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Threats by Patent Holder Warranted Anticipatory DJ Action

January 05, 2005

Decision icon Decision

Last Month at the Federal Circuit - February 2005

Judges: Lourie (author), Rader, and Gajarsa

In Electronics for Imaging, Inc. v. Coyle, No. 04-1266 (Fed. Cir. Jan. 5, 2005), the Federal Circuit vacated a district court decision that had dismissed a DJ action for lack of controversy.

Electronics for Imaging, Inc. (“EFI”) makes print controllers on an original equipment manufacturer basis for several printer manufacturers. Although incorporated in Delaware, EFI’s principal place of business is in Foster City, California. Jan Coyle, a Nevada resident, is a listed inventor on U.S. Patent Nos. 6,337,746 (“the ‘746 patent”) and 6,618,157 (“the ‘157 patent”). Daniel Kolbet owns Kolbet Labs and is also a coinventor listed on both patents. Both Coyle and Kolbet reside in Nevada.

After Coyle first contacted EFI concerning licensing of its patents, they met under a nondisclosure agreement. But, EFI left the meeting uninterested in Coyle’s technology. Several years later, the parties met again under a new nondisclosure agreement to discuss possible licensing arrangements, but those talks also ended without any agreement. In June 2001, Coyle discovered that certain EFI products would fall within the scope of certain claims in Coyle’s pending patent application. In September 2001, Coyle notified EFI of the situation, and he increased the pressure to license as the months rolled on. In December 2001, EFI’s General Counsel traveled to negotiate an agreement to purchase or license Coyle’s technology. Coyle purportedly threatened EFI with an ultimatum, warning that December 15, 2001, was the deadline to pay and if a deal did not get done, he would litigate. Once again, negotiations between the two parties broke down. On December 11, 2001, EFI sued Coyle and Kolbet Labs, seeking a DJ that EFI did not breach the two nondisclosure agreements or misappropriate any trade secrets. After Coyle’s ‘746 patent issued, EFI amended its complaint that same day to assert noninfringement and invalidity of the patent. Coyle moved to dismiss the complaint for lack of personal jurisdiction, which the Court granted.

In a previous appeal, the Federal Circuit reversed the district court’s dismissal and remanded the case, because the district court had erred by applying Ninth Circuit law on personal jurisdiction to the patent-invalidity claim. On remand, the district court considered Coyle’s argument that EFI failed to comport with the objectives of the DJ Act (“the Act”). The district court determined that EFI’s DJ suit did not serve the objectives of the Act but was merely anticipatory, designed to preempt Coyle’s suit, and to secure EFI’s own choice of forum.

The Federal Circuit concluded that EFI’s request for DJ satisfied the purpose of the Act, which is to provide an allegedly infringing party relief from uncertainty and delay regarding its legal rights. The Court observed that when a party is threatened, there are many uncertainties, such as whether one will have to incur the expense and inconvenience of litigation, and how it will effect the threatened party’s customers, suppliers, and shareholders. The mere fact that Coyle had stated a deadline for the negotiations to be concluded did not deprive EFI of its right to sue before that deadline. EFI was not required to await suit by Coyle. Moreover, given that the Federal Circuit favors the first-to-file rule in the absence of circumstances making it unjust or inefficient, the mere fact that EFI’s suit was anticipatory of a suit by Coyle was not controlling. Accordingly, the Federal Circuit reversed the district court’s dismissal and remanded the case for further proceedings.