive controversy between the two companies, that controversy no longer existed after the patentee dismissed with prejudice its counterclaims of infringement (meaning it could not raise the claims again later). Consequently, the court held that it lacked declaratory judgment jurisdiction.
This case came to the district court following a long and contentious history of litigation between the parties, beginning in 2004 when Leviton sued GPG and its distributors for infringement of two patents for ground-fault circuit interrupters. In 2007, the parties reached a confidential settlement in which Leviton granted GPG (1) a license to the two patents at issue and 2) a covenant not to sue over the accused products and five anticipated new products. The settlement agreement also included a forum-selection clause, designating the District Court of New Mexico as the exclusive venue for all disputes relating to the agreement.
After the settlement, Leviton received two additional patents as continuations of its original patents. In 2010, Leviton filed complaints against GPG with the ITC and the Northern District of California alleging infringement of these two new patents. In response, GPG filed suit in the District Court of New Mexico, seeking a declaratory judgment of noninfringement and invalidity. GPG also sought a preliminary injunction to enforce the forum-selection clause and therefore prevent Leviton from litigating the dispute outside New Mexico. The district court granted the preliminary injunction, and on appeal, the Federal Circuit affirmed, clarifying that continuations of licensed patents are impliedly licensed unless there is "clear indication of mutual intent to the contrary." As a result, Leviton agreed to dismiss its claims of infringement.
In the District of New Mexico, the case centered on the threshold inquiry of the court's jurisdiction over GPG's declaratory-judgment claim. The court examined whether GPG's noninfringement claim (based on an implied license) was moot in light of Leviton's dismissal of its infringement counterclaims with prejudice.
Federal courts lack jurisdiction to decide moot issues. A claim becomes moot when the issue presented is "no longer 'live' or the parties lack a legally cognizable interest in the outcome." Because a court must have jurisdiction throughout the entirety of a case, a court will dismiss a case involving a declaratory-judgment claim that becomes become moot at any stage. In General Protecht, the parties did not dispute that the court had jurisdiction when GPG first filed its complaint. The issue related to whether Leviton's dismissal of its infringement counterclaim divested the district court of continued declaratory-judgment jurisdiction over GPG's noninfringement claim. Leviton argued that GPG's claim was necessarily moot, claiming there could be no "actual controversy" regarding infringement when Leviton had fully surrendered its rights to charge GPG with infringement. In Leviton's view, GPG was attempting to obtain an advisory opinion from the court on the scope of the implied license in the event GPG decided to make new products in the future. GPG, on the other hand, characterized Leviton's dismissal as "gamesmanship" aimed to avoid litigating the existence and scope of the implied license, which GPG argued was the source of an actual controversy sufficient to confer jurisdiction.
To decide the actual-controversy issue, the district court conducted a two-part inquiry: first determining the effect of Leviton's dismissal of its patent counterclaims and then analyzing the facts of the case to determine if an actual controversy supported continued jurisdiction. Because Leviton dismissed its infringement claims with prejudice, it would be barred from relitigating these claims in the future. The district court noted that, just as a covenant not to sue will moot an infringement controversy, so too should a prejudicial dismissal of infringement (which similarly bars a later infringement suit) moot a claim of noninfringement. The court focused almost exclusively on the factor of a "sufficiently immediate and a real future controversy" and ultimately decided none warranted continued jurisdiction.
Furthermore, the court responded to GPG's assertions that Leviton would continue to bring infringement actions against GPG's future products without a clear ruling by the court on the scope of the implied license. Reiterating the precept that an "actual controversy cannot be based on fear of litigation over future products," the district court stated that Leviton's potential future conduct was too speculative to support declaratory-judgment jurisdiction. Likewise, since GPG could not identify any "meaningful preparation" it had undertaken that might lead to a future infringement claim by Leviton, the court found no immediate controversy to support jurisdiction.
The district court also addressed its jurisdiction over Leviton's counterclaim of trade-secret misappropriation brought under Georgia state law. To avoid piecemeal litigation, patentees may join state-law claims with any related patent-lawclaim. In those instances, the court may exercise its supplemental jurisdiction over the related state-law claims. The test of relatedness requires that the claims derive from a "common nucleus of operative fact." The court determined that Leviton had failed to allege a sufficient factual relationship between the trade-secret and patent claims, and thus dismissed the former for lack of supplemental jurisdiction.
In its analysis, the court made clear that it might not have dismissed the counterclaims if Leviton had provided specific evidence about the alleged tradesecret misappropriation and its connection to the patent dispute. In other words, the court rejected the idea that both sets of claims fell within the parties' "overarching dispute" because that argument did not show a "common nucleus of operative fact" between the state and federal claims. In particular, a common nucleus would require specific details on the temporal, geographical, and motivational overlap between the trade-secret and patent disputes. The district court stated that its jurisdiction included only trade-secret misappropriation regarding the same products accused of infringement. Without details about the specific products giving rise to the trade-secret claims, the court could not connect those claims to the patent dispute and therefore dismissed Leviton's counterclaim for lack of jurisdiction.
In MedImmune, the Supreme Court replaced the Federal Circuit's "reasonable apprehension of suit" test with a more flexible "under all the circumstances" standard. But even under the broader, more permissive standard for declaratory-judgment jurisdiction, putative plaintiffs should keep in mind that patentees, such as the one here, may defeat challenges to a patent by giving up a right to claim infringement.
To ensure the largest possible benefit from such an outcome, declaratory-judgment plaintiffs considering future products should take care to allege specific evidence of "meaningful preparation" for those products. Doing so will force the patentee either to give up a claim to future infringement or to address the issue in the court of the plaintiff's choosing. Patentees, on the other hand, should remain mindful of the options for strategic abandonment of infringement claims against a particular party as a way of avoiding issues of patent invalidity.
Endnotes
1 The district court's General Protecht v. Leviton decision can be found at: http://www.nmcourt.fed.us/Drs-Web/view-file?unique-identifier=0004476536-0000000000.
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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