Creative Compounds v. Starmark Labs (Fed. Cir. 2011).
Creative and Starmark compete in manufacturing and selling the body-building supplement dicreatine malate. Both also hold patents that cover aspects of the supplement. Starmark's Patent No. 7,109,373 claims a genus of creatine salts and methods of making the salts; Creative's Patent No. 7,129,273 has a narrower set of claims directed to dicreatine malate and methods of administering that compound. In the lead-up to litigation, Starmark's predecessor-in-interest (SAN) first sent a letter to supplement buyers to advise the industry of its patent. Creative then sent similar letter to buyers identifying its own patent and also noting its belief that the SAN patent was unenforceable. Starmark itself was not formed until two months after Creative sent its letters.
Although both parties held patents, Creative started the lawsuit with a declaratory judgment complaint seeking a judgment that Starmark's '373 patent was invalid and not infringed. In its answer/counterclaim, Starmark alleged infringement of its '373 patent and also demanded a declaratory judgment that it did not infringe Creative's '273 patent.
A court's subject matter jurisdiction over a declaratory judgment complaint requires that the requested judgment relate to an actual, substantial, immediate and adverse legal controversy between the parties. See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). A DJ defendant (i.e., the patentee) generally waives objection to jurisdiction when it files an answer with a cross-allegation of infringement. Here, however, Creative was able to successfully challenge the court's jurisdiction because it did not allege infringement of its own patent.
In many ways, this case is a level-of-abstraction problem. Clearly the parties compete in the market place and for buyers and they hold potentially overlapping patents that have been linked in correspondence with third parties. However, the court focuses its attention on the more narrow question of whether there is a case-or-controversy surrounding the '273 patent so as to allow the court to hold jurisdiction over a declaratory judgment action seeking to invalidate that patent.
In its decision, the Federal Circuit came to the interesting conclusion that Creative's seemingly threatening letter could not be seen as any accusation of infringement against Starmark because Starmark was formed as a legal entity by SAN after the letters were mailed.
Here, Creative never accused Starmark of infringing its ’273 Patent. While Creative did send letters to purchasers of dicreatine malate alleging that dicreatine malate would infringe claims of the ’273 Patent, none of these letters were sent to Starmark. To the extent Starmark contends those letters were sent to its customers, this contention rings hollow when the letters were sent to SAN’s customers in August 2006 and Starmark was not formed until October 2006. In the absence of an indemnity agreement between Starmark and one of these "customers," Starmark has, at most, only an economic interest in clarifying its customers’ rights under Creative’s patents. Such an economic interest alone, however, cannot form the basis of an ‘actual controversy’ under the Declaratory Judgment Act. Thus, the district court lacked declaratory judgment jurisdiction over the ’273 Patent.
The court also made clear that the “competing patent” scenario does not tend to create jurisdiction with regard to the opposing party's patent unless the the legal claim being sought is akin to an interference proceeding.
Readers may notice that these declaratory judgment rulings appear to follow a formalistic approach that make a distinction without explaining the importance. For instance, it appears that the “late” formation of Starmark had very little practical impact because the new company was a subsidiary that involved the same individuals, the same products, and same market structure as the predecessor company.
The decision also affirms the lower court summary judgment ruling that Creative infringed the '373 patent and that the patent was not invalid. It does not appear that Creative appealed the permanent injunction.
Anthony Roberts has some background information on the parties. [Link]