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DJ Suit Should Not Have Been Dismissed

October 25, 2004

Decision icon Decision

Last Month at the Federal Circuit - November/December 2004

Judges: Newman (author), Lourie, and Dyk

In Capo, Inc. v. Dioptics Medical Products, Inc., No. 04-1045 (Fed. Cir. Oct. 25, 2004), the Federal Circuit ruled that a district court exceeded its discretionary authority in dismissing a DJ action. Dioptics Medical Products, Inc. (“Dioptics”) produces “wearover” sunglasses adapted to fit over or clip onto eyeglasses. Capo, Inc. (“Capo”) is a wholesale marketer of sunglasses and has been a customer and reseller of Dioptics’s products since 1988. In 2000, Capo developed its own wear-over sunglasses and was preparing to market the product. When Dioptics learned of Capo’s intentions, it informed Capo that it had several patents and would vigorously enforce its patents against infringers, but that it wished to avoid a legal dispute with a valued customer. The presidents of the two companies had several other exchanges, and Dioptics indicated that it would have no choice but to defend its patents against infringement.

Capo then filed its DJ complaint, seeking a declaration of noninfringement of fourteen Dioptics design patents. Dioptics moved to dismiss the DJ action, contending that it could not have threatened suit for infringement because Dioptics had not seen Capo’s product and no one had analyzed it for infringement of any Dioptics patents. Capo contended that it had definite conviction that Dioptics would sue it for patent infringement unless it withdrew its product from the marketplace. The district court found that the dispute was not sufficiently crystallized for a DJ action.

The Federal Circuit concluded that Dioptics’s threats were not aimed at negotiation but at impeding a competitor’s commercial activity. Its threats created the reasonable apprehension of suit in Capo. The Court rejected Dioptics’s argument that it had not adequately investigated Capo’s infringement, and concluded that Capo was not required to verify the extent to which the accuser had studied the accused product before acting to declare its commercial rights. Accordingly, the Federal Circuit ruled that the district court had erred in declining to find that Capo had a reasonable apprehension of suit.