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Federal Question Jurisdiction in DJ Action Depends on the Character of the Threatened Action, Not the Character of the Defense

February 17, 2011

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Last Month at the Federal Circuit - March 2011

Judges: Rader, Lourie, Dyk (author)

[Appealed from: S.D. Tex., Judge Hoyt]

In ABB Inc. v. Cooper Industries, LLC, No. 10-1227 (Fed. Cir. Feb. 17, 2011), the Federal Circuit reversed the district court’s dismissal of a DJ action for lack of subject matter jurisdiction, holding that the case arose under patent laws, and that jurisdiction was conferred by 28 U.S.C. § 1338.

Cooper Industries, LLC and Cooper Power Systems, Inc. (collectively “Cooper”) own patents involving electrical equipment containing dielectric fluid.  Cooper sued ABB Inc. and ABB Holdings, Inc. (collectively “ABB”) for infringement based on ABB’s BIOTEMP dielectric fluid.  Cooper and ABB settled the lawsuit and entered into a nonexclusive licensing agreement that expressly excluded the right of any third party to make BIOTEMP.  ABB thereafter outsourced the manufacture of BIOTEMP to Dow Chemicals (“Dow”) and contracted with Dow to indemnify it against claims of infringement by Cooper.  Cooper wrote to ABB and Dow, stating that any outsourcing of the manufacture of BIOTEMP would be a material breach of the licensing agreement, and that Cooper would vigorously defend its patent rights.

ABB filed a DJ action seeking a declaration that it did not infringe any valid, enforceable claim of Cooper’s patents.  Cooper moved to dismiss for lack of subject matter jurisdiction.  The district court determined that ABB’s complaint was governed by state law because it depended exclusively on interpreting the terms of the licensing agreement, and granted Cooper’s motion to dismiss.

On appeal, the Federal Circuit held there was sufficient controversy surrounding infringement to warrant the issuance of a DJ.  The Court stated that a specific threat of infringement litigation is not required, and that Cooper’s warning letters to ABB and Dow indicated there was an immediate controversy as to infringement.  The Court noted that ABB had an interest in determining whether it would be liable for induced infringement, and whether it would be liable for indemnification based on Dow’s liability for infringement.  Regarding Cooper’s argument that there was no jurisdiction because ABB raised only a state law defense, the Court held that federal question jurisdiction is determined by the character of the threatened action, not the character of the defense.  The Court stated that “[t]he general rule . . . is that [DJ] jurisdiction exists where the defendant’s coercive action arises under federal law,” and that there was “no reason to depart from that general principle where the defense is non-federal in nature.”  Slip op. at 11-12.  The Court held that because Cooper’s action for infringement would arise under federal law, the district court had federal question jurisdiction over ABB’s DJ action, even if resolution of the case was dependent on ABB’s state law defense.  The Federal Circuit thus reversed the district court’s dismissal for lack of subject matter jurisdiction.


Summary authored by Corinne L. Miller, Esq.