Patent Law Blog (Patently-O)

Declaratory Judgment: Personal Jurisdiction over Foreign Patent Holder

Autogenomics v. Oxford Gene Tech (Fed. Cir. 2009) 08-1217.pdf

The opposing viewpoints of Judges Newman and Moore continues to be seen in Federal Circuit decisions. This appeal arrived at the Federal Circuit after the Central District of California district court dismissed the case for lack of personal jurisdiction over the declaratory judgment defendant (and patent holder) Oxford Gene Technology.Writing for the majority, Judge Moore (joined by N.D. Ill. Judge Gettleman sitting by designation) affirmed the judgment. Judge Newman wrote in dissent.

Even in patent cases, a federal court's personal jurisdiction over parties is based on state boundaries. Here, the case was filed in a federal court sitting in California. When a defendant challenges personal jurisdiction, the court must consider two general factors: (1) whether the forum state’s long-arm statute permits service of process and (2) whether assertion of personal jurisdiction would violate due process." Most states have extended their long-arm statutes to the bounds of due process. Thus, the question collapses to a consideration of the US Constitutional as applied at the geographic state boundaries.

The Constitutional limits of due process can be met by either showing general personal jurisdiction (based on continuous and systematic contacts with the state) or specific personal jurisdiction (based on a defendant's activities in the state that relate to the cause of action.)

Focusing on specific personal jurisdiction, this case is in some ways a repeat of the court's 2008 Avocent holding that a patentee's efforts at commercialization are irrelevant to the specific jurisdiction question. Rather, the minimum contacts for specific jurisdiction must relate to "only enforcement or defense efforts related to the patent." Thus, although Oxford has licensed its patents to several California companies, those licenses do not work toward a finding of specific personal jurisdiction over the foreign company.

DJ Jurisdiction over a Non-US Company: Both the majority and dissent expressed concern that foreign patent holders may often fly under the radar in such a way that no US court would have personal jurisdiction. Of course, the patent statute deals with that potential eventuality. For a non-US patent holder, the District of Columbia Federal Court has jurisdiction "to take any action respecting the patent or rights thereunder" to the same extent "that it would have if the patentee were personally within the jurisdiction of the court." 35 USC 293.

Section 293 makes an exception for non-US patent holders who designate a US person to receive process. The statute does not indicate that such designation serves as consent to personal jurisdiction in the person's home location. However, cases have held that designating a US process agent under Section 293 operates as consent to personal jurisdiction. See In re Papst Licensing, 590 F. Supp. 2d 94 (D.D.C. 2008).

Section 293 reads as follows.

Every patentee not residing in the United States may file in the Patent and Trademark Office a written designation stating the name and address of a person residing within the United States on whom may be served process or notice of proceedings affecting the patent or rights thereunder. If the person designated cannot be found at the address given in the last designation, or if no person has been designated, the United States District Court for the District of Columbia shall have jurisdiction and summons shall be served by publication or otherwise as the court directs. The court shall have the same jurisdiction to take any action respecting the patent or rights thereunder that it would have if the patentee were personally within the jurisdiction of the court.

In the past year, about 11 patent infringement cases were filed in DC District Court.

Federal Circuit Finds DJ Jurisdiction Even After Time-Limited Covenant Not To Sue

Revolution Eyewear v. Aspex Eyewear (Fed. Cir. 2009)

After several years of litigation, the patentee-plaintiff Revolution delivered a covenant not to sue to Aspex. The covenant was limited to the asserted patent and to activities prior to dismissal of the action. The district court dismissed the case, but Aspex did not let go. The accused infringer wanted assurances that it could continue selling the accused version of its eyeglass design without worrying about future charges of infringement.

In the appeal, Judge Newman agreed that a case or controversy continues to exist and that under MedImmune, the district court still retains jurisdiction. In the backdrop, the Newman was careful to differentiate this case from those where an accused defendant may be hoping to seek a speculative judicial opinion on future product lines:

This case is of larger substance than merely a would-be competitor seeking to test the waters by way of an advisory judicial opinion on an adverse patent....These parties are already in infringement litigation initiated by the patentee, the case has been pending since 2003, and already has produced a summary judgment of invalidity (which was later vacated by this court, 175 Fed. Appx. 350); the patentee filed its covenant in 2007, after four years of litigation, on the eve of trial of the question of enforceability. Throughout this period the accused eyewear were removed from the market by Aspex, and would not be shielded by the covenant should it be returned to the market, as Aspex states is its intention. Aspex states, and Revolution agreed at the argument of this appeal, that it is reasonable to believe that Revolution will again file suit should Aspex return to this market with the same product as it previously sold. By now barring the counterclaims that have been pending since 2003, Aspex states that this court would enable the “scare-the-customer-and-run” tactics that were deplored in Arrowhead.

Dismissal Reversed. On remand, the lower court retains subject matter jurisdiction over the declaratory judgment counterclaims.

Federal Circuit Finds Personal Jurisdiction Over Declaratory Judgment Defendant

Campbell Pet Co. v. Theresa Miale & Ty-Lift Ent. (Fed. Cir. 2008)

Ms. Miale holds two patents relating to stretchers for carrying injured animals her company (a partnership with her mother) sells products based on the patents.

The issue in the case is one of personal jurisdiction – whether the Federal Court sitting in Washington State has sufficient power over the patentee and her company to adjudge Campbell’s declaratory judgment action.

The facts are that Ty-Lift sold several thousand dollars worth of equipment to Washington residents, opened its internet website to Washington residents, and Ms. Miale even demonstrated the product at a Convention in the state.  While there, Miale and her mother “confronted several Campbell employees” and accused them of infringing Miale’s patents.  They also allegedly asked the convention director to remove the Campbell products and told customers of the infringement.

The district court originally dismissed the case – finding that Miale’s contacts were not sufficient for either general jurisdiction or specific jurisdiction.  

“[T]he [district] court found that the defendants had purposely engaged in transactions in Washington during the three-day convention in June 2007, and the court found that the cause of action for a declaratory judgment of patent noninfringement and invalidity arose from or was connected with those transactions. However, relying on our decision in Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 2003), the court found that due process considerations barred the court from exercising personal jurisdiction over the defendants based on the activities at the June 2007 convention in Seattle.

The district court noted that the notion of “fair play and substantial justice” should “afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum.”

On appeal, the Court of Appeals for the Federal Circuit reversed – finding that constitutional due process considerations of International Shoe do not bar the suit.  For the Federal Circuit, “sending letters to another state” is not sufficient to satisfy the requirements of due process and thus personal jurisdiction – even if those letters threaten litigation.  Here, the facts asserted show more than simply “attempts to inform.”

“Of critical importance to the issue of personal jurisdiction, Ms. Miale’s attempts at “extra-judicial patent enforcement” were targeted at Campbell’s business activities in Washington and can fairly be characterized as attempts to limit competition from Campbell at the Seattle convention.”

Reversed: The district court does have the power to hear this case.

 

 

Potential of Extending Exclusive Generic Period by Delaying Generic Launch Does Not Create Actionable Harm

Janssen Pharmaceutica v. Apotex, Inc (Fed. Cir. 2008)

Like most of today's pioneer-generic drug patent battles, this case involves multiple parties all looking for some advantage in the end-game battle over exclusivity.

Three JANSSEN patents are listed in the FDA orange book as covering its blockbuster anti-psychotic drug sold under the name Risperdal. ($2.5 billion in 2007 sales). TEVA was the first to challenge the patents and receives the Hatch-Waxman 180 days of generic market exclusivity. APOTEX came later and hoped to shorten TEVA's clock by invalidating the patents. The Federal Circuit, however, rejected APOTEX case – finding no declaratory judgment jurisdiction. In particular, the court saw no case or controversy between APOTEX and JANSSEN. (APOTEX wanted to shorten TEVA's rights).

TEVA had challenged only two of the three JANSSEN patents. On June 29, 2008, the unchallenged patent expired and the next day the FDA approved TEVA's generic application. To date, however, the generic company has apparently not yet launched. TEVA's 180 day clock will not be triggered until either (1) it launches its generic alternative or (2) the other two patents are found invalid by a court. If the court invalidates the JANSSEN patents, then TEVA's 180 days will end sooner – allowing APOTEX to enter the market at an earlier date. (TEVA's 180 days would have been triggered even earlier if APOTEX had successfully challenged the third patent (the '663 patent). It instead agreed that the '663 patent was valid.). To get out of the case, JANSSEN promised not to sue APOTEX on the other two patents.

On appeal, the three judge panel (CJ Michel, J Moore, and J Rader) recognized the harm APOTEX was feeling – but decided that the harm was not sufficient for declaratory judgment jurisdiction.

"[W]e conclude that the harm that has continuously existed in the present case—Apotex's inability to launch its generic product immediately upon the expiration of the '663 patent—is not sufficient to give rise to declaratory judgment jurisdiction."

What are they talking about?: This decision involves a multi-billion dollar drug and APOTEX – a leading generic provider – would be in a position to obtain at least millions in generic sales by launching sooner. Furthermore, the harm to APOTEX is not just waiting more than the 180 days, but also in giving TEVA more time to solidify its generic market position down the road. YET, the court concludes that the harm is "not sufficient to give rise to declaratory judgment jurisdiction."

Head in the Sand: It turns out that the court based its ruling on facts developed before we knew that TEVA would delay its launch:

"We heard oral arguments in this case on July 7, 2008, approximately a week after Teva could have launched its generic product. However, we are not deciding whether the facts alleged on July 7, 2008—the date we heard oral arguments—give rise to a justiciable Article III case or controversy. We hold that at the time when the district court entered final judgment in this case, Apotex's alleged harm of indefinite delay of approval was too speculative to create an actual controversy to warrant the issuance of a declaratory judgment"

The CAFC is probably correct that when the lower court made its decision months ago, the harm – TEVA's potential delayed marketing after expiration – was too speculative to support DJ jurisdiction.

Now that TEVA's delay is no longer speculative, APOTEX may well be able bring suit to invalidate the JANSSEN patents. However, that result is merely my own speculation.

The Multi-Factor Test for Declaratory Judgment Jurisdiction in Patent Cases

Cat Tech LLC v. TubeMaster, Inc. (Fed. Cir. 2008)

Cat sued TubeMaster — alleging infringement of its patent covering a method of using a catalyst loading devices to simultaneously load thousands of tube reactors.  Cat’s infringement allegations were focused on one particular TubeMaster commercial configuration. During the litigation, TubeMaster filed a counterclaim for declaratory relief that its other three configurations did not infringe. On appeal, the CAFC first looked to see whether the district court had proper jurisdiction over the declaratory relief counterclaims.

In MedImmune, the Supreme Court rejected the Federal Circuit’s “rigid” two prong test for DJ jurisdiction that required that the DJ plaintiff (1) have a reasonable apprehension that the patentee will file suit and (2) conduct “meaningful preparation” to conduct potentially infringing activity.  The MedImmune decision eliminated the first prong — finding the that the “reasonable apprehension” test excluded at least some actual “cases and controversies” under Article III of the U.S. Constitution. 

New Multi-Factor Test for Declaratory Judgment Jurisdiction: In Cat Tech, the Federal Circuit found that the second prong of “meaningful preparation” is still intact — at least as a factor working to determine whether a dispute is immedate and real.

“[T]he issue of whether there has been meaningful preparation to conduct potentially infringing activity remains an important element in the totality of circumstances which must be considered in determining whether a declaratory judgment is appropriate. . . . If a declaratory judgment plaintiff has not taken significant, concrete steps to conduct infringing activity, the dispute is neither ‘immediate’ nor ‘real’ and the requirements for justiciability have not been met.”

From this decision by Judge Mayer, it appears that the new test for DJ jurisdiction has moved from two prongs to a broader “totality of the circumstances” under the umbrella of a “fundamental inquiry” of “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.”  (quoting MedImmune). Meaningful preparation toward potential infringing activity is important (but perhaps not a required element) in this fundamental inquiry because actual steps taken toward infringement are indicators of both “immediacy and reality.”

On the facts of this case, the CAFC found “meaningful preparation” toward each product was sufficiently shown by “AutoCAD drawings for each of its four configurations”; successful manufacture of one of the configurations; being ready to deliver products under any configuration “within a normal delivery schedule” after receiving an order; and because the company “does not expect to make substantial modifications to its loading device designs once production begins.”

Finally, although also a factor in the analysis, the fact that TubeMaster had not created any sales literature or begun advertising its alternate configurations did not negate the immediacy and reality of the controversy.

Affirmed.

Threatening Letters to Infringer's Clients Are Not Actionable Unless "Objectively Baseless" (Although They Will Create DJ Jurisdiction)

GP Industries v. Eran (Fed. Cir. 2007)

Eran makes “leakproof” rain gutter covers. Several Eran employees were fired during the summer of 2005.  Those individuals reorganized as GPI — a potential competitor to Eran. As a preemptive strike, Eran mailed letters to its distributors and contractors noting that GPI’s planned to sell a competitive product that infringed Eran’s patent.

After GPI filed for declaratory judgment, the district court (Nebraska) granted GPI’s motion for a preliminary injunction — stopping Eran from “(1) seeking to prevent GPI from making and selling its gutter products during the pendency of this litigation and (2) making vague and unspecified allegations of infringement against GPI in the marketplace.”

On appeal, the CAFC reversed — finding that the preliminary injunction had been improperly granted.

The party seeking a preliminary injunction has the burden of showing: “(1) a reasonable likelihood of success on the merits; (2) irreparable harm; (3) a balance of hardships in its favor; and (4) public interest in favor of the injunction.” Once granted, a preliminary injunction will only be vacated for clear error.

Injunction against Communications: Based on First Amendment rights and 35 U.S.C. § 287 (notice), injunctions relating to communications must pass a higher hurdle. In particular, “bad faith” is required in order to bar communications.

“One has a right to inform others of his or her patent rights. See 35 U.S.C. § 287. Thus, an injunction against communication is strong medicine that must be used with care and only in exceptional circumstances.”

In Globetrotter Software, the CAFC held that “bad faith” communications require “objectively baseless claims.”  Notably, these determinations are based on federal law that preempt any state laws that may be less strict.

Here, the CAFC found that Eran’s statements could not be “objectively baseless” since the lower court had noted the real potential that Eran would eventually succeed on the merits of the case.

Preliminary Injunction Reversed

Notes:

• Hovey Williams of Kansas City, Missouri represented the patentee, Eran.
• Kirton & McConkie of Salt Lake City, Utah represented the accused infringer.

V-Chip Declaratory Judgment Patent Case Reinstated by CAFC

Sony Electronics v. Guardian Media (Fed. Cir. 2007).

Guardian holds several patents for blocking naughty TV shows based on program classification codes. In 1999, Guardian sent a “notice of patent infringement” to Sony asserting that its V-Chip products “infringe the claims,” and later followed-up with a claim chart. Four years later, Guardian sent another letter offering to license its patents. After unsuccessful negotiations, Sony filed a declaratory judgment action in the Southern District of California — alleging non-infringement, invalidity, and unenforceability.

On motion, the district court dismissed the suit for lack of declaratory judgment jurisdiction — finding no actual controversy as required by the Constitution. In particular, the court noted that Guardian had not threatened to sue and the circumstances did not imply a threat of immediate suit. The court then went on to hold that even if jurisdiction existed it would use its discretion to decline hearing the case because (1) the question of jurisdiction is “close” and (2) it appears that the DJ plaintiffs are using the case as a negotiation tool rather than as a means to settle the dispute.

Particular Adverse Positions => DJ Jurisdiction: On appeal, the CAFC determined that an actual controversy certainly existed between Sony and Guardian at the time of the complaint. The parties had taken particular adverse positions regarding infringement and validity (associating particular claims with particular products; requesting a particular amount of money; arguing whether particular prior art references demonstrated particular claim elements). The facts of this dispute make it “manifestly susceptible of judicial determination.” (quoting 300 US 227 (1939)).

In short, because Guardian asserts that it is owed royalties based on specific past and ongoing activities by Sony, and because Sony contends that it has a right to engage in those activities without a license, there is an actual controversy between the parties within the meaning of the Declaratory Judgment Act.

Discretionary Dismissal: The Declaratory Judgment Act allows a court “substantial discretion” not to hear cases even when there exists an actual controversy. However, here, the CAFC found that the lower court’s two reasons for declining to hear the case were arbitrary and thus insufficient. Specifically, the question of jurisdiction is not a close call as the lower court had determined — rather it was only close because of an error of law. Additionally, the CAFC could not discern any “affirmative evidence” of plaintiffs’ nefarious reasons for filing suit.

Vacated and remanded to determine whether there may be other reasons for discretionary dismissal.

Notes:

• Four other DJ plaintiffs had similar experiences and are discussed in the decision.

Declaratory Judgment Jurisdiction Denied in Biotech Research Patent Case

Benitec Australia v. Nucleonics (Fed. Cir. 2007)

Benitec’s infringement suit against Nucleonics was derailed by several factors. Perhaps most critically, the Supreme Court’s Merck v. Integra decision expanding the research exemption of 271(e)(1) left Benitec with no viable infringement claim. Benitec voluntarily dismissed its claims against the defendant Nucleonics and also issued a covenant not to sue for Nucleonics current activities. (Covenant submitted within its appeal opposition brief).

In the meantime, Nucleonics had filed declaratory judgment counterclaims — asserting invalidity and unenforceability.  Nucleonics wants the patent invalidated to remove any investor concerns regarding future products.  On appeal, the CAFC determined whether DJ jurisdiction still exists in this case.

The Supreme Court’s jurisdiction requires “a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune.

DJ jurisdiction clearly existed at the time of filing. However, when the controversy disappears, so does jurisdiction. Here, the CAFC found that the controversy was gone and that Nucleonics “future work” was too speculative and might not be infringing anyway.

We also recognize that Nucleonics wishes to receive the benefit of a ruling on the validity and scope of Benitec’s patent now, while Nucleonics undertakes any nascent animal work. There is currently, however, no “substantial controversy, between [Benitec and Nucleonics], of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, 127 S. Ct. at 771. And there may never be. Although Nucleonics lost the appeal, it certainly won a major victory by forcing Benitec to issue a covenant not to sue.

Dismissal affirmed.

In Dissent, Judge Dyk would have allowed the DJ case to continue:

Supreme Court precedent requires that, if a patentee files an infringement lawsuit and the particular claim of infringement is mooted, a counterclaim for invalidity should not be dismissed unless the patentee demonstrates that there is no possibility of a future controversy with respect to invalidity. See Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 98 (1993). In my view, Benitec made no such showing.

Notes:  

• Sitting by designation, Judge Whyte penned the opinion. This is only the second CAFC opinion where a judge sitting by designation cast the deciding vote, and is the only CAFC case where a judge sitting by designation penned an opinion and another judge dissented.  The N.D. California IP Bar has often called for Judge Whyte’s appointment to the CAFC. This opinion my provide some guidance as to his potential jurisprudential conduct.
• Although formally a loser, Nucleonics’ appeal forced Benitec into issuing a covenant not to sue — a major litigation victory.

Supreme Court: Licensee in Good Standing May File Declaratory Judgment

MedImmune v. Genentech (Supreme Court 2007).

Declaratory judgment (DJ) actions are often used by potential defendants to obtain a declaration that a patent is invalid, unenforceable, or not infringed.  Under Federal Circuit law, a licensee cannot challenge a patent without first breaching the license.  The CAFC's reasoning was that a licensee in good standing feels no apprehension of suit since the license is essentially a settlement between the parties. Without an apprehension of suit, the DJ action would not rise to an actual controversy as required by the Constitution.

In a broadly worded opinion, the Supreme Court has scrapped the Federal Circuit's "reasonable-apprehension" test on declaratory judgment standing in favor of a rule that allows licensee's in good-standing to file DJ actions.

We hold that petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed.

There are several things to note immediately:

Not Limited to Patents: This case at least extends to all licensing issues and likely to most contracts -- whether or not they involve patents or intellectual property.

Suggested Contractual Work-Around: Reading between the lines, the opinion may indicate that a contractual "prohibition against challenging the validity of the patents." may serve to block challenges by licensee's in good standing. Without the clause, however, the Court found no such prohibition:

To begin with, it is not clear where the prohibition against challenging the validity of the patents is to be found. It can hardly be implied from the mere promise to pay royalties on patents

Regarding apprehension of suit, the Opinion's footnote 11 is a complete divergence from common practice -- finding that a licensee who pays royalties either in fear of an injunctions or for fear of treble damages is being coerced in a way that creates an Article III case or controversy.

Links:

• Download MedImmune.pdf
• Briefs filed in MedImmune v. Genentech;
• CAFC Decision in MedImmune v. Genentech;
• CAFC Decision in MedImmune v. Centocor;
• MedImmune Petition Granted;
• Lear v. Adkins;
• Professor Miller’s comments;
• Supreme Court on the March;
• Supreme Court docket sheet.