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A Patentee’s Dismissal of Its Infringement Claims May Destroy the “Immediacy and Reality” Required Under the Declaratory Judgment Act for Jurisdiction over Counterclaims of Invalidity or Unenforceability

06-1122
July 20, 2007
Casp Ph.D., Courtney B.

Decision icon Decision

Last Month at the Federal Circuit - August 2007

Judges: Rader, Dyk (dissenting), Whyte (author, District Judge sitting by designation)

[Appealed from: D. Del., Judge Farnan, Jr.]

In Benitec Australia, Ltd. v. Nucleonics, Inc., No. 06-1122 (Fed. Cir. July 20, 2007), the Federal Circuit affirmed the district court’s dismissal of Nucleonics, Inc.’s (“Nucleonics”) DJ counterclaims against Benitec Australia, Ltd. (“Benitec”) for lack of subject matter jurisdiction.

Benitec sued Nucleonics for infringement of U.S. Patent No. 6,573,099, which relates to RNA-based disease therapy known as RNA interference (“RNAi”) gene silencing. Nucleonics moved to dismiss Benitec’s complaint for lack of jurisdiction and for failure to state a claim upon which relief can be granted, arguing that its allegedly infringing activities were directed toward developing and submitting information to the FDA and were thus exempted from infringement under 35 U.S.C. § 271(e)(1). The district court denied this motion, but without prejudice to reconsideration depending upon the outcome of the Supreme Court’s review of Integra Lifesciences I, Ltd. v. Merck KGaA, 331 F.3d 860 (Fed. Cir. 2003). Subsequently, Nucleonics filed a motion to amend its answer, seeking to add DJ counterclaims of invalidity and unenforceability based on alleged inventorship fraud. The district court granted this motion.

In June 2005, the Supreme Court issued its holding in Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005), regarding the pharmaceutical research exception of § 271(e)(1). Benitec then moved to dismiss its complaint against Nucleonics without prejudice, asserting that it had no presently viable infringement claim in view of Merck. The district court granted Benitec’s motion to dismiss without prejudice and dismissed Nucleonics’s counterclaims for lack of jurisdiction under the DJ Act, 28 U.S.C. §§ 2201-02. Nucleonics appealed the dismissal of its counterclaims. In its appeal brief, Benitec “covenant[ed] and promis[ed] not to sue Nucleonics for patent infringement arising from activities and/or products occurring on or before the date dismissal was entered in this action—September 29, 2005.” Slip op. at 4.

The Federal Circuit evaluated Nucleonics’s jurisdiction claim in accordance with the standards articulated by the Supreme Court in MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007). The Court noted that in MedImmune, the Supreme Court rejected its “reasonable apprehension of imminent suit” test for determining DJ jurisdiction and that under MedImmune, the question is “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Slip op. at 6 (quoting MedImmune, 127 S. Ct. at 771). The Court also noted that “[t]he burden is on the party claiming declaratory judgment jurisdiction to establish that such jurisdiction existed at the time the claim for declaratory relief was filed and that it has continued since.” Id. Applying these principles, the Federal Circuit held that DJ jurisdiction existed at the time Nucleonics filed its counterclaims because Benitec’s patent infringement claims were still pending. The Court, however, held that there was no DJ jurisdiction over Nucleonics’s counterclaims at the present time.

The Court observed that both parties have taken the position that in light of Merck, Nucleonics’s activities related to the human medical application of RNAi are not infringing, and cannot become infringing until Nucleonics files a new drug application with the FDA. The Court noted that Nucleonics does not even anticipate filing a new drug application before “at least 2010-2012, if ever.” Id. at 10. Based on these facts, the Court held that Nucleonics’s activities of developing and submitting information to the FDA related to human application of RNAi did not constitute a case or controversy of “sufficient immediacy and reality to warrant declaratory judgment jurisdiction” over its counterclaims. Id. The Court also relied on the fact that Benitec made its covenant and sought dismissal of its infringement claim after it concluded that Merck precluded an infringement claim based upon the activities of Nucleonics on which Benitec had instituted its suit.

Nucleonics also argued that it planned to expand its use of RNAi technology into the field of veterinary products and that such use would not be exempted under § 271(e)(1). As evidence of its intent, Nucleonics submitted a declaration from its president in which he stated that Nucleonics had entered into discussions with a supplier regarding future use of its technology for animal husbandry and veterinary products. The Court, however, found that these discussions did not meet the “immediacy and reality” requirements of MedImmune. In reaching this conclusion, the Court noted there was no evidence that Nucleonics had made or sold the infringing product, nor was there a definite offer made to the supplier. The Court also noted that Nucleonics did not present sufficient evidence to assess whether or not the future animal work could also fall under the § 271(e)(1) exemption. In addition, the Court noted that although Benitec originally argued that animal testing for human use was infringing activity, it had now concluded that such testing falls within § 271(e)(1)’s protection. Accordingly, the Court concluded that Nucleonics had not made a showing of “sufficient immediacy and reality” to support DJ jurisdiction. Id. at 16.

Judge Dyk dissented. He agreed with the majority that a case and controversy must exist at all stages of the litigation, but in his view, a different test for determining whether there is a case or controversy applies when the allegation of infringement is withdrawn during the course of litigation. Specifically, he opined that Supreme Court precedent requires that, “if a patentee files an infringement lawsuit and the particular claim of infringement is mooted, a counterclaim for invalidity shouldnot be dismissed unless the patentee demonstrates that there is no possibility of a future controversy with respect to invalidity.” Dyk Dissent at 1 (citing Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 98 (1993)). According to him, Benitec made no such showing. In addition, he reasoned that there is a strong public interest in permitting accused infringers to challenge invalid or unenforceable patents and that the DJ Act plays an important role in facilitating such challenges by preventing patent holders from threatening enforcement while avoiding litigation that might render the patent invalid or unenforceable. He concluded that “[t]he effect of [the majority’s] decision is to limit the availability of declaratory jurisdiction to challenge invalid and unenforceable patents by allowing patentees to moot such controversies by dismissing the original infringement action and covenanting not to bring suit on existing products, without any showing that the controversy will not recur in the future.” Id. at 11.